March 2004

Dear NZVCA colleague,

Judging by activity over this last month the venture capital and private equity industry is getting into full swing for 2004. No 8 Ventures announced that it had invested $2.85 million in EDIS International, a start-up company with plans to ignite the global EBPP (Electronic Bill Presentment & Payment) sector with key technologies and major marketing relationships. At the same time Goldman Sachs JBWere (NZ) has been on the road fundraising for its Hauraki Private Equity No.2 Fund following the success of the JBWere New Zealand Private Equity No.1 Fund.

Meanwhile the selection process for managers to run the new NZVIF Biotechnology Fund continues. News last week as well that Auckland University spin-off company Proacta Therapeutics is hopeful of completing a US$8 million ($12.4 million) fundraising to pay for clinical trials for cancer drugs. It appears that those funds would be sourced from offshore venture capital companies but the successful NZ$18 million fundraising for another Auckland University spin-off, Protemix, led by Birnie Capital Partners late last year has set the standard for what can be done locally in this sector.

A couple of notable exits for private equity backed Australasian companies have been in the headlines recently as well, namely the IPO of Pacific Brands (backed by CVC Asia Pacific and Catalyst Investment Managers) and the proposed IPO later this year of New Zealand children’s clothing company Pumpkin Patch (backed by Quadrant Capital).

If you, or a client, are announcing a venture capital or private equity deal, don’t forget to let me know so that we can put the details up on the NZVCA website.

Further to the update in the February newsletter, the NZVCA submission to MED on its Limited Partnership (“LP”) proposals was submitted on 13 February 2004. Thanks to all of those who contributed to that submission a copy of which is available on the NZVCA website – see the link below.

In essence we have recommended that New Zealand adopt a simple Limited Partner structure that is primarily based on the Delaware LP model. This should be introduced through a new Act and the structure should be available for general business use and not confined solely to the venture capital and private equity industry. I traveled to Sydney with MED officials in mid-February and we met with a number of key people who have developed Australia’s recently introduced VCLP regime. It was extremely encouraging that, without exception, their feedback and views supported the NZVCA’s recommendations.

The key message was to keep the structure simple and learn from Australia’s experience in formulating their LP regime. If we do this, we have the opportunity to create an LP structure that is not only acceptable to international investors but actually gives us a potential competitive advantage over Australia. MED officials are currently drafting a Cabinet paper setting out their recommendations and this is due to be completed in April. We will keep members updated on progress.

NZVCA LP Submission

The next edition of our industry survey done in conjunction with Ernst & Young is due out this week and so watch out for that. This is a review of investment activity and funds for the whole of 2003 and it contains some great information. A copy of the survey will be available on the NZVCA website (look under the “NZ Venture Capital Monitor” tab) as soon as it is released. Alternatively, you can e-mail me directly and request a copy.

Thanks to Audrey Williamson of Deloitte for providing this first feature article on areas of interest/relavance to the venture capital and private equity industry.

"Escalator set up to bridge the gap between investors and local businesses”

In the local business community there is a perceived stand off between businesses with growth opportunities and investors. Investors claim that there are limited opportunities and businesses claim that investors are nowhere to be seen. To bridge this gap, New Zealand Trade and Enterprise (NZTE) last year launched the Escalator service to work with innovative small to medium sized enterprises (SMEs) and entrepreneurs in New Zealand and provide the skills, knowledge and assistance to access investment opportunities. The objective of the service is that local businesses will become more attractive to local investors.

The Escalator service provides eligible participants a programme to develop a greater understanding of the issues around funding business growth, learn when additional investment is needed, what the options are and how to progress. Some will also gain help in securing equity investment and/or a strategic partnership from the specialist Escalator brokers.

WHO IS ELIGIBLE FOR THE ESCALATOR SERVICE?

Any company based in New Zealand that is expanding, diversifying or commercialising a new concept and requires funding and/or a strategic partnership deal of under $5 million is eligible for the service.

WHAT DOES THE ESCALATOR SERVICE INCLUDE?

The Escalator service offers: • Assessments of a business/concept and its investment potential; • Investment-specific workshops at two levels (dependent on selected participants’ level of investment readiness); • Brokering expertise and assistance to raise capital up to $5 million; • Strategic partnership negotiation expertise and assistance; • Co-ordination, where applicable, with agencies and advisors such as accountants, lawyers, patent attorneys, share brokers, technical experts, government assistance programmes and other funding institutions.

WHAT ARE THE STEPS IN THE PROCESS?

The Escalator providers take businesses through a structured process designed to assess the opportunity, consider the options and give entrepreneurs the skills and assistance to make their business investment ready. Outcomes for the business can range from increased skills and knowledge to capital raised or strategic partnerships negotiated.

WHO PROVIDES THE SERVICE?

The Economic Development Association of New Zealand (EDANZ) and Deloitte are contracted to manage and deliver the Escalator service on behalf of NZTE. Deloitte, I Grow New Zealand, Ignition Partner and Realize Technology are the specialist brokers to the scheme.

WHAT DOES THE ESCALATOR SERVICE COST?

NZTE covers the majority of the costs of the Escalator service. The only cost to companies is a fee on successful capital raising, set at up to 8% of capital raised under $250,000 and at 5.5% of capital raised between $250,000 and $5 million.

FOR MORE INFORMATION

Chris Twiss
ex NZVCA