Consultation on the Policy Statement on the Venture Capital Fund Act 2019

The Government has recently agreed to a $300 million investment in New Zealand’s early stage markets to address a capital gap in the Series A and B venture capital space experienced by New Zealand firms.

The Venture Capital Fund Act 2019 (the Act) establishes the Venture Capital Fund, which aims to increase the capital available to New Zealand entities and develop New Zealand’s venture capital markets to function more effectively. The Venture Capital Fund is a Crown-owned fund that is managed and administered by the Guardians of New Zealand Superannuation (the Guardians).

The Act allows the Minister of Finance to provide to the Guardians a Policy Statement that sets out various directions containing high-level requirements for the investment of the Venture Capital Fund. This Policy Statement provides high-level policy directions to the Guardians for the Venture Capital Fund. It will guide the core parameters and settings under which the Venture Capital Fund is to be operated.   

The Ministry of Business, Innovation and Employment prepared a draft Policy Statement with inputs from the Treasury, the Guardians and NZVIF, before seeking industry feedback on the proposed definitions and policies included. Industry feedback was received via workshops held in Auckland and Wellington and through written submissions.

The submissions received on the Policy Statement are now being proactively released. Please note that some parts of the submissions are being withheld in accordance with the following sections of the Official Information Act 1982:

  • 9(2)(a) to protect the privacy of natural persons, including that of deceased natural persons
  • 9(2)(b)(ii) to protect information where the making available of the information would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information; and
  • 9(2)(ba)(i) protect information which is subject to an obligation of confidence or which any person has been or could be compelled to provide under the authority of any enactment, where the making available of the information would be likely to prejudice the supply of similar information, or information from the same source, and it is in the public interest that such information should continue to be supplied.

One submission is being withheld in full under section 9(2)(ba)(i) and 9(2)(b)(ii) of the Official Information Act 1982.

Submissions received

Summary of feedback to industry submissions

Topic Feedback Issue / Suggestion Rationale Response from the VCF project team
Objectives Increase capital available to New Zealand entities General support or majority provided no feedback - - These points largely relate to matters that would require changes to the VCF Bill, and thus out of scope for this consultation process. However, these points have been raised in submissions to the Select Committee and thus will be considered in that process.

In addition, we updated the Objectives section in the Policy Statement to provide more context around developing fund manager capability and sourcing more sustainable domestic capital into the market. We also have included a new section called Principles. Theses are the principles we have taken in designing the Policy Statement to develop the New Zealand venture capital market.
Develop New Zealand's venture capital market General support for the objective, but many domestic VC managers disagreed with the Purpose Statement (the Purpose Statement is not capturing this objective adequately) Revise the Purpose Statement to include an express reference to development for the NZ VC market.

Clarify what this might look like and what else might be required to achieve the objective (a few).
By specifying what an well-functioning domestic VC market looks like in the purpose statement, the Guardians and the NZVIF are required to consider this objective when allocating capital.

There is a shortage of investment-ready ventures in terms of the capability and credibility of the business plan, strategy and founder / team experience to give many investors confidence to invest.
Other points (for objectives) Additional objectives should be added Attracting domestic capital into the venture capital market should also be part of the objective (e.g. domestic institutional investors).

There should be an objective to increase the number of and scale of funds managed by NZ connected and NZ owned managers.

Also focus on increasing strategic and operational capability of the companies obtaining funding (2 submitters).

Objectives should be attracting international companies and creating big businesses.
Attracting domestic capital is key to achieving the objectives of the VCF. Other self-sustaining markets source their capital domestically.
Definitions Stages of investment Some agreed, but many disagreed 1) The lower threshold should be higher - common suggestion $4-$5  million. By contrast, 1 submitter suggested $1 million.

2) The higher threshold should be higher (a few e.g. $30 million)

3) Not to be hardcoded (2 submitters) - provide more flexibility (e.g. add "typically")

4) Not to be based on a monetary band (1 submitter) - The cash it invests should be conditional on it being the first (lead) institutional money to participate in funding a growth-business.

