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simon moutter’s venture capital fund – one VC to rule them all?

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It’s great to see Simon Moutter (Spark NZ CEO) proposing a new kiwi VC fund – backed by large NZ corporates, investors and iwi – on his return from a big business fact finding tour of the Israeli tech ecosystem.

Moutter’s proposal certainly zeros in (or perhaps we should say Xeros in) on an obvious hole in NZ’s tech ecosystem.  New Zealand has no active Silicon Valley style venture capital funds, so startups wanting to raise serious Series A money (think USD2m-7.5m) have to either change their growth model or look off-shore for money.

Having said that, we take issue with the implicit premise for the trip to Israel – that NZ’s tech ecosystem is under-performing and needs NZ’s corporate champions to fix it.  From what we can see (working with many tech companies and entreprenuers), the ecosystem has never been healthier, from the number of boot strapping startups right through to the number of NZ technology companies listed on the NZX and ASX.

As far as investment is concerned, NZ tech companies are raising money from NZ and international investors in ever increasing volumes.  This year, our firm alone has been involved in more than 50 tech company capital raising transactions, including some large investments led by NZ and international corporates.  The only negative that we can see is that there has been less series A style deals (and these deals have all been led by offshore VCs).

Although we would love to see more VCs active in NZ, we’re uneasy about Moutter’s proposal to create a corporate investor co-operative for a couple of reasons:

  • NZ has already tried the One Investor to Lead Them All approach in the form of NZVIF, and that hasn’t worked very well. In particular, its standardisation of investment approach and terms has been bad for NZ tech companies; and
  • there are currently a bunch of NZ corporates, including Spark, who are investing directly into NZ tech companies. This has been great for the sector, and we’d hate to lose that investment diversity in favour of a centralised investment desk.

What we would love to see happen is for Spark to set up its own independent VC fund, at arms length from Spark (we think their existing venture team is good to work with, but they are an internal team that is rightly focussed on Spark’s commercial priorities).  Moutter could then encourage his peers to do the same and, if they take up the challenge, a competitive industry would be born.  The great benefit of this is that each VC would develop its own investment expertise and terms, and this sort of diversity is critical to creating a vibrant market.

Even better for Spark, this wouldn’t require it to commit a lot of capital to get the fund started.  Our client Rakuten Ventures, a venture capital fund set up by Japanese e-commerce giant Rakuten, is a great example of how this could be done.  Rakuten started off life as a USD10million fund, but has grown substantially through its successful investment activity – Rakuten recently completed a USD35million Series B investment in Singapore e-commerce company Carousell, one of Southeast Asia’s largest VC transactions this year.

If Moutter would like more local input on his ideas, a great place to start would be joining the NZ Tech Startups Eco-System Facebook group.  The group has over 5,000 members, and the discussions on the health of NZ’s tech sector and capital raising scene are always entertaining and robust.  We’d love to see him there!

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