Callaghan names six firms to run founder incubator services

Science and Innovation Minister Paul Goldsmith said "these successful applicants will significantly increase the extent of regional coverage"

Callaghan Innovation has signed up six firms to run founder incubator services in an effort to encourage more start-ups across regional New Zealand.

Among firms already getting Callaghan backing from the incubator pilot programme, The Icehouse, Soda Inc, Creative HQ, Building Clever Companies and ecentre have been awarded one- or two-year contracts to provide services centred around a start-up founder. Joining them is ZeroPoint Ventures, which pitches itself as a way entrepreneurs can find support rather than as an incubator, accelerator, venture fund or small business loan initiative.

The contracts will see Hamilton-based Soda partner up to deliver services in Bay of Plenty, Gisborne and Hawke's Bay, North Shore-based ecentre will cover Northland, and Wellington's Creative HQ will offer services in parts of the South Island, Science and Innovation Minister Paul Goldsmith said in a statement.

"These successful applicants will significantly increase the extent of regional coverage," Goldsmith said. "Our main cities are well-served by multiple incubators and accelerators, but it has been much more difficult for regional start-ups to gain access to the same services."

The government has been coming under heightened pressure to support the reinvigoration of regional economies heading into the September general election, with much of the nation's growth in recent years centred around the major centres.

Goldsmith also announced new business accelerator contracts for Callaghan with Flux Accelerator, Mahuki Accelerator, and Creative HQ's Lightning Lab.

The founder incubator contracts will sit alongside Callaghan's incubator pilot programme, which got a two-year funding extension after a review found it was taking longer for early investments to generate the returns needed for three privately-owned incubators to stand on their own feet.

(BusinessDesk receives assistance from Callaghan Innovation to cover the commercialisation of innovation.)

(BusinessDesk)


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I hope they are all signed up to public tracking of performance for participating companies.

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No mention of any achievements required

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"The founder incubator contracts will sit alongside Callaghan's incubator pilot programme, which got a two-year funding extension after a review found it was taking longer for early investments to generate the returns needed for three privately-owned incubators to stand on their own feet."

What a joke the government just needed to look at the results of the founder incubators, NZ Venture Investment Fund, angel groups, international experience to see that the tech incubators had no show of being self sufficient, and how long it actually took to commercialise technology in NZ and elsewhere.

Add to this the statement of immigration NZ about the Entreprenuer Visa where they are hoping that 10% are major successes, 80% contribute and maybe 10% fail. What planet are these guys on. Any policy can be justified if you have rose tinted glasses as to the outcomes - or use assumptions that are not based on reality.

About time the government got real about what they are doing in this space a bloody lot of money wasted with ZERO accountability on behalf of the providers.

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Anon for President of NZ.
The matter gets worse because government also needs to radically overhaul New Zealand’s beleaguered education system to produce people to generate ideas and have the gumption to do so.
As education investment is dwindled down to 5% of GDP does the government risk chucking capital at a very bad problem (to be seen to do something) and then be accountable for a bigger mess? They run a big risk because the hard-left-liberals cry foul at anyone who tinkers with a system that claims getting more people into increasingly lower grade qualifications is innovative and success. NZ has big problems.

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Further to above - in fact Callaghan only had to look at Powerhouse who have been effectively runnding a "tech" incubator for sometime. probably around 15 odd businesses that would meet the tech incubator criteria over that time and I suspect not one that is self sufficient, not one exit.

the stock market believes that Powerhouse will destroy value - share price well below the asset backing, but Callaghan know better - why?

Add in the fact that the founder incubators were supposed to be self sufficient after three years and are still being propped up 10 - 15 years later.

The problem of course for the government is that to pull the plug now would be the death of most of these organisations or at least their support for the early stage sector. An admission that they have failed.

At least with Zero Ventures they are trying a new groups to support with a different model.

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This clearly cements Vic Crone is out of her depth. After her 1000 meetings she comes up with this?

This is next level corporate welfare. It is trying to solve a problem that doesn't exist.

What are these too scared to give anything a go themselves suits going to tell someone from the regions to do? They dont need board structure, meetings about meetings, form filling sessions. They need SALES, nothing more. They know this already, they need to feed their families.

There are many successful businesses starting in the provinces, there always have, always will. I would say more new businesses starting per capita than any city in NZ. Its the heart of small business. A young man starting his own fencing business doesnt need to see a sap from Icehouse. He simply needs more farmers to give him work.

Life in the provinces is not made on spreadsheets and slideshows.