5) Allow for some liquidity (1 submitter) - by adding "the majority of" the capital is being raised for.

6) While broadly agree with the definition, in this definition or elsewhere in the Policy Statement, there should be an obligation on the Guardians to assess Series A funding (at the moment aggregated into Series A and B capital rounds) (1 submitter).

7) Seed capital should be "up to $2 million rather than the range of $100,000- $2 million (1 submitter).
1) Concern about overlap with seed, don't want too much of fund going into this space as that's not where the gap is.

1) and 2) Using different terms from international standards can be confusing and dissuade some international invetors. Companies are expected to have a certain level of valuation and meet milestones to call its funding raising Series A; As the NZ venture market grows and matured, the size will get bigger; The current definition is biased towards investments in Saas (Software as a service) companies. New Zealand angel and venture investment already favours SaaS. Given the relatively greater returns and employment enrichment benefits of deep tech, we suggest this investment and capability development should be encouraged.

3) A company by all other metrics may be a "Series A" company but is raising less than $2 million for valid reasons (dilution, bridging finance etc) and would therefore be classed as a "Seed" investment.

4) It should not be based on a monetary band. It's about being a lead investor. The gap is where funding rounds do not have a lead investor, and the policy should incentivise to lead an investment in a particularly stage.

5) Providing liquidity enables clean-up of a fragmented shareholder base / cap table or an exit for shareholders that are not supportive of the company's business plan that includes venture capital.
There were a range of views about whether the lower threshold should be higher or lower. Some submitters preferred a descriptive definition rather than a monetary band. There is little consistency in definitions of VC internationally. A monetary band is simpler and more consistent. The Policy Statement allows flexibility on either side of the monetary band.

To provide flexibility, we used the Series A and B capital definition (rather than separating the two). The VCF Bill allows the Minister to request any information to be included in the Guardians' report, and the amount / proportion of the Series A investment can be included in the reporting.

Matching funding only for the Series A and B investments complicates the way in which the VCF is able to invest as a limited partner without underlying funds creating a side car arrangement with the other limited partners. We have chosen not to pursue this option.
8) Any capital that is not allocated to investments between $2 and $20 million should not attract any funding from VCF (1 submitter).

9) Amend the definition that Series A and B Capital is capital where the investment by a fund to a company exceeds $2 million, and where the round size is up to $20 million (1 submitter).

10) Remove “where that capital is being raised for the purpose of early stage growth”

6) The objective is to address the gap in Series A.

9) The unintended consequence of the current definition is that groups of funds might invest trivial amounts in a round (e.g. $200,000 each) and call it a Series A investment, where the market failure is in the larger checks being written quickly and with conviction.
New Zealand Connection Some agreed, but many disagreed (many domestic VC managers consider the definition too lenient) 1) Do not excessively differentiate between local and international funds. Relax the manager definition to allow offshore managers to set up and grow a team rather than limit this from the start.

2) Require actual decision making power (i.e. investment committee) to be in New Zealand (a few submitters).

3) Distinguish funds originated in New Zealand and funds with a New Zealand Connection (4 submitters).

4) Increase the hurdle for New Zealand Connection to include:
• one New Zealand resident who is a “senior carry partner” in the Fund and holds an Investment Committee vote, plus
• one New Zealand resident analyst.

5) A more appropriate test should link to the benefit that the Fund brings to New Zealand.

6) A test of ownerhsip of both the fund and the manager, where the only meaningful test (e.g. funds where 80% of investment is from New Zealand investors (NZ Underlying Funds) and 80% of the management fee and the 80% of the carry (or equivalent) goes to New Zealand citizens or people with a resident visa.
1) Both are needed to develop a healthy local industry and to provide the quantum of capital need to achieve world-class status in the field. We should build stronger connections with the world, then we should consider 50/50 for the foreign VC who could invest up to 50% for overseas market

2) If only 1 person in NZ, rest in Ausralia, then conversation happening in Australia, less NZ centric, less NZ training.

