The availability of risk capital is the "absolute requirement" for the development of technology industries in countries like New Zealand, says one international specialist — but it typically follows direct government support.
"Unfortunately New Zealand is not on the venture capital map," says Richard Testa, senior partner at Testa, Hurwitz & Thibeault, a US law firm that specialises in venture capital.
But neither, he adds, were two "directly comparable" countries, Ireland and Israel. "The environment was favourable but there was no history. But in less than five years each country has developed a good infrastructure and a record of commercial success."
Testa says one common denominator in both countries was initial government support for technology industries, even though the governments took "quite different" approaches. A recent report compiled by Testa and other lawyers from the firm notes than in Ireland most venture capital-backed software companies have also received government backing, at least in the early stages. "In 1996, for example, the state agency Forbairt reportedly provided capital to 69 Irish companies, of which 60 were software companies." They also note that Irish government incentives to lure multinational companies such as Microsoft and Intel into siting manufacture and development facilities in Ireland have paid off.
Testa says "tax breaks are helpful but not decisive" in establishing a technology sector.
The report says Ireland's technology sector is now subject to capital investment from both domestic and offshore venture funds, including one "important player in the industry", Enterprise Equity, which is funded by the International Fund for Ireland. It concludes that the Irish market is "poised on the threshold for growth, with an interesting convergence of the classic elements of a venture capital industry: experienced entrepreneurs developing proprietary technology and patient capital seeking attractive opportunities."
In Israel the government established its own venture capital agency, which was subsequently spun off as a private entity, and the technology sector has also been aided by organisations such as BIRD
(Binational Industrial Research and Development Fund), which was established by the Israeli and US governments to facilitate economic cooperation between the two countries.
Testa warns, however, that it is still eminently possible for governments to make a hash of venture capital.
"I was in France last month. The decision has been made to create a government-funded — from the proceeds of a privatisation — and government-run venture fund. I talked to the bureaucrat who will run it. It is the worst idea I've seen."