Five steps to stronger capital markets

This LinkedIn post references an article that originally appeared in in the The New Zealand Herald, 10th June, 2018, and it  has produced some interesting discussions which are threaded below.

• Rockstar Banter
• NZVIF Impact
• Government and @IceAndy ①+②​
• Series A/B Funding

---

Rockstar Banter

Mark Loveys CEO at Datagate Innovation | Usage Billing | Telco | Electricity | Water | SaaS
​A good conversation to have in NZ.

Rudi Bublitz【ツ】 Ⓐngel Ⓘnvestor, Ⓑiz Ⓐdvisor⊕Ⓓirector, Ⓗeterodox

Haha, Mark, says the founder who knows how to grow a business and raise funds, Go Datagate Innovation Limited 👍 Would you say all founders should be a rockstar in their first career? www.tiny.cc/go-sing-mark 🎶

Mark Loveys CEO at Datagate Innovation | Usage Billing | Telco | Electricity | Water | SaaS
Rudi Bublitz【ツ】 some of my earliest and formative business experiences came from running that band. If you can manage a bunch of young adventurous musicians & road crew while living on the smell of an oily rag, touring the countryside and survive to tell the story, you can manage anything! So yes, it’s not a bad idea!

Brett Rider Sales Development Executive at Datagate Innovation Limited
Mark, we should use this veideo in our Datagate marketing literature!

Rudi Bublitz【ツ】 Ⓐngel Ⓘnvestor, Ⓑiz Ⓐdvisor⊕Ⓓirector, Ⓗeterodox
You should! I do for Flying Kiwi Angels 🤙

---

NZVIF Impact

Ralph Shale Chief Operating Officer at E Payments Limited Any discussion on how to grow NZ's capital markets needs to consider the whole investment cycle otherwise we end up with unsustainable imbalances. We have seen that especially in the early stage investment market, driven in part by the funds deployed by NZVIF. Part of that in my view was because of a lack of real understanding of the market conditions at the time. First step at the early end of town at least should be an honest assessment of what has worked and what has not worked. Coupled with a vision of what a sustainable model would look like. Then and only then can you start building strategy to get from A to B.

Rudi Bublitz【ツ】Ⓐngel Ⓘnvestor, Ⓑiz Ⓐdvisor⊕Ⓓirector, Ⓗeterodox
Ralph, you are critical of New Zealand Venture Investment Fund Limited, I am more critical of the angel groups that have systematically abused the system to maximise their 6% commission gain. Thankfully, that is not so easy under the NZVIF 2.0 regime. Strategies and idea come to nought unless there is action. So I prefer thoughtful action. Things are notoriously difficult to steer at a macroeconomic level. NZVIF worked at angel and VC level but with less noticeable impact at the VC level. Government intervention can distort markets and I think that NZVIF 2.0 should have kicked in much sooner. 

Ralph Shale Chief Operating Officer at E Payments Limited
Rudi Bublitz【ツ】i agree on your comment on NZVIF 2.0 it was the earlier interventions that caused market issues in my view. Interesting a lot of discussion on the issues with an vertically integrated financial sector (banks etc). The same applies in the early stage sector with groups clipping the ticket along the way. If we want to see real success the key are best people and investors at each stage....not "friends and family" of say an incubator or angel group.

Government and @IceAndy ①

Andrew Hamilton CEO at The Icehouse
Ralph what would be your ideal outcome in terms of the next phase if Govt was to stay involved.

Ralph Shale Chief Operating Officer at E Payments Limited
Andrew Hamilton i probably still favour an investor based tax rebate to replace NZVIF and grants. I think this directs government funding to companies that need the cash and provides a matched return for the government so should be self funding into the future. But i would agree with Rudi a more proactive NZVIF is a much better model than the old hands off model. In terms of incubators and accelerators i would support Rudi's comment - we have too many. I think we are better off doing less but ensuring that the quality is as high as possible. This would require a lot more collaboration across the sector. But as i said earlier we need to understand what is the desired outcome and to review where we are - as you said maybe we need some real data. This of course is not unique to NZ but my concern is that we seem to be largely just replicating the status quo with a few tweaks.

Andrew Hamilton CEO at The Icehouse
We all agree doing more of the same is not the A plan. We just need to engage to find the answers for the A plan. Some will be more myopic than others. I also agree that some sort of investor rebate or offset at angel stage would be the right next move, while I still think we don't have the VC intervention right - we have a big gap in the A and B rounds - the harsh reality is because the returns have not been there yet.

---

Government and @IceAndy ②

Andrew Hamilton CEO at The Icehouse
Rudi Bublitz【ツ】what would your ideal br with Government involvement or not?

Rudi Bublitz【ツ】Ⓐngel Ⓘnvestor, Ⓑiz Ⓐdvisor⊕Ⓓirector, Ⓗeterodox
Okay, Andrew, here my top three.
① NZVIF 2.0 modus operandi is appropriate but stop paying 6% commission of the NZVIF investments to angel groups.
② Stop funding the plethora of incubators and accelerators that are helping operators more than founders or investors. I have spent far too much time untangling good companies from some of Callaghan Innovation's 'deep' tech incubators that have literally made them uninvestable. Many others lure good startups that don't need the program, then make up the numbers with others that shouldn't be there. Unfortunately, slick presentations on demo days have many inexperienced investors fooled.
​③ We need an NZ ING level entity (NZVIF?) that can consolidate all earlier stage investors on a single "NZ Seed Investors" nominee, have oversight of the whole NZ growth company portfolio, and can thus have a meaningful conversation with international later stage investors.  This would also ensure better representation of NZ investors once the companies progress offshore.

