Spark New Zealand chief executive Simon Moutter’s drive to create a $100 million venture capital fund backed by large New Zealand corporates has been put in the too-hard basket, but the company is committing investment of between $10 million and $12 million a year of its own in innovative technology companies.
The decision follows a year of efforts by Moutter to attract a group of major New Zealand companies to back the concept of the so-called ‘Reactor Fund’, which came from a private sector-backed mission to Israel last June to study that country’s innovation policies and culture.
In an email to the participants on that mission today, Moutter said the idea was being “shelved for now”, but that Spark would make its own commitment.
“Spark has decided to divert the investment we would have made to this large VC fund towards increased direct investments of its own in expansion stage companies and areas closer to our sector via our Spark Ventures unit. Spark Ventures will effectively be an internal VC, aiming to invest $10 million to $12 million a year in expansion stage companies.”
Several factors had led him to conclude the Reactor Fund was too difficult to achieve at present.
These included evidence that the funding gap the fund sought to fill “has already begun to close”, said Moutter.
In the last year, there had been several large-scale venture capital and private equity fund-raising efforts, he said, citing specific funds of up to $1.1 billion raised through a variety of sources including Direct Capital, Movac, and a deal between The University of Auckland and the IP Group.
“In addition, New Zealand companies have been lifting their spending on research and development and there is noticeably more international growth capital looking for investable opportunities in New Zealand.”
The government’s intention to review the role of the New Zealand Venture Investment Fund could also have an impact on how public and private VC investment evolved.
In addition, concerns had been raised about the potential for an “overly large” new fund to “‘swamp the system’ or overmatch the investable opportunities or available entrepreneurial talent within New Zealand. Put simply, proven entrepreneurial talent and capability is increasingly regarded as a more scarce resource than growth capital,” Moutter said.
And finally, while Spark, Air New Zealand and Vector had backed the Reactor Fund concept, “it became clear that there is not yet sufficient support for the idea from leading companies in other IP-rich sectors, or from key institutional investors. I believe finding ways to encourage more institutional investors such as Kiwisaver funds into expansion-stage investments is critical for unlocking greater returns over time.”
Moutter said he remained open to the appetite or need for such a fund to be established in the future.