Capital Markers Report: Venturing closer to maturity

Richard Dellabarca, chief executive of the NZ Venture Investment Fund, has completed a strategic review of the industry and provided growth options to Government, reports Tim McCready.
Last year, then Economic Development Minister Steven Joyce announced a review of New Zealand Venture Investment Fund’s structure, reiterating the Government’s ambition for the fund to become self-sustaining.
Soon after the announcement, Richard Dellabarca was appointed chief executive of NZVIF in mid-2016 — a move that indicated the industry was maturing.
Dellabarca, an investment banker, had spent 14 years offshore in a variety of leadership roles in venture-backed companies, capital markets, financial services and technology-related opportunities.
He brings a private sector investment perspective, but given his experience as an entrepreneur he understands what is required to build globally scalable companies.
“Really good Venture Capital funds (VCs) are looking to build businesses. Investment is an important skill to have, but their greatest skill is in building companies,” he says.
“It helps to have gone through the journey of building a global company, or a company with global aspirations, in order to understand what is needed.”
When Dellabarca joined NZVIF, he was given a blank piece of paper and the mandate to go away and undertake an independent strategic review. He has spent the last year speaking with stakeholders — around 140 organisations and 230 individuals.
Dellabarca says he is encouraged with the significant amount of investable opportunities in New Zealand, noting that founders and teams tend to be aspirational and motivated, and companies aim to be global from day one.
The review noted a growing amount of angel investment — $69 million in the last year, and more than $400 million since figures have been tracked — in addition to the significant investment into universities and Crown Research Institutes.
There is money available in New Zealand to fund proof-of-concept in early stage companies.
But a shortage of funds was identified for opportunities requiring $5-20 million in early stage growth capital.
In addition, Dellabarca noted that in the Silicon Valley or the UK, “you generally see funds syndicating with two or three investors when raising Series A & B investment.
“Yet over here, we have only Movac and Global from Day One (GD1) investing locally in growth capital, severely limiting the opportunity to syndicate investments or fully fund early stage growth companies through to maturity — and ultimately a successful realisation of the investment.”
Although eight Venture Capital funds were originally established in New Zealand, the average fund size was only NZ$45 million compared with a global average of approximately US$300 million.
Dellabarca explains there is a good reason for global fund sizes given the amount of money a company generally requires through to an investment realisation.
“They will tend to invest in, say, 15-18 companies at $5-10 million each, and then keep money aside for further follow-on investment in companies that are succeeding.
“This allows for better funds management practice, managing downside while optimising on upside opportunities,” he says.
“These historic sub-scale New Zealand funds tended to invest in a range of companies, but then either didn’t have capacity to fund them through to success and, therefore under-capitalised them, or had later stage investors dilute them down when they couldn’t follow on with the investment.
Hopefully in 15 years we won’t need a NZVIF in any guise, and instead there will be several self-sustaining funds of scale.
Richard Dellabarca
“The consequence was that many of these funds didn’t generate appropriate returns for their investors,” Dellabarca says.
While offshore corporates and financial institutions have had an interest in allocating money into New Zealand technology innovation, they have not been able to find a platform to put the money in.
As many of these institutions manage multibillion-dollar funds, the smallest investment they are willing to make is $50-$100 million.
“With an average fund size of $45 million, their mandate will often preclude them from being more than 10-20 per cent of a fund,” says Dellabarca.
“By definition you need a $300 million to $400 million fund to take these cheques.
“We just haven’t set up a fund of scale to allow foreign investors to come in and access innovation.”
NZVIF have presented a number of options to Economic Development Minister Simon Bridges that aim to make the fund self-sustainable.
Although Dellabarca is unable to divulge the details on those options, he says the fund-of-funds model with its hefty fees on fees structure is no longer viable.
The results of the strategic review provide a clue that early stage expansion capital for growth companies is New Zealand’s choke point, and is a gap NZVIF would like to address if a model that works can be established.
“There is an unmet need. You could argue about the specific number but the current deal flow suggests an annual demand of $200-$300 million,” says Dellabarca.
“If you assume our current VCs invest over five years, holding back 30 per cent for follow-on investment (the traditional venture capital investing model), then you have approximately $20-$25 million invested per year, versus a demand of up to $300 million per year.
“But whatever the number is, it is substantially larger than available capital. The aspirational goal is to have that need met in some way or another.”
Considering the future, Dellabarca says that he would like to see more money in the angel space. NZVIF is currently the second largest angel investor in New Zealand, and he hopes that in time it won’t be needed.
He has the same goal for the venture capital space.
“Hopefully in 15 years we won’t need a NZVIF in any guise, and instead there will be several self-sustaining funds of scale,” he says.
“We don’t have government intervention in private equity.
“You would hope that ultimately the same will happen in the venture capital space.”
Power of NZVIF?
• The NZ Venture Investment Fund (NZVIF) was established by the Labour Government in 2002 to build a vibrant early stage investment market in New Zealand by investing alongside private venture capital funds into high-growth companies.
NZVIF currently has $245 million of funds under management which it invests through two vehicles:
• a $195 million venture capital fund of funds, partnering with private New Zealand venture capital funds to support the development of innovative companies from start-up through to growth (investing on a two-to-one basis).
• a $50 million Seed Co-Investment Fund (SCIF) established in 2005 to encourage angel investment and fill the investment gap for entrepreneurs needing capital to get their business underway (investing on a one-to-one basis).
Since its inception, NZVIF has formed 27 investment partners (16 angel and 11 venture capital partners) and invested in a portfolio of 236 companies.
NZVIF has helped stimulate $2.2 billion in leveraged capital, $1.2 billion in attracted overseas capital, employment of 6076 FTEs and $174 million in taxes.
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New Zealand’s biomedical sector to benefit from Australian Government initiative to make Australia a global leader in life science research commercialisation

