Venture Capital Fund Bill

I move, That the Venture Capital Fund Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. At the appropriate time, I intend to move that the bill be reported to the House by Monday, 2 December 2019 and that the committee have authority to meet at any time while the House is sitting, except during oral questions; during any evening on a day on which there has been a sitting of the House; on a Friday in a week in which there has been a sitting of the House; and outside the Wellington area despite Standing Orders 191, 193, 194(1)(b), and 194(1)(c).

This bill establishes the Venture Capital Fund and provides for the Guardians of New Zealand Superannuation, whom I am going to refer to as the “Guardians”, to manage and administer the fund. At the heart of this is our drive for stronger economic growth, which we think relies upon improving our productivity performance. We recognise that lifting New Zealand’s productivity performance requires well-functioning capital markets that help high-potential firms to raise funds on their growth journey.

A recent Productivity Commission report found that New Zealand suffers from low per capita capital investment into our productive sector. They’ve said that our low per capita investment in the productive sector has been made worse by high rates of immigration, diverting investment capital into other things, like public and private infrastructure. It’s also true, in the view of the Government, that there has been an excessive proportion of our investment capital going into speculative asset classes, which are existing land-based asset classes. The effect of these factors has been that there has been reduced per capita investment left for our productive economy, and this has inhibited the diffusion of technology, which is a key part of improving productivity.

I believe that New Zealand’s productivity issues have been well canvassed and, as he’s recently left the Productivity Commission, I would pay particular regard to Paul Conway, who, I think, has made a very valuable contribution on analysing why it is that New Zealand, despite world-class institutions recognised by the OECD and others, has lagged in productivity growth relative to some of our peers. He says, and we believe, that the productivity gains that are to be made from technology diffusion and innovation are significant, and we think New Zealand needs to better harness these opportunities. To do this, we need to shift away from an excessive focus on investment in property, towards investments that create sustainable productivity gains.

The world is in the midst of a very exciting and disruptive technological revolution. It’s born of the confluence of affordable computing power, mobile positioning systems, sensors, robotics, big data and the Internet of Things, artificial intelligence, and genetics. We all know that the digitalisation of many parts of the economy creates challenges that countries like New Zealand are dealing with under the banner of “The Future of Work”. McKinsey predicts that by between 2030 and 2040, 60 percent of the current tasks in the New Zealand economy could be automated and 30 percent will be.

The flip side of the enormity of that change is the enormous opportunity to improve the efficiency of existing methods of production and to commercialise the new products and services born of this technological revolution. I believe that it’s the duty of all Governments to help the private sector chase down as many of these commercial opportunities as we can so as to harness the jobs and the value that is created.

We’ve already done a lot in that regard. We’ve extended the bright-line test from two to five years and are ring-fencing losses on property portfolios to discourage over-investment in property asset classes. On the encouragement side, we’ve got a 15 percent R & D tax credit—we campaigned on 12.5 percent but we’ve been able to push it up to 15 percent—a billion-dollar tax cut for businesses that innovate, over four years, and we’ve just extended that in the legislation related to the latest Budget to pre-profit companies so that pre-profit companies can get a refund. But we also believe that more needs to be done in respect of the gap that we have in our early-stage capital markets. These are widely acknowledged. These are the stages beyond seed or angel investment, where companies are looking to expand. They usually require, in this part of their development, some $2 million to $20 million capital to grow.

This lack of capital availability in the market is inhibiting the growth of our start-ups, it’s preventing them from achieving their potential both within New Zealand and on the world stage, and it’s increasing their reliance on offshore capital. We need fast-growing New Zealand firms to be operating in a healthy, well-capitalised start-up ecosystem so that ownership and the benefits thereof can better remain within New Zealand.

I would add that I’m not arguing that they shouldn’t be sold overseas or that we should prevent them from doing so. I’m not even trying to discourage it, but I am keen that they not be forced into that avenue for want of functioning capital markets, and I’m keen that they have access to capital to grow and are not forced to sell or forced to sell too early by current capital constraints. I believe it’s clear that many early-stage companies are continuing to struggle to access the capital they need to develop their potential, which is either constraining their growth or causing them to prematurely seek foreign investment to overcome the funding gap.

