The world of investment in startups is changing, and what’s happening in the rest of the worldwill soon be occurring downunder.
Part of the change comes about because one of the little uncool secrets of the venture capitalworld, is, generally speaking, it ain’t doing that well from a returns point of view.
And, it is not only in New Zealand that VC funds are finding it tricky to attract new capital.Around the globe apparently, more than 1700 VC firms are looking for more cash.
The biggest and best known VC firms such as
But back in the USA, it is estimated that half of the institutional investors who invest in VCsare going to refuse to put in anymore promised monies (they don’t put in all the money upfront,instead drip feeding it in). These Limited Partners are effectively saying to the VC, ‘sue me’,banking that they won’t.
Here in New Zealand, we’re not immune to under-performing, or even completely unperforming VCcompanies. Apparently the Number 8 Ventures Number One fund made absolutely no money for itsinvestors. The Number 8 Ventures Number Two fund got off the ground before Number One reported backits performance.
This isn’t a surprising way of doing things, indeed similar things happen in the USA as, HatmTyabil and Vijay Sathe provide in a great overview article of ‘Venture Capital Firms in America:Their Caste System and other Secrets’
The NZ Venture Investment Fund , and their associated VCpartners have been pleading for more time (than the originally estimated seven years) to obtain areturn from the fledgling companies they invested in. NZVIF and its VC partners have just started toexit some of their investments, HaloIPT , and inductive powertransfer technology to Qualcomm for millions of dollars – the first of what must be hoped is anumber of divestments.
All of which is a roundabout way of pointing out a fascinating article by Pascal-Emmanuel Gobry,at Businessinsider.com. His article on ‘The Way Companies are Getting Financed is CompletelyChanging’ is
Gorby argues that though the VC market is moribund, there are many new financing options forgrowing companies that weren’t available a year ago.
These include:
Crowdfunding
Accelerators
Super-angels
Late-stage private equity
The long-delayed IPO
He goes into some detail explaining these options, most of which have a parallel in NewZealand.
There isn’t, yet, a local crowdfunding play. For that matter there doesn’t have to be in asense, since the way global markets work, a newly hatching start-up can hang their shingle, puttheir pitch on sites such as
AngelList.com
or
The Securities Market Conduct Bill might manage to get through Parliament in the first quarter ofnext year, and this contains provisions for peer to peer lending (for smaller amounts that doesn’trequire the person receiving the money to issue a prospectus) which will legally allow crowdfundingtype setups in New Zealand.
Who fills this Kiwi-centric void will be a fascinating space to watch next year.
Accelerators are a more advanced, more IT-centric form of our incubators. The incubators aredoing a reasonable job in New Zealand, and as a previous sticK story reported, MED can’t kill them(see
The angel investment scene has been an expanding bright spot – with early November’s
New Zealand’s Angels are filling some of gap currently not able to be filled by VCs, as mostare fully subscribed by their investment companies. An exception is the Movac #3 fund which is nowlooking for investment opportunities.
It is the later, slightly more mature start-ups that find it difficult to expand in NewZealand.
These slightly larger companies are still too small for private equity companies to buy out,while a stockmarket listing is usually deemed too expensive and/or comes with too many reportingobligations.
This is part of the NZ conundrum called the ‘Valley of Death’ funding gap. It’s the $2million to $10 million next capital injection required by growing companies, expanding theirfootprint across the rest of the world.
All and all, this means the next period of startups and commercialisation and investmentpromising to be very interesting in New Zealand.
The development of new funding options will coincide with the launch of the Science andInnovation Council (to be chaired by a senior cabinet minister, with sticK speculating it will beJohn Key; see story
It’s all part of a stirring of the innovation pot (actually turning a good idea into somethingthat makes money).
The more this happens, the more it will happen. It’s a virtuous spiral that can only be goodfor all of us.