2) and 3) Under the current definition, it is permissible that the full $300m is allocated to VC funds that are controlled and managed by offshore groups, representing a serious risk to the policy intent; Foreign funds tend to be opportunistic and may not make a long-term commitment. Foregin funds will import certain biases, and that they will not understand, or materially seek to understand Maori Owned businesses or businesses owned by other diverse founders.
We have tried to tighten the New Zealand Connection definition by now requiring funds to have at least 2 investment professionals located in New Zealand, and for 1 of them to be at least a senior investment professional in a voting role whose principle place of work is New Zealand,

We also now require funds to demonstrate significant commitment to the development of the New Zealand Venture Capital Market, and although we do not prescribe exactly what this is (leaving it up to funds to propose) - we offer some examples in the Policy Statement. Contractual terms can ensure compliance with promised committments.

Note that definition of New Zealand Connection includes New Zealand originated funds. Also, under the Bill, Ministers are required to define what New Zealand Connected means.
New Zealand entities Some agreed, but some disagreed (for different reasons as below):

1) Not aligned with business practices and the new generation of new jobs (2 submitters)

2) the definition needs to be broader and flexible (a few submitters)

3) the definition needs to be tighter (1 submitter).
1) Make the domicile of the parent company the primary test (1 submitter)

2) Include NZ founded companies or NZ entrepreneur companies (2 submitters). Remove bullet point 3 ([where at least 20 per cent of [tangible assets][assets] (by value) or employees and independent contractors (by number) are located in New Zealand, and both (1) the voting control is held by one or more New Zealand residents for tax purposes, and (2) the majority of its senior leadership team are New Zealand residents for tax purposes.), especially the requirement of the majority of its senior leadership team are New Zealand residents for tax purposes. Lower the % of assets and employee test from 50% to 20% with a defined mechanism to considier other cases

3) Tighten the wording to include "ultimate voting control"

4) Align with foreign entity tax rules (1 submitter)

5) Add "the Entity qualifies for the venture capital exemption under the Foreign Investment Fund rules" (1 submitter)
1) This is a key feature of every NZ start-up that we have considered for investment; Companies often outsource their resource from other countries (e.g. marketing, software development resource). Tangible assets are mostly office equipment - therefore a poor test. Software companies are the primary business of an early-stage companies in NZ. They are asset-light and selling software code packaged as a product. It is an intangible asset.

2) Some internationally aspiring NZ domestic funds / specialised corporate VCs: this type of fund looks for opportunities around the globe and need a broader mandate on investee companies. It is not uncommon for leadership of a New Zealand business to move offshore, closer to its key markets. If the majority of the economic benefit is flowing back to New Zealand, then why would we be concerned where the leadership is located? Don’t constrain the businesses or the Underlying Funds from doing the right thing for the business and value creation. Companies should be flexible to make the best decision at the time when it comes to capital and hiring senior leadership. The current definition could be an impediment to maximising the number of successful companies. Many deep-tech companies need to amalgamate with foreign companies to further their product – so may not meet definition

3) Some fringe risk of overseas entities structuring themselves through NZ proxies to meet the "voting control" thresholds, and qualify for the VCF.

5) This has the benefit of enabling an Underlying Fund to invest in a New Zealand entity that has previously undertaken a “flip” into another jurisdiction.
We acknowledge the submissions and debate at the workshops on this subject and have reworked the definition.

The new definition tries to better capture firms which are essentially NZ firms (but which might have been ommitted previously) while still ensuring we rule out firms with just a tenious connection.

We have dropped the tangible assets requirement, as we agree it makes little sense in the context of start-ups, with most assets intangible.

There is a now requirement to meet a location and an ownership / control aspect, but different ways to do meet the requirement.

For example if senior leadership has moved offshore, but the ownership (founders and investors) remain majority Kiwis - then this would still 'tick' the ownership/control requirment. Similarly if an R&D intensive of software developer firm has less than 50% of its employees in New Zealand, but still maintains its main operations in NZ - then it can still meet the location requirement. Lastly there is a 10% allocation for firms that do not qualify as NZ Entities, that can be used if the firm is essentially a NZ firm but doesn't meet the new critieria.
Co-investment Sought clarity or disagreed 1) Some VC managers raised a concern that the co-investment definition is unclear.

