- There is still plenty of capital available in the United States, low-interest rates have led to record flows into investment funds.
- The New Zealand market is not large enough to fulfil post-capital valuations on its own. It is important from day one that kiwi companies plan to go global.
“It’s important from day one that we help prospective companies in our portfolio to go international.” – Tony Bishop
While there was agreement at the Tripartite Economic Summit that Auckland’s companies are ripe for investment, whether that investment will reach them was the subject of some disagreement.
Bob Perille’s initial message to New Zealand companies was unambiguous: “There is a lot of capital available in the United States.” Persistently low-interest rates have led to record flows into investment funds. While the Dodd-Frank legislation constrained the lending of commercial banks, alternative investment funds such as Sankaty, Carlyle, and BlackRock have “deep wells” available.
Bob Perille of Shamrock Capital / Photo: twitter
A slight slowdown in the venture capital market can be attributed to cyclical patterns seen in US private equity. “Things may have gotten a little bit ahead of themselves in the venture world, and it’s corrected a little bit,” said Perille. “Capital tends to cycle.”
New Zealand companies operating at the crossroads of business and technology would do well to look to Los Angeles in particular for investment. “Because Los Angeles is the content capital of the United States, it’s a natural place for media and technology businesses,” explained Perille.
With the Tripartite Summit his first visit to New Zealand, Perille opined that he thought he may have found a hidden gem for US venture and private equity – particularly given that the market is so crowded in the United States. New Zealand represents a great opportunity for investment from the US, in light of the two countries sharing a language, and a set of legal and accounting principles that are compatible.
Tony Bishop, Managing Partner of Pan Pacific Capital, highlighted that while many companies in the US and China can grow within their domestic markets in their early days, the New Zealand market is not large enough to fulfil post-capital valuations on its own. As a result, “it’s important from day one that we help prospective companies in our portfolio to go international.”
This makes international networks highly important, which can be manifested through government funder fund relationships as well as partnerships where complementary needs can be identified.
For example, in the company’s newest fund, a joint venture, Pan Pacific has the New Zealand Venture Investment Fund (NZVIF) alongside a greater China government funder fund as cornerstone investors. “That gives us a lot of credibility when we’re looking to do business in those local markets,” said Bishop.
Key opportunities for partnerships in the Chinese market can be found in environmental management, healthcare, and safe food production. These are areas where technology and New Zealand’s competitive advantage in innovation can satisfy the needs of the Chinese market.
“The cloud that’s over the market here is that if that’s support is removed, and there’s suggestion that government will remove it, then companies will get that initial kick of investment through the research institutes that have been very well funded here. But for their follow-on capital: there won’t be any; unless the company will migrate overseas early on.” -Tony Bishop
“This creates the ideal opportunity to collaborate,” said Bishop. “And that’s what the Tripartite Summit is about: how we collaborate cross-border.”
But there was a warning: while Perille expressed the abundance of capital that may be available from US markets, Bishop was concerned that these investors are reluctant to make the trip to New Zealand, and are reluctant to invest if they don’t make the trip.
And in the domestic markets, reliance on government-backed venture funds could be dangerous. Every venture fund created in New Zealand since the establishment of the government-supported NZVIF programme in 2002 has been backed by NZVIF itself.
“The cloud that’s over the market here is that if that’s support is removed, and there’s suggestion that government will remove it, then companies will get that initial kick of investment through the research institutes that have been very well funded here. But for their follow-on capital: there won’t be any; unless the company will migrate overseas early on.”
The medicine? “We need that continued support for probably another generation of venture to keep the industry going here.”