Companies shouldn't expect the government to solve their venture capital woes. That was the message given to attendees of the Technology New Zealand Forum at Hi Tech 98.
One of the speakers at the October 30 conference, John Cunningham, director of venture capital bank Caltech Capital Partners, said looking to Wellington for funds had never worked in the past and wouldn't work in the future.
He says companies have to understand what they have to do to impress investors. "In Australia and the US, companies that get money for venture capital have known those people for more than two years. They don't come in and say: 'next week I want funding'. They build up a relationship."
Trade New Zealand chief executive Fran Wilde says there is a leadership issue, but that leadership doesn't just reside in government. "Business leadership is required and there needs to be business leaders who stand up and be counted."
She says the innovation market (IM) being proposed to attract investment in IT companies (Computerworld, October 26, page 1) could be one of the circuit-breakers needed to change the mind set about what a good investment is in New Zealand.
John Blackham, founder of NZ Inc, which is proposing IM, says the government doesn't have a role handing out money. He believes part of the problem for venture capital-seeking companies is that there is no education in how to go about it. "There's very little understanding of the process of growing and building a company in New Zealand." He says the first business plan presented to him claimed the business would make $3 million a year but the page containing the marketing plan was blank.
Cunningham says companies must be prepared, and have a pathway to market. "A lot of people put a good product together … but they won't have shaped the business. People don't invest in products, they invest in businesses." To attract venture capital a plan will have to show a valuation gain of more than 40% a year, he says.
Caltech has seen 151 projects over the past 14 months. It took 45 through to a preliminary assessment. Due diligence was done on seven and money was given to six.
He says the reasons for missing out on funding included approaching Caltech too early, not having enough sales or not being able to match the growth rate needed.
Cunninghame says venture capital goes into companies at the high-growth stage — it doesn't go into mature companies.
He says there are some good growth prospects in New Zealand. "The opportunities in electronics, e-business and software suit New Zealand's [remoteness] ideally."