Venture capital scene 'benefits from its size'

New Zealand's mid-market and venture capital investment scenes are showing robust health despite the global private equity industry suffering its worse hangover in its 50-year history.

While the rough ride continues for buy-out barons in Europe and the United States, particularly at the two ends of the investment process – namey capital raising and exits – the first half of 2009 has proved more fruitful for domestic players.

Although the sector is undeniably quieter than its heyday a few years ago, domestic private capital markets tracked near to long-term trends, with overall investment topping $82 million in the first six months of 2009.

The mid-market private equity sector once again led the way with both investments and divestments, however, there was no return of the top-end, leveraged buy-out private equity deals, absent since early 2007.

Delivering a frank assessment of the current global investment climate at the annual New Zealand Private Equity and Venture Capital conference in Auckland, chairwoman Franceska Banga said the small size and limited nature of the domestic industry could represent a blessing in disguise.

As players in Europe and the United States faced new, stiffer regulatory regimes underpinned by political sensitivities about private equity ownership, Ms Banga told delegates that the New Zealand investment thesis was being strengthened.

"While crisis might be over-stating it, conditions [globally] are certainly challenging. As the rest of the world readjusts towards smaller funds and unleveraged deals, the New Zealand market opportunities look very attractive," she said.

Capital-rich Asia represented a great chance for Kiwi companies eager to grow through private backing.

"With our proximity to Asia, with the development of free trade agreements between New Zealand and various Asian economies, and with the Government's stated desire to really focus on those markets, it is timely to reflect how attractive the New Zealand mid-market opportunities could be to Asian private equity," Ms Banga said.

Angel investors invested a record $30m into young New Zealand companies in the first six months of 2009, taking the amount invested in the past 3 1/2 years to more than $100m. Venture capital fund managers have also been active, with some portfolio companies successfully raising follow-on capital.

Another industry bright spot, Ms Banga said, was the $15 billion New Zealand Superannuation Fund's decision to invest more cash domestically.

SNAPSHOT

Private capital industry snapshot for first half, 2009

* Overall investment in New Zealand companies of $82.1m, down from $88m in first half, 2008.

* Total investment in mid-market private equity of $52.1m, up from $47.4m.

* Average investment deal size increased from $2.06m to $7.4m.

* Total divestment in mid-market private equity was $15.9m over two deals compared with $4.7m over three deals in 2008.

* Venture capital investment of $30m up by $7.1m.

* There were 41 venture capital deals completed with an average size of $0.8m.