Bridges wants NZVIF's Seed fund to deliver better returns under new investment rules
Economic Development Minister Simon Bridges wants the New Zealand Venture Investment Fund to deliver bigger returns under a new investment framework for the Seed Co-investment Fund that will let the early-stage investor take a more active approach.
Among the changes, the government has raised the investment cap for the $52 million NZVIF-managed Seed Co-investment Fund to $1.5 million, ditched the $250,000 funding limit, which Bridges in a statement said will generate stronger commercial returns and better support new start-up companies. A cap on how much can be invested alongside each angel network has been dropped in favour of a $1 million notional commitment, and NZVIF will also be allowed to co-invest with qualified investors outside the traditional angel networks provided it will support promising companies that are trying to commercialise a product or service.
"The changes mean the fund will be more effective and able to back both the promising companies alongside its angel partners," Bridges said in a statement. "We expect this will improve returns, which New Zealand Venture Investment Fund will use to invest in more new and promising start-ups."
The government has been running the rule over NZVIF in recent months as it weighed up the need to keep providing the early-stage investor with funding.
Bridges today said the changes will target better returns for the fund, which will, in turn, become self-sustaining and "remove the need for further investment from the taxpayer".
The changes also empower NZVIF to take a more active approach to portfolio management rather than the passive approach under its current mandate, he said.
NZVIF chief executive Richard Dellabarca said the changes will fill a gap in the market by enabling the seed fund to take part in companies' later funding rounds and brings it in line with more traditional investment funds.
"If SCIF can demonstrate a good track record of investment success into early stage New Zealand companies, this should engender more capital flowing into this space," Dellabarca said in a separate statement. "Not only will good returns attract more investors to the angel space, it will show entrepreneurs that angels can assist them in creating shareholder value and, ultimately, investment returns in their business."
The changes, which have been signed off by Cabinet, are expected to see the seed fund invest $40 million over the next five years, an average of $8 million compared to the $4.4 million annual investment since its inception in 2008.
NZVIF's $128 million venture capital fund of funds, which was established in 2002, isn't affected by the new mandate for the seed fund.