2) Definition should be removed.
1) A co-investment by the VCF should be at the discretion of the underlying fund and the VCF would have an opportunity to co-invest but not a right that obligates the underlying fund (to avoid compulsion) 1) This is the intention in the policy statement. The wording around co-investment has been changed to make it clearer.

2) Please see our response under Policy 4 Co-investments
Follow-on investment Disagree The definition doesn’t specifically provide that the existing portfolio Entity must be one that has previously been made by the Underlying Fund from funds that were co-mingled with VCF interests. - The submitter has misunderstood the definitions in the Policy Statement. No change is required.
Foreign fund investment Supportive, but recommend to broaden the definition Add to the first sentence words to the effect: alongside on a matching basis with the other committed capital of the Foreign Fund (in such a way to meet the private capital requirements of Policy 5). At present the definition only obliges the Foreign Fund to deploy the VCF committed capital into New Zealand Entities.

To ensure that it can accommodate transactional investments. That is, investors like ourselves invest from our balance sheet which may not be captured by that part of the definition that references: "...a side car or similar investment vehicle...
- We agree with the comment in the first paragraph and that was the intention in the Policy Statement. The Policy Statement has been updated in this respect. Foreign fund managers are required to deploy VCF capital and matching funds into NZ Entities.
We do not agree with the point in the second paragraph, which appears to relate to a direct investment. The VCF programme is a Fund of Funds programme.
Fund-of-funds Partial disagreement Remove the reference to co-investment - Please see our response under Policy 4 Co-investments
Series C and C+ capital Too broad 1) This definition leaves very broad discretion on the placement of up to 25% of the overall allocation. Consider including clearer parameters on what funding rounds are sought to be covered in this definition.

2) This definition should be modified to be only greater that NZ$20 million.
2) The current definition captures amount less than NZ $100,000. 1) This point, made by one submitter, has been discussed extensively by the project group. We initially started with separate allocations to Seed and Series C and then decided to combine the allocations into a 25% bucket. Allowing this flexibility will help to ensure the overall success of the programme by allowing underlying funds to get in early and/or to follow successful invest as the opportunities arise, improving financial returns.

2) The definition is revised accordingly.
Other points (for definitions) 1) Provide more flexibility

2) Add new definitions
Add "typically", "usually", and the interpretation of the definitions resides with the Guardians. For example, a company by all other metrics may be a "Series A" company but is raising less than $2 million for valid reasons (dilution, bridging finance etc) and would therefore be classed as a "Seed" investment. Managers should be able to get a secure permission to invest prior to making an investment where there is doubt. Broadly, if the investment is helping NZ companies and entrepreneurs and our reputation in the global community, then investment should be considered. We have tried to provide flexibility; including in the allocation allowed outside of the target Series A / B area, the manner in which we have defined NZ entities, and the 10% allowance for investments that don't meet the NZ entity definition.

The definition of NZ entities has been reworked to provide options on meeting the location and an ownership/control aspects.

The flexibility on investing per stage is catered for by having an 25% allowance outside of Series A / B.
Policies Policy 1: Investment model General support or provided no feedback. - A fund of funds approach is the best approach to address the lack of venture capital funding available for NZ founded high growth companies. -
Policy 2: New Zealand fund investments Diversing views (i) 70% allocation to funds with a NZ Connection:
Reinforce that the 70% of the VCF funding must be allocated for investment in funds with a New Zealand connection (i.e. the VCF is not obligated to reserve an allocation for foreign funds).

Direct the 70% allocation to New Zealand originated funds.

Allocation to NZ funds should be higher.
  We acknowledge the concerns of the existing local VC industry We have added more to the Preamble and Objectives sections to stress this point.