Again, once companies really expand into these overseas markets, their capital requirements are very large, and it’s clear from the likes of Rocket Lab, who have raised $200 million in the last year alone to meet their global expansion plans. What we’ve got as a solution is this $300 million capital investment, which has three objectives: first, to raise the number of start-ups that are progressing; secondly, to increase the volume of technology that’s commercialised both for the business units themselves but also to help technology diffusion across the entire economy; and we also think this will have a benefit of retaining ownership of more of these start-ups for longer.

The way we are doing this is we’re harnessing the skills of the Guardians of New Zealand Superannuation. They are the managers of the largest fund in New Zealand and they’ve got an enormous capability. They don’t want to be involved in the tiny individual investment decisions that are made by venture capital (VC) firms, but we need to harness their expertise to both structure these management contracts and use their reputation to help bring in some other private sector into these VC funds as well. The money will go from them through the New Zealand Venture Investment Fund, who will run a fund of fund models, appointing VC fund managers who will bring some matching funds to match the Government’s funds, and those VC funds will make the investment decisions and will maximise the return on these funds. Commercially we’ve got a goal of generating appropriate risk-adjusted returns. The funds will then be returned to the Government and they will then be put back towards meeting the future needs of superannuation. The amount is piffling in relation to the size of the total amount of funds that are currently in the fund, but we think this will make a material difference.

The arrangements require the first fund manager to be the New Zealand Venture Investment Fund, but at the request of the guardians—we thought this was a good point, and indeed I originally intended it anyway—we do want them to be at risk for non-performance. So the super fund could terminate the contract of the New Zealand Venture Investment Fund were they not performing. I don’t think that’s an outcome that will happen in practice, but that theoretical outcome exists.

So the Venture Investment Fund will be the delivery agency via the VC funds that will be a mixture of overseas VC funds and New Zealand VC funds. There will be a policy statement that is issued by Ministers that will guide the guardians in their work. We don’t want all of the funds to be going to overseas VCs, but neither do we want none of the funds to be going to overseas VCs. We want to be building the ecosystem in New Zealand so that, over time, private sector funds take over in this, as they’re already starting to in the early seed or angel funds, which, whilst still supported by Government, are not as reliant on Government funds as they were when those seed funds were initially established.

We believe that the outcome of this will be that we have a better capital cycle in New Zealand, that more of these businesses will be growing to their potential, and that this will have productivity improvements as well as bring jobs and income growth in New Zealand.

Thank you, Madam Speaker, and thank you for the opportunity to speak on the first reading of this, the Venture Capital Fund Bill. National will support this bill to first reading. I don’t like to be unkind, but it was perhaps arguably the only real thing in Budget 2019 which could be described as a growth policy—

💬 Kieran McAnulty: Don’t be so negative.

No. That’s why we are supporting this bill to select committee.

In a perfect world we wouldn’t be needing such a fund. I mean, ideally the most likely way to get good judgment about whether to invest in a particular venture or a particular company or start-up is somebody putting their own money into it, in the private sector. Putting their money at risk, they’re much more likely to be careful about where that money goes and very focused on the returns. A Government fund, which is using other people’s money, taxpayers’ money, doesn’t tend to have such a good track record. But having said that, the New Zealand super fund does have an excellent track record. So their oversight of this $300 million fund gives some reassurance.

My understanding is they’re not very thrilled about having $300 million, or $240 million, taken from them and sent somewhere else. They’ll be interested to see the letters around all that. I don’t think they’re very thrilled at all. Having said that, it always struck me as an interesting thing, for the short period that I was the Minister responsible for science and innovation, that as a country we invest very large sums in the development of new technologies and new ideas—I’m talking about $1.6 billion, I think, in total in R & D spending through universities and all sorts of funds—creating more and more ideas, but as a country, I suppose, our greatest challenge has been converting those ideas into successful companies. Our public investment in that part of the process has been very limited. So I can certainly see the argument for providing a fund that will help deepen the market in this phase of the development of new, particularly technology, companies.

We’re always concerned about the way in which it’s developed and drawn together. Part of the real benefit that comes from private sector investment, and particularly overseas investment, in such companies and why it shouldn’t be seen as a negative generally is that with the money comes the ideas and the management experience and the world view and the real technical input into the development of these companies. That’s why we should never be afraid of international investment coming into new companies that have been started up or new ventures in such a way, and I don’t think the Minister is quite suggesting this, but if you were to say that we should be able to do it all on our own and if we have the Government sort of funding these things, then that would be a better outcome, because it’s a much more complex iterative process than that.

