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NZVIF's seed fund investment too early to predict returns, CEO Franceska Banga says

The government-backed New Zealand Venture Investment Fund says it's still too early to judge the performance of the Seed Co-Investment Fund, which backs early-stage firms alongside angel investors.

The NZVIF invested $5.4 million in the seed fund in the 12 months ended June 30, up from $5.2 million a year earlier, it said in a statement. That takes its cumulative investment to $29.93 million in 115 companies since the fund was set up in 2006. Some $61.5 million has been co-invested in the fund by 14 angel partners.

The fund's most recent success was the sale of local cloud-based computing firm GreenButton to Microsoft in May, which NZVIF chief executive Franceska Banga said at the time that it offered a "very healthy return" without being more specific. In the 12 months ended June 30, 2013, NZVIF sold investments worth about $207,000 through the seed fund, down from $989,000 a year earlier, according to its 2013 annual report. It sold seed fund investments worth $294,000 in the 2011 financial year.

Banga last week said it was too early to predict the fund's overall performance, with most of the companies at the early stage of their development.

"We have, however, seen some healthy returns from exits from HaloIPT and GreenButton," she said. "The rule of thumb is that most companies will fail, but a few very good performers will bring positive returns overall across a portfolio."

In May, Angel Association chairman Marcel van den Assum, who was also part of the successful sale of local software firm GreenButton, urged angel investors to broaden their portfolios if they wanted to improve their chances of a return, with too many backers relying overly on a small number of ventures.

NZVIF valued its seed fund investment at $19.39 million as at June 30, 2013, including $4.55 million impairment charges, according to its 2013 annual report. Of the 96 firms it had backed at the time, 26 were fully impaired.

The government has budgeted some $5.25 million for NZVIF to invest via the seed fund in the year ending June 30, 2015. A further $2.33 million was set aside to manage the operational costs of the venture investment and seed funds.

(BusinessDesk)

Comments and questions
10

"Franceska Banga said at the time that it offered a "very healthy return" without being more specific."

There is absolutely NO reason that NZVIF cannot release the Internal Rate of Return on these successful exits. It would not disclose confidential information and would give people an understanding what NZVIF considers to be healthy. Maybe even saying it was more than 40%pa would do ---- if it was.

In addition saying these are early stage companies etc is just fudging matters. The SCIF fund has been investing since 2006, a lot of these companies should be delivering results by now.

Maybe NZVIF wants to advise what the performance of the companies has been in blocks. Say the 27 companies invested up to 2009 - that is say for more than 5 years. That is plenty of time to see how things are going.

This is no difference to the VC or PE market, there are industry standard valuation processes to monitor performance. Or for the likes of Ice Angels, highlight the performance of their first $4m investment allocation, that must have been good if they have been funded further. Or is the performance poor and NZVIF just does not want to answer why they are backing groups that are not performing?

The overall performance of SCIF as reported by NZVIF's annual reports has been poor with no increase in value, in what should be a high yielding asset class.

Agree. They should be publish results by year invested. The early years should be seeing exits, follow on rounds or closures so should be easy to judge success.

I wonder if she had normal LP's whether that response would be suffient. If she was raising more funds from LP's she would be singing a different tune.

What a con

Normally roll out an overseas patter re time to exit etc

Reality is they shoved $ into every dog in town so expect well below international averages

They should be claiming back the funding when these companies are sold so it can be recycled to the next start up. Helps funding costs as well.

Doh

Guessing they dont want to be held accountable

Theses guys are the WINZ of startups - their sole metric is to spend............sorry invest..................

IF...this was real would tack all taxpayer grants on the side for recovery....................bit like student loans......................BUT its not + there some big + lots of the $100K's jobs in here

Cannot see any reason for this taxpayer fund to exist. The market for private investment into early stage tech companies is not broken. This is the last thing the government should be crying to fox.

I too wish that the metrics were published. Given that they are not it's sending a signal o everyone that performance has been poor.

But overall the story feels like "we were part of some very poor investments in the past, but things are getting better". While the past is the past, publishing proper LP-oriented metrics will mean that VIF and the government will be able to show progress from now.

The two most recent SCIF-compliant players, ArcAngels and Flying Kiwis, seem to get it and are starting well, while Sparkbox/GD1 (Greg Sitters basically) is the most aggressive in investing and have some goodies.

NZ needs more funds, a lot more. Credit to the government(s) for trying a few things, some great, some good, some not so good.
However this is something we need to sort out ourselves - investors will invest where they see returns, and that means funds and companies need to deliver.

(Punakaiki Fund is not a SCIF/VIF partner)

In the latest data fron NZVIF their investment in the angel sector was around $5.4m around 10% of the deals that their publication reported.

I would suggest that the deals that NZVIF reports would represent between 20-30% of the total market (very hard to get data), so NZVIF's investment represents only 2 - 3% of the total market. There seems to be little justification for their invovlement, especially when you realise that they have largely failed to invest in the more successful start-ups.

This programme probably costs the government $500k a year in admin and also the economic loss on their $30m investment portfolio.