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O.Ventures - The managers name is 'Douche' and they say 'we help wannabe entrepreneurs'

Now there will be even more leaches trying to find businesses to sign up with them on some false hope so Vic Crone can give them some more hard earned tax payer dollars without any accountability

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Proof that the innovation industry business model is public money. Why doesn't the just Govt. just fund startups who have proven at least a business plan and undertaken some sort of validation , instead of forcing them into a room full of well paid consultants who never have, and probably never will, innovate anything.

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The fact that the tech incubator project did not meet expectations because of in my view very naive assumptions around how quickly you can commercialise technology just shows the total lack of business sense at Callaghan.

So not sure why we should trust then with grant funding.

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The founder incubators help companies with business planning and market validation as highest priorities.

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Not so sure those are the highest priorities of the founder incubators.

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This is WINZ for better postal codes

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The Icehouse/Ice Angels had an early exit overnight which is good to see.

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So out of 250 + companies they have worked with since the ealry 2000s how many really signifcant businesses have come out of that incubator?

Same question for the others.

Given that they are funded to develop global, high growth businesses my view of signifcant is probably revenues of more than $10m or valuation of more than $50m.

Plenty of examples of businesses that have been created in that time that never went near an incubator.

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Agree that many great companies have not come out of incubators - but also some good ones have - we don't have a monopoly on great startups - all we can focus on is the ones we back, the ones we invest and support - last year, we invested in 49 startups, 15 of which were new, the remaining follow-on investments. Some of the successful include M-Com (exited to FiServ); Adherium (listed on ASX); eBus (exited to IMD); Optima (exited to Intermedix); Inro (exited to Crown); IMU (exited to Oxford Metrics) and then the ones we remain in which are doing quite well - PowerbyProxi; Harmoney; Parrot Analytics; Tradify; Ask Nicely; Biomatters; Nyriad; Shuttlerock; 1Above; Designer Wardrobe; Snowball Effect; Texus Fibre; Fuel50; Qotient; 90 Seconds; Avertana; Sunfed Meats and Crimson Education. Of course there are a whole bunch that have not reached their potential or have just failed too.

We represent a part of the market - are we doing well? We think we are on track, the results suggest so - however, we are not happy, not satisfied and are continuing to push the boundaries in how we can support the startups we invest in to be successful and to create a return for the investment from our shareholder, from our partners like BNZ, Spark, AJ Park, Visa, Samsung, Microsoft, AWS, Simpson Grierson, Deloitte, Simmonds Stewart and from organisations like Callaghan Innovation & NZTE who help us with their connections and funding.

Tomorrow night we host one of our two major Demo Days of the year - for 11 startups pitching for investment, 3 of these are coming out of our Flux Accelerator, and 8 others from around NZ who will pitch - we open source this platform of 300+ investors as a result of knowing that the startups need this opportunity and also as part of the partnership with Callaghan Innovation to enable wider leverage and collaboration - that is a good outcome and return for NZ Inc.

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Andy thanks for this feedback, can you advise of the 24 companies you mentioned above how many were actually incubated by the Icehouse, verses had desk space at the icehouse verses invested in by IceAngels or one of your funds. I appreicate some might fall into more than one of the three categories.

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Our model has morphed over the years from incubation only in 2001 to incubation plus angel investment from 2003 to seed investing 2011 with GD1 and then more over the last couple of years with it being more integrated as a whole from seed to startup to growth stages.

Startups like M-Com, PowerbyProxi, Adherium were from the old model - and ones like Tradify and IMU from the new - others like 90 and Sunfed have come in either via networks or co-working - they still got investment and value add - it does vary across the investments that we make - and where we get the resource to work with the companies is case by case - today, we don't differentiate where they come from, or how they get the value - we focus on finding startups, building an investment partnership and helping them to be successful - if that means we do a lot, we do - if we are able to place a great lead investor and get out of the way we do - and then there are combinations - Ask Nicely was the quickest investment we have done as ICE Angels with John O'Hara leading - and now one of our team sits on the board with John and others - it is going well and we are focused on helping them be successful.

Callaghan backs The Icehouse to help startups find investors and access networks and markets - they see us a pretty significant platform for startups and investors in NZ. They see the leverage coming from what we do, and they also see the development of entrepreneurial talent - from founders, to teams, to advisors, to board members to investors - which gives a great return when that is applied across so many of the 50 investments and wider that our group makes each year.

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The founders of Ask Nicely now only have 17% left of the company in only 2 years. While Ice Angels et all have about 50% Your investment in Ask Nicely was nothing more than predatory

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Derek. Ask the founders if they see it as predatory. I would say they are pretty happy, aligned and focused on creating a great company and outcome for their families. The founders are two great people and their partnership with their investors equally awesome. Consenting adults and all that!!

