Lance Wiggs writes at NBR:
The New Zealand Venture Investment Fund was set up 14 years ago with the best intentions – to foster an early stage investment sector in New Zealand by being a fund of funds. It’s had $250 million for VC and PE funds but only $129.7 million of that had been invested to June 2015 and $100 million of it is an underwrite facility.
NZVIF later added the now $50 million Seed Co-Investment Fund (SCIF) which co-invests alongside accredited angel investors. As at June 2016 it had placed $38.2 million of that. …
The VC fund portfolio reported $120 million invested into funds and a net asset value of $93.2 million as at June 2014. In June 2015, that was $129.7 million invested into funds and a value of $99.8 million. That means they added $9.97 million in cash but lost $5.17 million asset value, for an average rate of return of (1.74%) – or negative 1.74% – per year.
In comparison Punakaiki Fund has raised $12 million and has a net asset value of more than $16 million, as we did this in less than two years. We use the same IPEV standards for valuation and our IRR for the original April 2014 investors was over 50% per year when we last officially released data in November 2015. It’s quite remarkable to think that Punakaiki Fund’s value today is already a sixth of the value of NZVIF’s VC fund as at June 2015, and we have not received any funds from the NZVIF fund of funds nor had over 12 years of investing returns for the fund.
I don’t see a Government Venture Investment Fund as a great idea. When you are not risking your own money, you make investment decisions differently.
I’m an investor in Wiggs’ Punakaiki Fund. I invested for two reasons. The first is the track record of Wiggs, and the second is his own money is risk also.
I think angel and venture investors are great and an important part of the financial eco-system. I’m just not convinced the Government needs to be one of them.
Wiggs has a couple of interesting suggestions going forward:
Pass the entire fund to an existing government-owned professional fund manager, and if the government wants to invest in more funds or deals then the fund manager can allocate the funds. The Superfund is the perfect vehicle for this (ACC is an alternative), but the asset class is very small for either shop. One option is to move say two people from NZVIF into Superfund and have them managed there; or
Run a tender to ask for proposals to run the fund and pass the fund to the private sector. Select the manager based on the response in costs and evidence that new ownership would drive higher returns for the fund.
I like the second option.