But, having said that, I do think overall we can understand the idea of the fund. I suppose our broader sort of critique though would be that none of all this makes up for private sector investment. The more important task of any Government is to create an environment where businesses and investors feel confident to invest. Our primary critique of the Government so far in the past 20 months has been that a lot of what they have done has driven down the business confidence that lies behind that investment. I know we’ve had a long-running debate about the merits of business confidence surveys, and I hope the Minister is now starting to take them more seriously, as indeed the Governor of the Reserve Bank and many other people refer to business sentiment as being important.

You know, there are different ways in which it’s measured, but the reality is that the increase in costs on business, the massive uncertainty caused by so much policy uncertainty in this country, with all the working groups, the 18 months of uncertainty around the capital gains tax that I know the Minister did want to introduce and wasn’t able to—all that uncertainty has made it less likely that investors feel confident to invest in companies such as what we’re talking about here, but also in a whole range of investments. So while we are willing to support this particular project that’s put forward, and this investment of taxpayers’ money in such a fund, and the legislation that’s required to support that—and we’ll want to go through it in detail in the select committee—we do make that broader point that good Government and an environment that is supportive of innovation is much broader, and any good Government needs to be consistent around that.

My main concern at this stage, of course, is I don’t understand why the Government is insisting that we report this back on 2 December, which is less than four months away. I don’t see why we shouldn’t be able to go through a normal select committee process with a proper amount of time so that we can get full consideration of how this is done. You know, there is always the risk of getting the arrangements wrong, and we don’t claim to be experts on every element of that, and we do want to hear from not just the fund managers that will benefit from this but a wide range of people who will have an interest in how this is put together. So I do not support rushing this process, and I think we’ll have a debate about that a bit later. But, overall, we’ll see this work its way through the process, and we support this bill to the select committee. Thank you.

Madam Speaker, can I thank you for the opportunity to speak to this piece of legislation, and congratulate the Hon David Parker for both a successful Budget. But to get us here—to get this piece of legislation to the House—can I also acknowledge the finance spokesperson for the Opposition, the Hon Paul Goldsmith, for saying that the Opposition will support this piece of legislation to the select committee, where that dragon’s den, the Finance and Expenditure Committee, can have a look at this piece of legislation in much greater detail, as the member said.

I’d also like to thank him for the slight glimmer of sunshine that he had during his speech—in amongst some of the doom and gloom—in suggesting that this could be a good thing for a number of companies here in New Zealand. But I will suggest that it will be an extremely good thing for a number of companies here in New Zealand who have, certainly since our Government has taken power, taken many opportunities to suggest that there is a capital gap domestically here in New Zealand, and it needs to be filled. As the previous speaker said, his preference is that the taxpayer shouldn’t have to fill it, but that doesn’t take away from the fact that it does exist, and that many companies around the $2 million to $20 million mark have found it extremely difficult to get hold of capital to grow, for them to become more productive. At the end of the day, that growth could turn into more jobs, which, fundamentally, this Government is all about.

The mechanism by which this piece of legislation will go through is the Guardians of New Zealand Superannuation fund; that will be debated out in the select committee. But I just want to talk about the two areas in which this is very important for the two hats that I wear, both as Minister of Commerce and Consumer Affairs and Minister of Broadcasting, Communications and Digital Media. I’ll start with commerce, because there are a lot of very clever tech developers who would like to take the opportunity to do more in that space, with the likes of open banking, for instance—once that gets under way—but they are struggling to get investment and struggling to get the capital to go to the next level. I think this fund is a great opportunity for some of those extremely tech-savvy developers around the country who have had a degree of success already but really are struggling to go the next mile and haven’t got an option, whereas they may now.

For those who are watching at home and are concerned about this kind of mechanism, I just do also want to point out that it is dollar for dollar. So if the Government is putting in a dollar via the venture fund—

💬 Fletcher Tabuteau: Skin in the game, eh? Skin in the game.

—they will also be expected to put a dollar into the venture fund as well. There is skin in the game, as Fletcher Tabuteau has said, to ensure that it isn’t just 100 percent pure capital from the taxpayer. So I think that is one point that we want to make sure is very clear and I’m sure the select committee will look into as well.

