Venture capital in New Zealand
Venture capital funding has played a vital role in the New Zealand's business market. There was an estimated $990 million of private equity and venture capital investment in New Zealand throughout 2017. And although private equity (aimed at larger companies) made up the majority of that amount, venture capital is of a huge importance to the local economy.
What is venture capital?
Unlike angel investors who are usually individuals, venture capital uses companies with large pools of money to invest. Therefore the amounts invested are much greater, and the expectation for returns is much higher. The reason for this is that venture capital firms have their own investors to answer to. In creating their pool of funds to deploy, they take money from individuals who have set expectations on when they will get a return and how much they're expecting to get. This pressure is passed on via the venture capital firm to the business owners receiving the investment.
What are the advantages of venture capital?
Venture capital investment in New Zealand has traditionally been restricted to a small number of established companies, or those with huge growth potential. For these kinds of businesses access to capital is essential if they're going to reach their potential. More often than not their product or service has already been validated by the market, however they need to scale; and to do so requires a capital injection. Most venture capital firms will also have an experienced board of directors for guidance. Unlike angel investors who are often working as an individual, with a narrow field of expertise, venture capitalists have to be aptly qualified, or they wouldn't have been able to raise the funds to invest in the first place. They will also more often than not, have a proven track record. As this is their sole field of business, their experience can prove invaluable.
What are the disadvantages of venture capital?
As with all funding options, there are downsides to consider. Most venture capital firms are interested solely in larger scale businesses with massive growth potential. As they're investing large amounts, the process to obtain funding is always extensive and often very difficult. Also, similar to angel investors, venture capitalists require an equity stake. And often given the size of investment they want a larger stake, alongside more day to day control. This is something you need to consider well in advance of a meeting, remembering that most venture capital firms have their own investors to report to, so will want to be involved. Another thing to consider is the proposed exit strategy. More often than not, this is in the form of an IPO, which sounds impressive, but comes with a number of strings attached and most likely sees your ownership stake heavily diluted.
How to approach a venture capital firm?
There are only a few venture capital funds operating in New Zealand. If you think your business fits the description, then the best thing to do is reach out to one and go through your 'elevator pitch.' There will be the obvious follow up questions, most likely around scale and growth, and then if you fit the bill you can move on to working out acceptable terms. Once agreed upon both parties can enter into an agreement that is referred to as a 'term sheet'. From here it will race by and you'll most often have the funds advanced in tranches, usually aligned with certain performance indicators.
Avant-Garde Capital: venture capital in New Zealand
Whilst we aren't a specialist venture capital firm, we're always willing to look at any investment opportunity. If you think your venture is a little too big for an angel investor, we're certainly interested in exploring various options with you.
Send through your elevator pitch right now and we will see if it meets our criteria for a venture capital investment.