August 15, 2020

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NZ government’s $300m venture capital fund seeks ‘unicorn’ tech companies

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The New Zealand government unveiled its $300 million Elevate NZ venture capital fund in Q1 of this year aimed at increasing the number of Kiwi technology “unicorns”.

The New Zealand economic development minister said that New Zealand has generally averaged around one new unicorn a year – a technology company with a market valuation of a billion dollars-plus. As more capital becomes available, we want to see more of these new companies emerging.

The Elevate NZ Venture Fund would make it easier for high-potential technology companies to raise money, according to the New Zealand finance minister.

He said they would need well-functioning capital markets to increase New Zealand’s productivity.

The New Zealand finance minister also stated the early-stage technology companies usually tend to struggle accessing capital which has limited them from achieving their potential.

His hope is for Elevate to blaze a trail which would encourage private investors to invest more in venture capital.

The aim is that, over time, private sector funds will take over the role, as we develop deeper capital markets in New Zealand.

New Zealand Growth Capital Partners would manage the fund, which was set up in 2002 as a $100 million venture capital to encourage development of high-potential technology companies.

Their performance would be monitored by guardians of the New Zealand Superannuation Fund.

Since its birth, The New Zealand Growth Capital has invested $173 million into 239 companies, going on to raise further billions from private investors.

The New Zealand Associate Finance Minister said that New Zealand Growth Capital Partners will run a fund-of-funds model.

Further stating that they have tasked the Superannuation Fund Guardians and New Zealand Growth Capital Partners with the goal of generating appropriate safety measurements, such as risk-adjusted returns that matches the private market’s commercial approach and will, over time, will be returned to the Government.

Mid-sized companies in the $2m to $15m annual turnover range were not well supported by New Zealand’s capital markets, although start-ups were able to get funding, Parker said.

NZVIF is hoping private funds exceed its own contribution; so, investors are asked to at least match the investment.

Elevate’s first investments will be made in around three months.

The venture capital fund managers will make predominantly Series A and B investments into early-stage high-growth New Zealand businesses.

Elevate NZ will recycle returns from early VC funds and reinvest that capital back into the market for a further 10 years, once the capital is allocated.

At least 70 per cent of the available capital will be invested into VC funds with a New Zealand connection. This means that they must have a local general partner and investment manager.

Elevate was first flagged with Budget 2019, when then-Economic Development Minister David Parker said his Government would address a “venture capital gap” by diverting $240m of NZ Super Fund money to a new $300m fund, which would also include $60m from NZVIF to create a new fund.

The Elevate Fund has already been successful in discovering “unicorns”.

The fund helped a start-up develop a photography app that uses ai to help professional photographers quickly edit their images.

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