As Minister of Commerce and Consumer Affairs, if myself or the Minister of Finance had a dollar for every time we went along to our financial sector roundtables, etc., and they said to us that there’s not enough capital in the market—for instance, “Can you do something about KiwiSaver; can we get more of that put into the market domestically?”—I would be quite well off. I wouldn’t, of course, take the money, but that goes to the reality that there is a capital gap here in New Zealand, and we can sit on our hands and do nothing about it, which has been the modus operandi until this point where we’re saying it is important that medium and large sized companies that want to go to the next level need that capital. We want as many of them to stay here and be New Zealand - owned, if possible; we don’t want to stop those who have to go overseas and be more successful offshore to do that, but those who do see themselves having a future here in New Zealand—giving them a hand to do that. And, again, the examples in the tech sector and examples around the capital markets—and, of course, the New Zealand Stock Exchange is looking at a situation at the moment—are two pretty glaring examples of why this is needed.

The other reason why we think this is very much needed is our productivity issues at the moment. We think we’ve got a lot of firms out there in New Zealand who for want of the capital that they require, could be a hell of a lot more productive. And that is holding the growth of our economy back, and getting some stimulus via this fund may enable them to buy the tech or the plant to go the extra mile to be more productive and to, hopefully, supply more jobs to the market—again, what this Government is all about.

I’m not going to hold up proceedings too much longer, because we’ve already had the two main speakers lead off, and it looks like this piece of legislation is going to head to the select committee, with the blessing of the Opposition somewhat, but this is one of those pieces of legislation where we are tackling some of the long-term issues that are facing New Zealand—those being, here, a shortage of capital in the domestic market. And this piece of legislation is going to get us a long way towards sorting that issue out.

Thank you, Madam Speaker. It is interesting to be talking on the Venture Capital Fund Bill, first reading. I am slightly heartened that the bill is in the name of David Parker, having had some experience with fund managers and fund management prior to coming into politics. But I’ve got to say that when I looked at the New Zealand Venture Investment Fund, which is going to be a co-investor, I was a little bit disconcerted when I saw that the presiding Minister was the Hon Phil Twyford, which just slightly worried me in terms of the commerciality of that.

My colleague the Hon Paul Goldsmith has noted that we’re going to support this bill, but we do have some concerns. Before I start talking about those, I do want to acknowledge the Hon James Shaw for his persistence over a number of years in finally getting this through his coalition partners and actually being at a stage where we’re talking about it today.

The first question is: why a venture capital fund? That is a very important question, Madam Speaker, because I know you know these things. There are different types of funds, the most risky of which is a venture capital fund. That is where you invest in start-up companies. The next stage in investment is expansion capital. That is where you have companies that have moved forward in their progression and are more stable. Then you get the third stage, which is private equity. New Zealand has seen a huge investment, largely from Australia, of private equity funds coming into New Zealand. And then you get into a normal type of investment in a particular company that you see happening in every day of New Zealand corporate life.

So the most striking thing is that the Government has chosen to invest in the most risky part of the investment portfolio, namely in a venture capital fund. And I think that is an issue, because that implies that these companies in formative stages, who’ve typically not taken their market proposition to the market yet but have intellectual property that they’ve developed, which they think has commercial application but has not been proven in the market place—whereas, if you were further down the line with a private equity investment, for instance, that company would have already been operating and would have positive cash flows and would be a far less riskier investment.

And so, correspondingly, the required rate of return on a venture capital fund is very, very high. Normally, it’s more than 20 percent per annum because that reflects the amount of losses that will take place in the investee companies, i.e. the companies that the venture capital fund chooses to invest in. On average, probably one will be very successful, one or maybe two will be OK, and the remaining seven or eight will be hopeless and in many cases result in financial loss. And so for a Government entity, namely the New Zealand Superannuation Fund, to invest $240 million alongside a New Zealand venture investment fund for a total of $300 million—this is a diametrically opposed position in terms of the objects of the New Zealand Superannuation Fund, which has traditionally invested in large-scale funds and very, very secure companies with a position mainly of realising those assets over 30 to 40 years.

The second thing is I struggle with involving the New Zealand Superannuation Fund. That’s not to say I don’t believe they do an excellent job; they do. They’ve returned over 10 percent per annum compared to the required 20 percent for a venture capital fund. They’ve achieved over 10 percent since it’s been formed—an outstanding achievement. But there are different requirements to running a venture capital fund versus a $40 billion fund of funds - type of investment that, primarily, is the New Zealand Superannuation Fund’s modus operandi.