The purpose of having 70% of the funds earmarked for New Zealand Connected funds, and then strengthening the definition of what a New Zealand Connected Fund is, is precisely to ensure that the majority of funding goes to funds demonstrating commitment to the New Zealand ecosystem. Funds which originate from New Zealand should be at an advantage in demonstrating their commitment to the ecosystem, and should also have an the advantage of local knowledge of founders, firms, incubators, and seed level investors.
(ii) 75% allocation to Series A and B:
1) Any follow on investments into a company that was intially a Series A or B should count within the 75% allocation regardless of what stage the company is at when the follow on investment was made.

2) Increase to "a minumum of 85% " to be invested in local funds.

3) Decrease the 75% allocation to Series A & B to 65%. 25% should be expanded

4) Limit investments in seed and series C and beyond

5) Apply Policy 2 (ii) and (iii) at the VCF level not at the underlying fund level. Or increase the cap to say 30% or 33%. Otherwise we may create an unintended gap at seed level funding (arguably we have this currently)

6) Seed investment should only be allowed by funds with a New Zealand Connection and should be capped at 5% of total VCF funding received (1 submitter).

7) 25% Carve out. We interpret this provision to apply “at the time the Underlying Fund makes its initial investment”. We like this flexibility but see no reason to extend this to late stage, Series C investments, as an initial investment
1) Typically funds reserve between one third to a half of its capital for follow on investments. A strict interpretation of the current policy could mean that a fund is unable to follow succesful winners due to portfolio construction limits imposed by the VCF.

2) To focus on local venture capital funds. Otherwise, more established funds will activate quickly to take advantage of the VCF opportunity.

3) Investee companies can benefit by accepting capital in seed rounds from VCs - shorter deal completion period, introductions to new customers and planning around future capital raises. VCs want to invest in seed stage to accelerate growth in early-stage businesses and provide opportunities for investment in series A and B rounds.

4) Diverting capital from Series A and B. Structurally, this change (Seed, Series A and B) can be acccommodated simply within an underlying fund.

6) The argument for the allowance of investments in seed rounds to alleviate the fears "foreign or first-time funds" may have regarding seed investors being on the cap table with pre-emptive rights is flawed. The existing seed investment ecosystem should not be undermined by the VCF funding that is intended to fix a Series A and B gap.

7) The Series C and above market is well covered in New Zealand by domestic Private Equity funds and Foreign Funds.
To provide further flexibility, we have updated the 25% carve out to be at the VCF portfolio level (rather than an individual fund level). This allows us to cater for a variety of investment approaches, and for some funds to slightly exceed teh 25% threshold (as long as it is still met across the portfolio)
(iii) Investment into foreign entities:
1) The 10% limit should not exclude NZ founded companies, which should and will be considered as part of the NZ entitities defition

2)The 10% limit in investing in foreign entities should be increased to 20-30% (4 submitters) (the Australian programme allows for 20%).

3) Investments in foreign entitites should be on exception basis (no allowance to be provided) (1 submitter).
(iii) Investment into foreign entities:
2) Offshore investors would only consider investing in an Australasian VC to reduce the risk of economic volatility and quality of deal flow. International LPs bring additional connections and expertise; incentivises VC funds to be more international; VC firms will achieve the scale needed to attract expertise, specialisation and further build out an international network; shared learning and best practice between foreign and NZ firms; better risk adjusted returns.

The reason being that most Underlying Funds will have an “investment concentration limit” as part of their Investment Agreement; this limits the total amount that they can invest in any one deal. Practically our view is that a 10% constraint imposed at the Underlying Fund level will be too limiting to be able to use this carve out effectively.
1)   NZ companies are not excluded. An NZ Entity is defined as at the time of the initial investment. If at that time a NZ company has already relocated, it is not excluded form the Foreign Company sleeve.

2)  We do not agree that the 10% limit in investing in foreign entitites should be increased. The Australian programme allows for 20%, but the settings and context of the Australian programme are different to the NZ VCF programme.