Medical Research Commercialisation Fund (MRCF) creates fourth and largest fund
Wellington, 15th December, 2016 – The Australian Government’s launch of the AUD$500 million Biomedical Translation Fund (BTF) this week, an initiative to make Australia a global leader in the commercialisation of biomedical discoveries, will benefit New Zealand’s biomedical sector, says Dr Chris Nave, Managing Director of venture capital firm, Brandon Capital.
The BTF is a pool of public and private capital which will be managed by three venture capital fund managers who were announced this week. Brandon Capital has been allocated to manage the largest fund of AUD$230 million comprising AUD$115 million from the Commonwealth government matched with AUD$115 million from private investors.

The new fund, the MRCF BTF, is the fourth and largest investment fund of the Medical Research Commercialisation Fund (MRCF). Brandon Capital manages the MRCF, a unique collaboration between over 50 of New Zealand’s and Australia’s leading medical research institutes and research hospitals. These organisations contribute biomedical investment opportunities to MRCF funds as well as their expertise to support the development of these discoveries.

In April this year New Zealand joined the MRCF, enabling New Zealand research organisations to become members of the fund and seek investment support for emerging technologies from the third MRCF fund, MRCF3, an AU$200 million fund. Currently six New Zealand research institutes are members of the MRCF*.

“This is a bold and visionary initiative by the Australian Government to ensure Australia reaps the benefits from our world-class medical research,” says Dr Chris Nave, who is also Principal Executive of the MRCF.
“On all measures, Australia and New Zealand produce some of the world’s leading biomedical research, but unfortunately, too often, we see promising discoveries leave our shores early in development, with little value returned. The size of the MRCF BTF provides the opportunity for these technologies to be developed to much later stages in Australia, and in some cases through to the market and importantly patients, retaining greater value and leading to the creation of new jobs and income. The BTF program will be transformative for local industry, providing the ability for research discoveries to be developed from concept to commercialisation in Australia.”

While New Zealand member institutes will not be able to participate in the MRCF BTF, the new fund significantly deepens the pool of investment capital under management by the MRCF, with the advantages that brings to all members. Promising early stage medical discoveries from New Zealand member institutes can continue to seek investment from MRCF3 and follow-on funding.

Duncan Mackintosh, Brandon Capital New Zealand’s Investment Manager says the new fund means there is now AUD$430 million investment capital available for promising biomedical research, giving the MRCF real scale. “The MRCF is the largest life science investment fund in Australia and New Zealand by quite some margin. We are now competing at a global level and this will benefit our New Zealand investments by getting them greater attention internationally. It will also help us to attract offshore capital for New Zealand discoveries, attention from strategic partners and will mean we can attract and retain talent to run New Zealand investment companies.”

The BTF will see $250 million of Commonwealth government funding matched with private sector capital, creating $500 million for investments in companies with medical research projects at advanced pre-clinical, Phase I and Phase II stages of development.

The MRCF BTF private investors include CSL Limited, Australia’s largest and most successful biotechnology company, and the leading superannuation funds, AustralianSuper, Hesta, Statewide and HostPlus.

Brandon Capital is ranked as one of Australia’s top performing venture capital firms**. MRCF BTF will focus on supporting later stage opportunities, with the MRCF3 continuing to seed promising early-stage discoveries.

