Venture Capital Fund Bill introduced to Parliament
On 22 August, the Venture Capital Fund Bill (the Bill) was introduced to Parliament. It is currently awaiting its First Reading.
The purpose of the Bill is to establish a Venture Capital Fund (VCF), a Crown-owned fund to be managed and administered by the Guardians of New Zealand Superannuation (the Guardians) because of their existing frameworks and expertise. The VCF is intended to contribute to a sustainable and productive economy by:
- increasing the venture capital available to New Zealand entities, and
- developing the New Zealand venture capital markets to function more effectively, so that over time more venture capital is available to New Zealand entities from sources other than the VCF and New Zealand entities that receive venture capital are more likely to grow into successful and sustainable businesses.
Who needs to be aware of this? Why?
This development will be of interest to anyone looking to either provide or receive venture capital, as it will create new market infrastructure with the goal of growing and developing the venture capital market and increasing the activity within it.
What does it cover?
The Bill in its current form consists of two parts, and it is intended that these will be split into two separate Bills at the committee of the whole House stage.
Part 1 of the Bill will amend the New Zealand Superannuation and Retirement Income Act 2001 (NZSRI Act), as the Guardians were established under the NZSRI Act and currently have no authority to manage or administer the VCF. This is to be an additional and separate role for the Guardians, and the functioning of New Zealand superannuation and the Guardians’ role and responsibilities in connection with it will not be changed.
Part 2 of the Bill will establish the VCF itself and set out the parameters and settings under which it will operate. It is intended to use a ‘fund of funds' model, making investments into or alongside privately-managed venture capital funds (with those funds seeking investment needing to meet certain criteria), and best-practice management that is appropriate for institutional investment in New Zealand’s venture capital markets, subject to high-level Government policy requirements to:
- ensure that a substantial proportion of the VCF’s capital will be made available to New Zealand entities through New Zealand-connected venture capital funds (while allowing for a proportion to go to foreign entities, or foreign funds that have some connection to New Zealand, where this would support the market development objective),
- comply with, or have regard to, directions given by the Minister of Finance through policy statements,
- invest the VCF in a way that avoids prejudice to New Zealand’s reputation as a responsible member of the world community, and
- enter into an arrangement with New Zealand Venture Investment Fund Limited (NZVIF) to allow NZVIF to undertake investment of the VCF through a fund of funds model, so that NZVIF’s existing relationships, experience and expertise can be utilised.
While the Bill itself does not set out the intended amount of funds or duration for the VCF, the 2019 budget has indicated a 15 year $300 million fund to bridge the gap in domestic venture capital markets.
If the VCF successfully achieves its purposes, it will provide a useful boost to the New Zealand venture capital market. If that market can be developed to the point of being self-sustaining and having sufficient capacity to service domestic demand, then there would be less of a need for New Zealand start-ups to seek necessary investment from, and thus surrender some profits and/or ownership to, entities overseas.
If you have any questions in relation to the VCF, or are considering how its establishment could affect your business, please contact one of our experts.