And so those different skill sets mean that the New Zealand Superannuation Fund will need to take on board different people to manage this $240 million investment. And it begs the question: if the Government wanted to go down the investment in venture capital route, why didn’t it just use the existing vehicle that the Government set up many, many years ago, which is the New Zealand Venture Investment Fund? That’s already got $240 million invested in about 11 venture capital funds and nearly 300 companies, I think, from memory. And so that to me is the first question: why on earth did it not choose the venture capital fund that’s been successful to date, been in operation for many, many years, and could have been the prime vehicle, because they are specialists in venture capital funds?

The other thing I’m concerned about—and I did ask the Hon David Parker this when we had the recent debate at select committee—is that there is no target return. Now, I spoke before about a 20 percent return for a venture capital fund and that is a very high expectation. The Minister’s response, broadly, was to say that because it was a supply agreement between the Greens and the New Zealand Labour Party that sort of detail hadn’t been specified—and, I note, is not specified in this legislation. I think that is an absolute essential element of all venture capital funds, and without that clarity no fund will ever operate. It’s an absurd proposition to be proposing a fund without clear parameters around its success.

Also the modus operandi of investing a fund of funds is a very unusual approach for this, particularly where you want to try and direct it towards green investments, because that requires the combined entity to find lots of subsidiary funds to invest in and there ain’t that many funds available. And so that is going to be an interesting issue and one, no doubt, we will explore in the select committee about just on earth who they are going to invest in.

And I think the last thing—I don’t want to take up too much time because I’m looking forward to debating this in the committee—is this issue around recycling. This is a wonderful concept—that the Government invests money in this wonderful concept and through wonderful management and governance out pops the original capital plus a profit. And of course that’ll be recirculated back and reinvested and we’ll get this ecosystem, which I heard mentioned before. Well, unfortunately, I think we heard that with KiwiBuild. Weren’t we going to recycle $2 billion? I seem to recall that. I don’t think there’s been much recycling other than Ministers—

💬 Rt Hon David Carter: No, there’s a reset.

It is a reset, we have had recycling of Ministers, but we certainly haven’t had recycling of investment, and certainly not the $2 billion. And so I am looking forward to learning more about this recycling as we go through the select committee stage, because I just want to see just what the Government has in store for us about how we’re going to get all this money back, even though a lot of these companies will fail, ultimately, unfortunately. Thank you, Madam Speaker.

Thank you, Madam Speaker, for this opportunity to speak to this incredibly important piece of legislation, the Venture Capital Fund Bill. I just want to debunk some of the words put forward, unfortunately, by Mr Bayly, who on this side of the House we seem to have a respect for in his knowledge of those things financial.

💬 Hon Kris Faafoi: Don’t go too far.

No, no, I’ll restrain myself. I’m certainly not surprised that Mr Goldsmith was confused in his contribution to the House earlier. I put it to the members here this afternoon, both Mr Bayly and Mr Goldsmith spoke about using taxpayers’ money in these risky venture capital funds and, in fact, Mr Bayly went so far as to assert that in terms of the investment lifecycle of this kind of product the venture capital stage was the most risky stage.

💬 Andrew Bayly: It is.

No it’s not, Mr Bayly. It is not the most risky stage.

💬 Andrew Bayly: What is then? Pray tell.

Well, the first one that comes to mind is seed—seed funding for—

💬 Andrew Bayly: All right, OK.

“All right”, he says, “All right.” And so what I want to remind Mr Goldsmith and those members opposite is that that party opposite have mechanisms in place, which this Government has picked up, for Government to invest at the seed and research funding stage of development of businesses as they progress through that—

💬 Andrew Bayly: Sounds like a lot of risk to me.

That’s the point, Mr Bayly. It is a lot of risk, which the National Party was more than willing to take on in terms of contributing to firms and enterprises at that incredibly risky stage of the investment cycle. And actually, here we have a conversation about an acknowledged gap in the capital market in New Zealand, a conversation that has been going on—well, certainly in my time in Parliament. But before that, the conversation has been long and arduous, especially in the last 10 years when the National Party was in Government—a conversation about a lamented, missed opportunity: the fact that there was a lack of a meaningful venture capital strategy and that a Government wasn’t willing to participate.