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There are so many conflicts in the model you operate it is not funny. The fact Callaghan either cannot see this or ignores it is amazing.

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Most situations have conflict. It is how you deal with them and how you create alignment that matters to us. NZ is too small to act with zero conflict or overlap.

For example, I personally don't believe in independent directors on Boards of startups - we prefer all directors to have written cheques and to have skin in the game - that is alignment and maybe a conflict too between the interests of the founders and investors.

Also over the last few years we have tried to get more alignment by taking out things like equity up front and charging startups a fee for service - instead only working with startups that we invest in - again to promote alignment.

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Callaghan pays you to work with the companies to help then secure investment. At the same time you earn fees from investors when they invest including from NZVIF. No doubt you get money through NZTE voucher system.

I accept that conflicts might arise but the fact the government is funding the conflict is stupid but is reflected in the mess that is NZVIF and Callaghan.

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Thanks - Callaghan funds us to create impact - specifically working to enable high potential startups to achieve success and their potential - they fund us to get a portfolio return given the risks associated with these startups - they don't fund us to raise money for the startups - that is a function of the task, but not the whole and only job we get funded for - we also get funded to lift capabilities of the founders and equally importantly the advisors and investors over time as they are all significant enables of success of the startups .

You are right that in some cases there are brokerage fees on capital raising - we run a tight line on these - because as you have pointed out there can be an issue of conflict and overlap - our own preference would be that if we could survive without the fees and/or we could reinvest them back into the startups we would, but we have to pay the bills and we also have to show to Callaghan Innovation that we are moving towards being less dependent on their funding support - so we try and balance all of that - while also not screwing over the startups. Challenging to get all that right and not end up with someone grumpy!

For the work we do with startups - we are not permitted to claim any NZTE Vouchers. We do in our learning and development programmes for owner manager firms that are established receive vouchers of up to 25% of the programme fee - this is for $3m + businesses across NZ who say attend our Owner Manager Programme - completely different market - most of these businesses are 30+ employees and your atypical Kiwi business - manufacturers, exporters, etc

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Hi Andrew, Can you tell us why your companies cannot raise capital the normal way?
And, should those that do raise capital the normal way, be paying taxes to fund these 'others"?
Some of whom may be future competitors?

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Hi John. Defining normal is challenging. In 2001-02 we found it impossible to do the normal way ie it did not work well. So we started ICE Angels and it became easier. As the market changed we began to learn where an angel network fitted well for entrepreneurs and where it did not eg really early seed deals and bigger ie 2m+ rounds. So we added different options for both the startups and investors plus the market changed.

Now there are lots of options for people which is great. We represent less than 20% of the market.

On subsidies, yes we get opex funding which we apply to people and event costs. The Govt choice is to directly fund coys or people like us or not at all. The logic is that by funding us they get leverage from their money to get a wider benefit and return to the economy. We think we deliver that and we accept people have other views.

Have we wanted to be sustainable? Yes. Are we there yet? No. Who benefits if we are? NZ? The taxpayer? We are owned by a registered charity so any benefit comes back to NZ and the charity plus the entrepreneurs and their teams and the investors. Many recycle the money and the experience into doing it again.

I know it is hard to win this argument and thats fine - good to have opinions and debate as that helps in most cases to get better and do more!

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Andrew, how much tax payer money has your 'charity' received in total?

As a hard working private business owner that pays tax. I scratch my head when I see this hard earned tax money going to your business which is a proven failure. Further my tax money then acts to compete against me as competing businesses may be subsidised !

While my business interests are modest, wouldn't it be better to let me keep this tax money so I can grow and develop my own modest success? If I grow more I will employ more people and expand my business.

You can say what you like about your intentions, however you have done nothing so far except rob real existing businesses of money

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I would need to check the funding, in the 2016/17 year $950k from Callaghan Innovation and around $900k from NZTE as co-funding for businesses who attend our programmes.

Our customers many of which would have been successful anyway and many who claim we were a major factor in their growth clearly have a view that something we are doing works. This is not a subsidy but an investment in capability development which has had a massive payoff in job creation and wealth creation - 14,000 jobs $7b of incremental revenue. Plus a whole bunch of gst paye and income tax.

Clearly I am biased and I reckon the Goverment has likely got a 10x return on its funding and is very happy with us plus we have a very high NPS at 65.

If people did not like what we did, they would stop paying us and they would stop taking our investment and investors would stop co-investing with us - if the market moved like that then of course the Government would stop backing us.