3) We consider that the allowance provides for greater clarity and simplicity than an exception based approach.
Policy 3: Foreign fund investments Wide range of views. Some submitters advocated more allocation in foreign fund investments, but some advocating less allocation in foreign fund investments 1) Support

2) Decreased e.g. "up to 15% or up to 10%", if not zero.

3) Increase the 30% allocation to foreign funds to 40%

4) Unnecessary
1) The 30% allocation strikes the right balance between bringing in specific skills and scale without crowding out local players and allows the ecosystem to develop depth and sophistication. It would be concerning if this was to be reduced.

2) To focus on local venture capital funds. Otherwise, more established funds will activate quickly to take advantage of the VCF opportunity. Access to capital is not an issue for foreign funds. The availability of VCF fnding to foreign funds may result in poorer quality of foreign funds that have difficulty in raising capital in their domestic markets.

3) Foreign funds are able to leverage their exsiting portfolio, deep domain expertise and international networks for the benefit of their investee companies to succeed in international markets.
We acknowledge the concerns of the existing local VC industry, but re-iterate our intention to grow a sustainable domestic VC industry as 1 of 2 key goals. We have added more to the Preamble and Objectives sections to stress this point.

The purpose of having 70% of the funds earmarked for New Zealand Connected funds, and then strengthening the definition of what a New Zealand Connected Fund is, is precisely to ensure that the majority of funding goes to funds demonstrating commitment to the New Zealand ecosystem. Funds which originate from New Zealand should be at an advantage in demonstrating their commitment to the ecosystem, and should also have an the advantage of local knowledge of founders, firms, incubators, and seed level investors.
Policy 4: Co-investment with underlying funds Generally cautious and disagree. Either do not hold capital back for co-investment or remove

If included, any co-investment is limited to the sole discretion of the VC fund manager (a few submitters)

Do not restrict co-investment to follow-on investments and co-investments should be limited to investments in Series A (1 submitter).
1) The rationale for co-investments is not apparent. Co-investments will reduce capital that can be allocated to underlying funds. To achieve the objectives, it would be better to maximise allocation to underlying funds. Co-investment does not meet the objective of filling the Series A gap.

2) The VCF will see a much lower multiplier effect on the co-investment dollars invested than on the dollars invested into funds, especially into the First Closes of funds.

3) Conflicts of interest arise (a few) - might influence NZVIF's decisions on which fund managers to back. The VCF will be the last resort and will not be given the opportunity to invest in better deals.

4) Co-investments on which management fees are not paid would work against the need to have a sufficient management fee pool to ensure VC fund managers are able to build teams and invest in capability, especially given the minimum efficient scale issues in the market (a few submitters).

5) Co-investment could have crowding out effects, especially if deal flow is low.

6) Having to build a quality team within NZSF / NZVIF adding additional costs to the programme and will be in direct competition for talent with other fund managers. If this is to be done, the new team must be built within the NZSF and not by NZVIF (1 submitter).

7) Types of transactions that a crowdfunding platform should also sit within the mandate of the VCF co-investment.
The intention of the Policy Statement is to provide limited scope for co-investment. The wording of the Policy Statement has been clarified. For the avoidance of doubt, the application of co-investment is at the discretion of the underlying fund manager. Additional investment criteria will be included in the investment contract to manage conflicts of interest. These criteria will be made available once the Policy Statement is finalised and made public.
Policy 5: Private capital requirements No consensus.

Submitters are more focused on when the capital would be committed (the majority of domestic fund managers want it at First Close).
Option 1 was the simple policy statement that allowed matching to be up to 1:1 (a maximum of $1 of public capital matched for every $1 of private capital raised) applied across all funds regardless of origin
Option 2 called for a differential between Foreign Funds and New Zealand Connected Funds
Option 2 will bring more capital into the VC market.

We see this more aligned to creating a sustainable venture capital market in New Zealand.

If NZVIF cannot make an early committment, what is the point?

Early commitment from NZVIF helps raise capital.
We have opted for the simpler Option 1, increasing the flexibility of the fund of funds manager to match public capital on a discretionary basis. This allows the manager to consider mulitple factors, including the size of the fund and the need for additional capital (including such factors as whether it is a first time manager or there is a shortage of capital being raised in a particular niche in the market).

