Venture fund makes paper profit of $3m

The New Zealand Venture Investment Fund, set up by the Government eight years ago to kick start the venture capital industry, made a gain on paper of $3 million in the year to June.

The profit was mainly due to a $2.6m increase in the estimated value of the hi-tech companies in which it has invested.

NZVIF also realised a $1.6m gain on the sale of one of its investments, Momentum Energy.

NZVIF chief executive Francesca Banga says it will book another $5m from the same transaction this financial year.

The fund is showing an overall paper loss of $8.7m since its inception. It has invested $75m for stakes in 48 companies. Nine have been sold or gone under and its stakes in the 39 that remain are now estimated to be worth $56.9m. It has invested another $6m of "seed capital" into 33 smaller, earlier-stage start-ups.

The valuations are provided by six privately owned venture capital funds that invest on NZVIF's behalf, matching its investment at least dollar-for-dollar.

"It is still early days for our venture capital funds and the development of the industry, but the year saw encouraging progress," says Ms Banga.

"Across NZVIF's portfolio, there is good revenue growth and, consequently, the combined value of those companies is rising."

But Ms Banga says the environment is tough and venture capital funds are finding it hard to raise fresh equity. "Individual investors are waiting out the recession and are reluctant to commit money to new ventures before seeing a return on existing investments. Meanwhile, institutional investors remain on the sidelines."

Ms Banga has indicated NZVIF will seek fresh capital from the Government to help bridge the gap until its existing venture capital partners start to cash in their investments in a few years' time, after which it will be able to reinvest the proceeds.

- © Fairfax NZ News