Markets and growth require the free flow of capital, and the New Zealand Private Capital Association is an advocate, educator and connector in this space. We speak with Executive Director Colin McKinnon about the Association’s work and how New Zealand's venture funds and their portfolio companies are of interest to international investors.
How does New Zealand Private Capital champion the business investment community?
As a member-driven organisation, New Zealand Private Capital is a connector and mentor in the private capital industry. Our members span the activities of the private capital market and include international and domestic fund managers; law, accounting, and banking professionals; institutional investors; business angels; and government agencies.
We actively help businesses navigate and understand the private equity and venture capital world. We connect business owners with investors, and we provide a voice and profile for private capital via events, publications and media.
How does New Zealand Private Capital connect with its members here and internationally?
We engage with the community via our website, newsletters and social media to tell the story about what’s going on in the private capital marketplace in New Zealand. Our professional development workshops offer peer-to-peer learning, and we hold two conferences each year, the NZ Venture Summit and the NZ Private Capital Conference.
The association undertakes research on the activities of private capital in New Zealand – funds raised, investments and divestments – and also on the financial returns that are attributable to the investors. This research is published annually in our market reports, the Private Capital Monitor and the Institutional Investors Overview, which contain key insights and data for business owners and investors.
How do you help offshore limited partners (LPs) learn more about New Zealand and our investment ecosystem?
We regularly get inquiries from international investors looking for an understanding of private equity and venture capital markets in New Zealand.
New Zealand’s growth companies’ demand for capital and capability is an opportunity for international investors. New Zealand funds and their portfolio companies look to benefit from offshore capabilities and connections as well as capital.
The economic, legal and social environment in New Zealand provides clear preconditions for private equity investment. New Zealand is ranked the eighth most attractive market for private equity globally (out of 125 countries), comparable to European markets such as Germany, Switzerland, Denmark and Norway.
New Zealand Private Capital has an online members’ directory, including local fund managers and professional service firms. We can support international investors with local knowledge and senior leadership introductions, saving time with connections to the right people. Offshore LPs are welcome to contact us directly. I regularly get calls from founders looking for capital, and investors looking for opportunities – New Zealand Private Capital connects them.
Who is investing in New Zealand?
Funds investing in New Zealand are predominantly from New Zealand and Australia. But in the venture capital space, there is a significant number of American, European and Asian venture capital funds investing alongside the New Zealand fund managers. Such international investors – including Blackstone, KKR, Tiger Global, Khosla, Blackbird, Bessemer, Techstars and many more – are drawn to New Zealand’s ability to generate globally relevant deep tech and science innovation. Often the cost of development and early access are attractive when international investors can build high-trust relationships with local investors.
The outcomes of these co-investments in New Zealand companies are worth noting. For example, Vend (a cloud point-of-sale and inventory management developer) was recently sold to competitor Lightspeed for US$350 million; shareholders included Movac, Peter Thiel’s Valar Ventures, and TradeMe founder Sam Morgan. The sale of Seequent (a developer of geoscience analysis software) to Nasdaq-listed company Bentley Systems for US$1.05 billion included Accel-KKR Capital Partners and Pencarrow Private Equity as shareholders.
What is your take on recent developments in New Zealand’s venture capital?
Over the last several years, we’ve seen a marked increase in the number of first-time New Zealand fund managers, such as Nuance Connected Capital, Pacific Channel and Alt Ventures, as well as others raising third, fourth and fifth funds, including GD1 (third) and Movac (fourth and fifth). Some of these have received LP investments from Elevate NZ Venture Fund, a NZ $300 million fund of funds program.
The sweet spot for investment in the New Zealand market is the mid-market space, with investment sizes of NZ$5 million to NZ$50 million. The returns are compelling: Cambridge Associates indicates an aggregate gross internal rate of return (IRR) commensurate with what offshore investors can expect from investments in other countries.
Can you tell us about some compelling investments that drew a mix of New Zealand and offshore LPs?
Funds from offshore that have New Zealand mandates include AirTree Ventures (Australia), Blackbird Ventures (Australia and New Zealand) and Square Peg Capital (Australia, Israel and Southeast Asia). International co-investors include BlackRock, Bessemer VP and Sequoia Capital (USA), as well as Horizon Ventures (Hong Kong). These funds have invested in New Zealand’s success stories such as Rocket Lab and Soul Machines at the later stages and AskNicely, Mint Innovation and 90 Seconds at the startup stage onwards. The Vend sale, noted earlier, is another good example.
How do you position NZ Super Fund and KiwiSaver as significant investors?
NZ Super Fund has been a strong investor in local private equity and venture capital funds where it meets portfolio requirements and return objectives. NZ Super Fund is an investor in the Elevate program.
Interestingly, KiwiSaver funds and some institutional investors, such as Simplicity, have started investing in venture capital. The most recent example is Kiwi Wealth, which is investing in Movac. KiwiSaver has matured to a significant pool of capital – NZ$81.6 billion in 2021, according to the Financial Markets Authority (FMA) – with the opportunity to invest further in venture capital.
Most recently, we have seen the KiwiSaver fund Pathfinder invest in Nuance Connected Capital (KiwiSaver is the New Zealand government’s personal retirement savings programme). Nuance’s LPs also include NZGCP, which has allocated a number of venture funds in Auckland, such as the GD1’s third fund and the Movac’s fifth fund as mentioned above.
What are the key factors offshore investors and funds need to know about the New Zealand community?
Like the US, Canada and Australia, New Zealand practices the common law legal system derived from English common law . This means New Zealand provides investors with a well-defined, open and transparent business environment. In addition, the taxation system is seen as business-friendly, having double tax treaties with more than 30 countries.
For several years, New Zealand is has ranked number one in the world for ease of doing business, according to the World Bank’s Doing Business Report. It is also a country with low levels of corruption, and Auckland is regularly ranked as one of the world’s most liveable cities.
The New Zealand investment community is very well connected. When overseas LPs consider New Zealand, they will be best received if they are ‘like-minded’ with international best practices. That said, New Zealand venture funds are keen to connect with offshore partners, especially in the climate tech and deep tech/AI sectors, where specialist funds offshore can provide strong entrees for portfolio companies as well as follow-on capital.
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DISCLAIMER: This article provides general information on potential investment opportunities in Auckland and is not intended to be used as a substitute for financial advice. The views and opinions expressed are those of the relevant author and do not necessarily reflect the views of Tātaki Auckland Unlimited. Tātaki Auckland Unlimited and the author disclaims all liability in connection with any action that may be taken in reliance on this article, and for any error, deficiency, flaw or omission contained in it.