The process and when capital is matched (first or last money), will form part of a publication which we will release ahead of the go live (but not part of the Policy Statement).
Policy 6: Initial investment period General support or majority provided no feedback 1) Expectation should be that the VCF is fully committed within the 5 year period. If not fully committed, the VCF should have to justify why they could not deploy the capital and reapply for a new mandate (1+ submitter).

2) Typical investment period is six, not five years (1 submitter).

3) Confirming that this means that the VCF can make capital commitments to funds for a period of 5 years, but that the Funds will be investing that capital outside of that window (2 submitters).

4) It should be noted that Guardians may elect to commit VCF capital that may have previously been earmarked for Co-investment outside of the “Initial Investment Period”.

5) Timing of commitments should be front-loaded.

6) Investment period should be less than 5 years because you will see capital allocated further

7) Make it clear how much $ will be committed and deployed over the next 5-10 years and show the math in deployment of capital to companies over 10 years
3) Placing arbitrary deployment timelines could result in sub-standard investment decisions being made.

5) So that companies receive funding earlier.
Notwithstanding the intention to deploy the VCF in the first five years, the structure provides for flexibility and a secondary investment period, which effectively makes it an ever-green structure.
Policy 7: Secondary investment period / recycling General support or majority provided no feedback 1) Allow recycling into Series C as the portfolio matures.

2) Prefer that this is addressed at the time, so that there is a formal review before rollover.
1) This would allow the fund manager to potentially increase total returns in growth stages of companies they've invested time and money supporting in the higher risk phases of A/B. Recycling into Series C is allowed as part of the 25% discussed above.
Policy 8: Return of capital to Crown / 15 year investment period General support or majority provided no feedback Be specific about what happens at the end of the 15 year period. Underlying LP documents may need to be drafted to cater for LP interest transfers etc. forced harvest? Or run-off adminstered by the Guardians? The Policy Statement allows for flexibility and there will not be a requirement for forced harvest. It has been flagged that the programme is expected to run for 15 years, but that is not prescriptive.
Policy 9: Govt economic strategy General support or majority provided no feedback Address sector-specific investment gaps, especially in the energy sector where gaps are hindering investment and transition to a low emisisons econmy. Energy and food are key sectors for transitioning to a low emissions economy.

Complementing the establishment of National New Energy Development Center (announced by the Government in Budget 2019).
Directing investments into specific areas may reduce the investible universe and thereby limit the overall success of the programme. We will however monitor how the programme delivers against the Government's key goals including sustainability, inclusivity (both diversity and regional inclusion), and could amend the Policy Statement in future to address particular concerns.
Other points (for policies) A number of points have been raised 1) Currently silent on vintages (2 submitters)

2) Set maximum amount of investment for an underlying fund  (2 submitters)

3) Set a minimum efficient scale for an underlying fund to avoid sub-scale funds (a few)

4) The VCF commitment should be on the same terms as the other investors (1 submitter)

5) Add the committment to set up a transparent process in selecting underlying funds or the Guardians to issue a statement to provide assurance over transparency and certainty (a few)

6) Potential for more corporate venturing (1 submitter)

7) Add a requirement of any funding recipients to actively demonstrate their commitment to investing in capability development and founder culture execution via mandated metrics reporting (1 submitter).
1) This will impact timing for fund raising if the VCF is fully allocated for any vintage; to help build track record in second round.

2) The $30 million represents 10% of the total VCF capital and is "best practice" for portfolio construction. It also provides a balance without bias between the potentially competing objectives of 'increasing the venture capital available to New Zealand entities' and 'a self-sustaining domestic venture capital market'.