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What education/experience does mr goldsmith have making him appropriate to manage this portfolio ?

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Sadly lots of wordies that all sound exciting to defend a great failing
People aren't silly
Appreciate government actually trying & hard
Universities pretending they are business people hasn't worked - most are really offering short courses
PLEASE some one be honest + add up all the $$$$$$$$$$ gone so can be a honest conversation on pouring $ into outcomes based funding
We all experienced 10+ years of Knowledge Dribble story

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Hear you loud and clear Mr Puff.
Cannot disagree Sir.
BUT, given that the "$$$$"s you mentioned are used to pay wages, in what field do you envisage these people should be otherwise employed. :)

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Andrew Hamilton - You are just taking tax payer money for private gain. Almost all of the (arguably) successful companies you mention (a tiny % of what has come across your desk) would have been successful without you. Some of the companies are publicly mentioning they regret working with you

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Thanks Derek. As a registered charity we are not permitted to take a private gain. We must account for our actions and activities.

We work with aroumd 350 establised SME owner manged firms per year, we invest in 50 startups per year and we talk to hundreds more. Some of these will have views as to the value we bring and have brought. That is free will. People have choice to take our investment or pay us a fee for a programme. We work with people who want our help.

If we were crap, we would not be able to keep running and would shut down.

Our customers are generating 1,000 new jobs per year - it is impossible for us to 100% lay claim to these jobs as a result of our work. We take credit for a part and we keep working to help them and new customers to find their success and to reach their potential - if they don't think we have value for them they will stop coming.

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Its the personal private gain. People within your harem are paid grotesque amounts of money. Many 4 x the average wage. However they have delivered nothing

To say that you have created 7 billion dollars of revenue is laughable

If you do not want a conflict of interest. Just go it alone like the other 95% of businesses in NZ. If you are as good as you claim, you wouldnt have any trouble making enough money to pay your operating costs.

You have received more that $10 million tax payer dollars and delivered nowhere near the $30 million required in taxable profits to pay it back

Im sorry this is directed at you, it is not just your failed model, my thoughts go across all government funded incubator services

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Hey Derek. We all need people with conviction because from that tension I believe we can get better outcomes. Not all people agree with that, but I certainly do. Clearly I know what everyone gets paid in and around the Icehouse and I believe it is very reasonable, and if anything below the market - but yes, it is more than the average wage. We review salaries every year against the market and I would actually like us to publish the levels like public companies - to be totally transparent - something for next year.

What we measure to understand whether what we are doing is working and/or contributing is actually a really hard thing to do - yes, also working out what role we had and what we did not - is also almost impossible - we try to find proxies from impact, to customer sat, to NPS and to customers paying us money and coprorates funding us - we also don't want to get distracted from our job our core and purpose - which is to help business owners, businesses and startups find their success - that is what matters and that is why we were created.

The funny thing on conviction - and yes this is all anecdotal, I totally believe we have been able to deliver way more that the $30m in taxable profits - I can't measure that with the data we have - but I just know from the businesses we have worked with the owner manager side it would be way way more. Yes, on the startup side that is not there - so your point on the profit side for startup is valid. We would argue that the value will come back over the generations to come.

No need to apologise - by being open and being prepared to stand up for what we believe, hopefully all of us can see other people's positions and points of view - what I would love is that we could get to the point one day that we did not need Government $ so it could be used in other places or just returned to society - I would also like that customers funded us 100% - but while we have partners who are prepared to back us, we are going to keep doing what we do - because that is what our owners and partners tell us to do - and it is, in our humble view working.

I also take your point that we could and should be more transparent on results - something to work on.

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I would say a couple of thing further to my earlier comments.

I agree that one thing Andy and his team does not lack is passion and commitment and that is great. I would agree if Callaghan and others are going to continue to fund you and you believe in the impact you are having then I say carry on.

i would say in my experience the Icehouse is by far the best performer of the bunch - probably by a country mile. So in some ways it is not surprising that other CEOs of other incubators never have the conviction to stand up and debate the issues.

I also have no issues with the impact of the owner manager programme in delivering results. Probably not dissimilar to that achieved by other programmes / events. It is amazing what an existing business can do with a bit of strategic thinking and a commitment to grow.

My issue remains with Callaghan and others that seem to have accepted what are medicore results in the startup area, without any real challenges (at least that is the perception). And if nothing changes, nothing changes.

My original comment was that I was amazed that Callaghan even thought that the Tech Incubators would become self sufficient in 3 years - they clealry have ZERO understanding of the commercialisation market in NZ and globally.

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What absolute nonsense

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