And so, begrudgingly, we have two contributions from the members opposite who acknowledge that there are possibilities here, and I’m grateful to hear actually—and it’s an important point to make—that it will be the Guardians of New Zealand Superannuation who will be overseeing and administrating this fund. It was nice to hear the concession from the shadow spokesperson opposite that that fund and those managers have a long history of success. Mr Bayly mentioned 30 percent, and I think one year they did actually make a 30 percent return on investment. But on average, the return of that fund has been 10 percent. That is world leading and it is that kind of expertise that is being, kind of—I’ll say—“injected” into a gap in the market where there are players, both private and existing, who want to participate in this venture capital fund market. And this will facilitate not only capacity and knowledge but obviously the money that’s being brought into this conversation.

As I said, it’s been a gap in the New Zealand capital market. Particularly, what this fund, I hope, will achieve is in that space where we have relatively large opportunities—that $5 million to $20 million mark—where investment opportunities exist but go begging. What this fund should achieve is enough funds to be invested, to take those screen companies to that next stage, through a process where not only are we availing them of money but what we hope to see here is an attraction of high-quality management: the ability to build a good product proposition to attract those larger investors from New Zealand and around the world that will help grow our capital investments in those firms.

New Zealand First has argued for many years that this is something that needs to be done. New Zealand companies have been lacking capital of size, and we know that they haven’t been able to grow. They’ve been stymied. They have stayed small or they have been selectively acquired by foreign speculators from around the world. There have been examples where companies have listed publicly prematurely, as it were. So this is about having a better domestic venture capital market to build this capacity here in New Zealand.

New Zealanders take pride in our entrepreneurial spirit and in the innovation and the risk taking of our businessmen and businesswomen. As Minister David Parker said in his contribution, we have a right to be proud and we should be focusing on these opportunities. The Minister spoke specifically about tech opportunities, and I know it’s one of the fastest-growing sectors in New Zealand. In fact, I was in Nelson this weekend, helping to invest through the Provincial Growth Fund in artificial intelligence opportunities. An opportunity there to grow—

💬 Stuart Smith: New Zealand First could do with some of that.

Yes, perhaps an opportunity for the members opposite to at least get some kind of intelligence in their caucus—just some kind of intelligence. So grow capacity, grow performance—and the main driver, as the Minister outlined to the House this afternoon, is that this is a fundamental drive to support and grow productivity within the New Zealand economy. So I acknowledge the Minister for his efforts. This is a gap that has been identified. It’s a hugely important bill and a massive step in the right direction that New Zealand First absolutely supports, but this is also good for New Zealand firms and it will be good for this country’s economy.

I think, as I draw to a conclusion, that this is taking the gap in the market—I mentioned to Mr Bayly earlier about the initial research, the seed-funding opportunities that already exist, and there are those markets in New Zealand, but this is the gap. We’ve been told for years that this is the gap. So this is about being ambitious for innovation and for entrepreneurship in the New Zealand market, and, as the Minister said, that will be true, especially in the tech sector.

This is about a vision where New Zealand firms not only start up in New Zealand, but where New Zealand firms grow to a size that they present themselves to a world market, a global market, in a position where they can compete globally. That is exciting and that is ambitious for those businessmen and businesswomen who would love to take on that opportunity. This is enabling, and I am truly, truly excited to be talking in support of this legislation.

I have spoken for longer than I intended, so I simply say to the House that this is good, sensible, ambitious legislation. I thank the members opposite for their cautious support at this stage. I am confident that they will see in select committee just how powerful this legislation can be for those firms that we are talking about today and the New Zealand economy and our ambition to grow productivity. Thank you, Madam Speaker.

Thank you, Madam Speaker, and it’s always a great pleasure to follow the New Zealand First member Fletcher Tabuteau, colloquially known around the House as “the Professor”. I just hope that when he was in front of his students in a former life, he was a little clearer with his arguments than he managed for the last eight minutes in this House. But let me take you through the Venture Capital Fund Bill, as I understand it.

