Venture Capital in New Zealand: A Struggling Enterprise
Ashley Fry
Center for the Study of Private Enterprise
College of Business and Economics
Abstract
As a small economy, maintaining a presence on the global stage is challenging; New Zealand, however is not a country to be left behind. After seeing venture capital backed firms across the globe create more jobs and have higher revenues than non-ventured firms, New Zealand has taken the plunge, creating a fledgling venture capital market that is fighting for success against all the odds. Concentration on venture capital in New Zealand is a relatively new phenomenon, beginning in 2002; as of 2006, however, NZ venture capital as a percent of gross domestic product (GDP) was still only 0.05%, compared to the OECD top quartile's 0.12%, and the barriers to growth were intensifying. This study examined whether New Zealand's venture capital industry has the ability to develop to a state comparable to the international playing field and thereby serve as a principal economic stimulant in New Zealand. Its ability to mature to a sustainable industry remains in question given the many challenges threatening to limit the industry's success, including: underdeveloped capital markets, a small domestic economy, limited investor diversity, and a range of complicated internal barriers.
The results suggest that although developing New Zealand's venture capital market will stimulate positive economic activity, venture capital in New Zealand does not have the capacity to match internationally stable venture capital markets nor fuel significant economic growth; instead, due to the many difficulties hindering the market's development, the venture capital industry will only reach its own potential as the other segments of the financial markets align with international standards as well. Even then, however, New Zealand's small domestic economy and remoteness from the major markets and knowledge centers suggests the venture capital industry will most likely never achieve sustainability. Moving forward, the government needs to focus on developing the other components of the financial system to promote venture capital, rather than depending on venture capital to lead the way. The venture capital community should implement a fund-of-funds venture capital investment vehicle, continue to improve the investment environment, look to collaborate with Australia's venture capital market, and attempt to syndicate with Chinese companies.
Bio
Ashley Fry is a fifth year economics and finance student in the Martindale Student Associates Program under the guidance of Professor Todd Watkins. Her research interests focus on entrepreneurs in different financial systems. After completing her degree, she plans to attend law school and ultimately work in a legal position for a financial firm.