3) It would be better to support a smaller subset of well funded NZ managers than to spread the resource too wide; In order to make meaningful late seed / series A investments (on a standalone basis not as a feeder fund for an offshore main fund) to be at least NZ $50 million. New Zealand needs 3 to 4 diverse domestic Venture Funds (with differing sector focus and these) of NZD 100-300 million able to lead significant Series A & B investments (of sufficient size to expand in high cost offshore markets), but also follow on and support companies through later funding rounds with limited friction (a model which Blackbird & Airtree in Australia have followed close to home).

5) Provide assurance and certainty. Also key criteria that will be required for an underlying fund would be useful information that would facilitate communication with LPs.
The Policy Statement does refer to vintages and it is anticipated that the fund is open to multiple vintages.

On the other points, we acknowledge the many submissions requesting more certainty on criteria, process and due diligence requirements.

We will include more details and make this information public before the programme goes live. The expectation is that these details will be available when the Policy Statement is made public.
8) VCF manager should not be allowed to invest into companies where they or associated entities are already investors (1 submitter).

9) Needs very explicit definition between SCIF and VCF mandates. Completely separate NZVIF-VCF and NZVIF-SCIF board and management. Any of the VCFs should not be allowed to co-fund in the same investment round as NZVIF and SCIF (a few).

10) If a domestic fund raises a certain amount of funds, from a minumum number of investors, with a Series A and B mandate then, subject to reasonableness tests, they should receive co-funding (1 submitter).

11) NZVIF should get same level of reporting as other LPs and no advisory board seat

7) Lack of capability (founders and fund managers) has been a consistent point of failure.

8) The conflicts are too great.

9) Doubling up of funding from the government and potential conflicts of interest.
Other points (for the VCF) Attracting capital Many commented with potential options 1) Introduce tax incentives (a few)
2) Provide return uplift for investors or risk mitigation (1 submitter)

3) NZVIF to commit early to function as a cornerstone investor (a few)

4) Allow a bigger allocation to invest in foreign entities so VCs can be seen as a regional player and help raise capital (a couple)

5) VCF to provide for sidecar arrangement with a core fund investing in NZ entities and a sidecar fund investing in Australasian venture, both qualifying as matching private capital (1 submitter)

6) Due Diligence needs to be available to LPs or subsidise due diligence costs (a few).

7) Reform of NZTE mandate to allow NZ VC fund managers to benefit from access to their personnel and networks to raise offshore LP capital currently ineligible (a few)

8) Incentives for Investor Migrants to invest in qualifying VC funds (2 submitters)
To help VC managers raise capital and attract capital into the VC market We believe that by publically committing $300 million to the space and drawing attention to the Series A gap and the growing pipeline of opportunities, we have started raising awareness of potential opportunities for investors. By matching capital (and potentially doubling a qualifying funds portfolio, the amount of money available for follow on investment, and increasing the fees that can be used on staff, services or due diligence) we help mitigate some of the inherent sub-scale risks for investors in this sector. This should help attract capital into the space.

Government also runs other key programmes that continue to build the pipeline of opportunities; R&D tax incentive, incubator programmes, other science and commercialisation funding.

Finally Government will continue to consider other intiiatives which could assist raise capital (but outside of this programme) - for example regulatory changes or guidelines on investment advice.
9) Regulatory reform to enable the Private Wealth sector to recommend investment in NZ VC funds to their clients (3 submitters).

10) Kiwisaver fund manager not investing in alternative assets of which venture funds are a small element (1 submitter)
Inclusion - Build a focus on funds that either hire or invest in diverse teams, especially those that are underrepresented in venture - female founders, people of colour, etc. (2 submitters)

Support regional funds (1 submitter)

Gap in deep-tech – maybe there should be a sector focus in the Policy Statement

Support funds with the intent to creat social impacts (2 submitters).

Incorporate the Living Standards Framework into the VCF (1 submitter). (e.g. reporting measures to be aligned with the Framework).
Diverse teams perform better and there is a trend offshore to back underrepresented populations in the venture industry and also in businesses (e.g. US institutional investors).

Social impact funds are proven to attract new capital and activate new areas / sectors.
Some of these issues are being examined by the Select committee as submissions for inclusion in the Bill.
Last reviewed: 08 November 2018