First of all, as has been stated, National will support it to a select committee but with caution, and I want to outline some of the reasons why this particular legislation does have a worrying trend about it. The first point I’d make—and I know it will be the subject of a lengthy debate after this particular bill is voted on—is the surprising instruction from David Parker, the Minister in charge of this legislation, to rush it through a select committee process. That worries me, for a start. Fletcher Tabuteau made the comment that this legislation will be good for the New Zealand economy, and I hope he’s right, but he would be naive to think that this legislation doesn’t also carry risk for the New Zealand economy. Therefore, they are the sorts of issues that the Finance and Expenditure Committee should have the opportunity to tease out correctly, and it shouldn’t have to be done in a truncated process, with the Minister insisting it be back here, and I think the date is 2 December. So it’s rushed, considering the other work before that very busy select committee.

I acknowledge that it is important legislation and that there is a clear gap in the market for venture capital to be obtained by emerging companies, and there is no better example of that than two companies I’ll talk about: Rocket Lab and Synlait. Now, they are completely different businesses, I acknowledge, but Rocket Lab went to obtain further capital within New Zealand and was unable to do so. I think I’m right in actually saying that it went to the other Government-established organisation for venture capital that already exists, the New Zealand Venture Investment Fund (NZVIF), and I believe NZVIF actually turned down Rocket Lab as a premature, naive type of idea that was not worth investing in. We actually had the privilege of actually having Peter Beck, the chief executive of Rocket Lab, speak to us at a recent National Party conference in Christchurch, and what an impressive individual he is. What an impressive business he has developed. It is now truly an international business and a business that New Zealand could have had an investment in, if the New Zealand Venture Investment Fund had thought about it more wisely.

The second company I mentioned is Synlait, a Canterbury dairy company that struggled in its initial formation to develop to the scale that it is today. It went to the New Zealand market, certainly, on one occasion, I think, for a public float and maybe on a second occasion, if I remember correctly. The New Zealand capitalists were not prepared to support Synlait. It subsequently went offshore and got investment from offshore, allowing it to develop to its full potential, and is now a very, very significant contributor to the Canterbury economy and elsewhere within New Zealand. They’re currently trying to develop a substantial dairy processing plant in the Waikato. It is a huge success, and another example of where it presented to the New Zealand market, it was not able to obtain the capital it needed, it went offshore, and New Zealand is the poorer for the fact that that investment opportunity was overlooked.

I accept the need for venture capital. There are many, many companies we’ve come across in our time as members of Parliament, when we visit various fledgling businesses that are looking to expand and the opportunity to do so is not willingly provided by banks, who are becoming more and more risk-averse currently. Certainly, that is being driven also by the current Reserve Bank Governor’s personal campaign, I think, to tighten up capital ratios for banks, which is making them even more concerned about some of the ventures they’re prepared to fund. So why isn’t the New Zealand Venture Investment Fund, NZVIF, an avenue that could provide the venture capital? Why do we need two organisations? That is certainly something that I want to tease out in the select committee.

The second point that worries me is the size of this particular fund, at $300 million. The first point I’d make is that is exactly 10 percent of the money that’s been given to Shane Jones for nothing more than a slush fund, as he goes around the country with his $3 billion, spraying it around like confetti for the required photo opportunity for him to present himself in the local provincial papers, and it’s all about a very cheap, nasty scheme and designed to ensure the survivability of New Zealand First at the next election. Here we’ve got this important issue of a $300—

💬 Fletcher Tabuteau: So bitter. So sad.

Fletcher Tabuteau interjects and says it is so sad. I agree, because that $3 billion is hard-earned taxpayer money and under no circumstances should it be used so recklessly—so recklessly—in a forlorn attempt to ensure the survivability of the New Zealand First Party at election 2020. I can assure Mr Tabuteau, or “the Professor”, that New Zealand voters will not be so gullible.

And then the second point I’d make in regards to $300 million is they have already instructed the New Zealand Superannuation Fund to make $240 million of the $300 million available. I think, again, that is a very dangerous precedent. The New Zealand super fund has been a remarkable performer, and it has been a remarkable performer because of the guardians of that fund—and I respect them for their business acumen, their financial acumen. But what we have here, for the first time, is a political interference in that fund, whereby this Government—Labour, New Zealand First, and the Greens—are interfering with the decision-making ability of the New Zealand super fund and insisting that it makes $240 million available to the new venture capital fund, and that again is something that I want the opportunity to tease out in the select committee process. I think it’s a very, very sad day when we see interference like that for the New Zealand super fund. It has been a remarkably successful organisation, but, if this Government’s going to interfere and direct it as to where it must invest, that is a danger for (a) the fund and (b) for New Zealand.