CSL Limited will be the only biopharmaceutical investor in the fund and will provide both investment capital and later-stage development and commercialisation expertise.
“CSL is a strong supporter of the need for a greater focus on translational research in Australia. The opportunity for the BTF to support the development of promising discoveries, onshore, is very exciting,” says Dr Andrew Cuthbertson, Head of Research and Development, CSL.

“The MRCF-BTF will not only have access to the pipeline of opportunities and capabilities of its member medical research organisations, it will also have access to the global medical research development capability and expertise of CSL,” says Dr Stephen Thompson, co-Managing Director at Brandon Capital.

It is anticipated the MRCF BTF will begin making its first investments in early 2017.

*New Zealand MRCF members: Auckland Cancer Society Research Centre, University of Auckland; Institute for Innovation in Biotech, University of Auckland; Brain Health Research Centre, University of Otago; Malaghan Institute of Medical Research; Ferrier Research Institute, Victoria University of Wellington; Callaghan Innovation.

**In an Australian Financial Review ranking of Australia’s top performing venture capital and private equity funds (31 August 2016), Brandon Capital’s Brandon Biosciences Fund 1 was ranked second.

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Movac Fund 4 reaches first close at $105 million

MEDIA RELEASE

Movac Fund 4 reaches first close at $105 million

Movac Fund 4 has raised $105 million to invest in the next generation of iconic Kiwi technology companies.

The Fund is underpinned by $75m in investment commitments from institutional investors including Ngāi Tahu Holdings, with the balance coming from the New Zealand Venture Investment Fund, leading New Zealand family offices, community trusts, and private investors.

Movac Fund 4 will be investing in established New Zealand technology companies that are seeking capital to accelerate their growth.  These are companies with an established track-record of sales, a team in place to grow the business, and the ambition and potential to scale their business internationally.  This is a later stage fund than Movac’s previous funds.

Phil McCaw, Movac Managing Partner, commented: “We are really encouraged by the commitments from all of our investors, and in particular our new cornerstone investors who have recognised the significant investment opportunity that exists in the New Zealand technology sector right now.”

“Importantly, we have a strong pipeline of potential investments for Movac Fund 4.  We have already been meeting with and conducting due diligence on various opportunities, and are very impressed by the quality of the companies that we’re seeing.  We anticipate that we will make Fund 4’s first investments prior to Christmas.”

Ngāi Tahu Holdings Chief Executive, Mike Sang, commented: “Ngāi Tahu Holdings is excited about the addition of Movac Fund 4 to our portfolio.  We are looking forward to our new partnership with the Movac team and the added diversity the investment brings us from its focus on investing growth capital in the technology sector.”

Mr McCaw added: “As a team, we have 55 years of collective investment experience and we believe that we are uniquely placed to invest in and help accelerate New Zealand technology companies.  Our Fund 4 investors include a number of highly successful founders and business builders, experienced investors, as well as family offices and investment funds.  We also have a number of investor migrants investing in Fund 4.  We would like to thank them for their commitments, and look forward to working with them to grow the next wave of iconic Kiwi companies and delivering an outstanding investment return.”

Movac Fund 4 remains open for eligible investors until its final close in April 2017.

ENDS
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READY FOR LAUNCH

SHOWCASING INNOVATIVE NEW ZEALAND COMPANIES THAT ARE SEEKING TO FUND THEIR NEXT STAGE OF GROWTH.

The Investment Showcase is a partnership between NZTE and the Angel Association NZ and will be held on the opening night of the 2016 Angel Summit.

Guests include Angel Summit delegates, local and international investors and other key stakeholders in the NZ investment community.

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New VC fund hits NZ$38m

The Global from Day One (GD1) Fund II has raised NZ$38 million – NZ$5 million more than its first close target.

The New Zealand Venture Investment Fund (NZVIF) is a cornerstone investor in the fund, committing around NZ$11 million (US$7.5m), alongside its Taiwan counterpart, the National Development Fund. The remainder has been raised from foundation investor Sparkbox Investments, the fund’s management team and private investors in New Zealand, Taiwan, Australia, Singapore, Hong Kong, and the USA. New Zealand investors include Sir Stephen Tindall’s K1W1, Diligent founder Brian Henry, and a range of private investors with technology and finance backgrounds.

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Lead Partners

NZTE NZVIF PWC

Expert Partner

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AANZ Summit Sponsors

Callaghan Innovation “UniServices” Kiwinet “Spark”