Andrew Hamilton CEO at The Icehouse
Rudi Bublitz【ツ】good korero Rudi. 1 & 2 are about resourcing really and we hope the utilisation enables or actually changes the rate of growth and success of our industry. If it doesn't it should not get resources. Maybe there is better data required? I do think you are either grass routes or returns focused. The later you think you can make returns over time and be self sustaining. That would be great. The grass routes side is a very important part of the capability lift I think we need in NZ. Organsiations like Startup NZ or Venture Up or Mums Garage should get support from the tax payer as long as they are delivering this capability mix. Interesting point on 3 - I really would like to see a stronger VC market ie 3 50 to 150m funds investing at pre A, A and B. It would be great if this had NZ investment rather than all offshore. We want NZ and international $. Not just the latter. I agree that we could represent way better. NZVIF is now a direct investor in the market and change has happened. Change is good because we can't sit still. If NZVIF privatises as one of these big funds are you comfortable with them having the mandate for SCIF as well?

Rudi Bublitz【ツ】Ⓐngel Ⓘnvestor, Ⓑiz Ⓐdvisor⊕Ⓓirector, Ⓗeterodox
Andrew, natürlich Immer ein gutes  Gespräch mit dir. Agree true grass root work deserves support. Also, better to have later stage support locally which only helps to secure in market investors and governance. I expect the SCIF mandate to be phased out over time, otherwise, there could eventually be a conflict with NZVIF operating more and more as a VC.

Change of topic, I believe your Show Case 2018 is coming up later this month. I'd love to see what it has morphed into since I helped with it way back. But maybe that is still not possible after I was ceremoniously uninvited last year?

Also, I was awarded Ice Angel's Bill Payne Award in 2011 but it seems you have a gap in your laureate list for that year?  www.iceangels.co.nz/our-people

Andrew Hamilton CEO at The Icehouse
Rudi Bublitz【ツ】Morena. In Queenstown looking at the mountains and Discussing tourism that has grown 46% over the last 4 years! This industry needs investment. Demo Day is coming next week for Flux and the Showcase 13 September. The team invite only wholesale investors and people who are constructive and partners in the system. Maybe in the past there has not been great partnering korero from you - there must be a reason? Will check on the list, maybe a great sign are the WH Payne awardees who have gone onto do new initiatives in the industry! Andy

---

Series A/B Funding

Craig Jakich Director - KPMG Enterprise Ashburton
Good recommendations. They would definitely give Angel backed companies more options once they get to Series A/B rather than needing to go offshore.

Rudi Bublitz【ツ】Ⓐngel Ⓘnvestor, Ⓑiz Ⓐdvisor⊕Ⓓirector, Ⓗeterodox
Very true, Craig 👍 There is a funding gap that is hampering startups that have mastered the first growth hurdles. However, I keep talking to more and more post-angel stage investors that are entering the market. Good talk but let's see what action will result. Nonetheless, I feel strongly that startups also need to seek funding in the markets they operate in. That is where angels and other need to help with their syndication strategies. Far too many investors hope to maximise their own return by monopolising the early rounds. A strategy that is totally flawed, no return until the fat lady sings, until there is an exit or first dividends.

Andrew Hamilton CEO at The Icehouse
Rudi Bublitz【ツ】what is the syndication % in NZ? I thought the data was something like 60% Suse Reynolds? Andy

---

21 June Discussion

Greg Sitters Seed / VC Investment and Technology Commercialisation
Good constructive input from a range of experienced folks.  I am not sure I totally agree with Rudi re the Tech Incubators as a program. It certainly is disconnected to the market on its current implementation pathway, but I would debate that it is very much a neccessary component of the critical angel to growth science and technical eco systems, easily as much as VIF 2.0 is. Conversely, acceleration for everything is unsupportable to scale in our small economy.  As to Andy's comments on Series A and B, 3*50 or 1 150m fund (for non software SAAS companies) at present in todays market is a pipe dream. We cant wait to postulate companies into pointless or aimless continued business or market validation in NZ with angel or pre A money when true growth markets, and capital, for those companies is clearly overseas. This doesnt work for everyone or every situation (horses for courses), but there is no "silver bullet" that works for every case.

Rudi Bublitz【ツ】Ⓐngel Ⓘnvestor, Ⓑiz Ⓐdvisor⊕Ⓓirector, ⒽeterodoxThanks, Greg.
Thanks, Greg. Let me clarify. I agree, it was good and constructive intentions to help IP companies with Callaghan's Tech Incubators. However, NZ has few IP based startups that fit the model. Then things get derailed when the incubators pray on founder-led startups. This displaces angel investors aided by Callaghan money and without adjusting the equity heavy model it effectively poisons the companies for subsequent investment rounds.

Greg Sitters Seed / VC Investment and Technology Commercialisation
​Rudi, yes I agree with the currently screwed TI equity model and the issues this creates for both founders, investors and IP owners alike. But I think (and hence my point above) that this is recognised and will be sorted in the foreseeable future. But I disagree that there isn't enough IP deals that could work. I see them regularly and deals are getting done in spite of the above issues with the current implementation of the TI program (i.e. Upside Bio)