I conclude with my final comments and again take a quote from professor Tabuteau. He said, “This legislation will be good for the New Zealand economy.” Well, I hope he’s right. It could be good for the New Zealand economy, but—

💬 Hon Member: He is right.

In fact, the Hon Kris Faafoi just interjects and says it will be good. This is a risky business that any investor goes into, and, as Andrew Bayly so clearly said, out of 10 projects, one or two might be winners. But if Kris Faafoi is naive enough to believe that every investment this fund makes will be a world better, will be highly successful, then he fails to understand—and this doesn’t surprise me—the risks associated with business in this economy, and that perhaps is exactly why. In fact, this is the very first piece of legislation you could even say they’ve advanced in this House that’s got any focus on business at all. This legislation is not without risk.

Thank you, Madam Speaker. I’m rising on behalf of the Green Party to speak on the first reading of the Venture Capital Fund Bill. It’s always a pleasure to follow the Hon David Carter, who, conveniently, has provided me with a number of points that I’d like to rebut in my time on my feet in this.

But I actually wanted to start with some of the comments made by Andrew Bayly, who has had a slightly confused afternoon. On the previous bill in the House, the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill, he didn’t know which reading he was speaking on. He thought he was speaking on the second reading, when, in fact, we were speaking on the third reading. In this debate on the Venture Capital Fund Bill, I think that he has confused the venture capital fund that’s being established by this with the New Zealand Green Investment Fund. A number of times—at a couple of points in his speech—he acknowledged me for all the work that I’ve done over the years to bring this to the House. I’m grateful for that acknowledgment, except that I didn’t. I’m quite happy to take credit where it’s due, but, in this regard, I had almost nothing to do with this, to tell you the truth, before it came in. But I thank Mr Bayly.

I want to make sure that this is on the record, because, when he was conflating the two funds—the New Zealand Green Investment Fund and the venture capital fund—he talked about the required rate of return. I just want to point out that New Zealand Green Investment Finance Ltd, which is now established and is up and running, does have a required rate of return at the New Zealand Government bond rate over five years plus 2 percent. So it is important to know, because we put that rule in place that it had to have that rate of return across the portfolio over five years, because it’s required to demonstrate its commerciality to the private funds who we’re hoping to get as co-investors into it.

That brings me to the next point, that I think David Carter was talking about, which is the size of this fund, at $300 million. He pointed out that at $300 million it is only 10 percent of the size of the Provincial Growth Fund, which is one of the other funds that we’ve established. It’s also three times the size of New Zealand Green Investment Fund Ltd, which is a $100 million fund. I want to point out that when we set up the Green Investment Fund, we actually asked the private capital markets what they felt the minimum viable proposition was, and they said, “You can’t do it for less than $100 million.” We said, “Great. Well, we’ll start at $100 million then.”, because we actually want to force the fund to have to crowd in private finance. We actually want it to stimulate the private market, not to replace the private market. So we said we actually want to start with the minimum viable. I guess, if it’s wildly successful, a future Government might want to put more capital into it and expand it and so on. But, actually, with these funds—the New Zealand Green Investment Fund and the venture capital fund—we actually want to start small because the point is to stimulate the private finance market.

The Provincial Growth Fund has an entirely different purpose. It is largely grant funding; it’s not commercial investment. It doesn’t require that rate of return in the same way. And so the whole basis of its decision making is it’s actually there because there hasn’t been private investment in the regions. It’s actually trying to put some money in where it hasn’t been commercial to do so. So to compare them—to compare the Provincial Growth Fund, the Green Investment Fund, or the venture capital fund—is actually erroneous.

Anyway, I just wanted to return to the point about why this was necessary. A couple of the speakers on the Opposition side did talk about it. Everybody who pays attention to this will continuously tell you New Zealand has very thin capital markets and it has been very difficult for early-stage high-growth companies to get access to capital in New Zealand. Whilst there has been a growth of private equity funds in New Zealand and there has been some angel funding getting off the ground, actually, there is still a gap in that point in the chain, which is around that kind of early-stage high growth to kind of get companies that are up and running, that are trading, and that are starting to turn a profit to expand.

I just want to make this point because the Hon Paul Goldsmith in his speech referred to how David Parker, the Minister responsible for this, wanted to bring in a capital gains tax and couldn’t. Of course, one of the reasons why New Zealand has thin capital markets and doesn’t invest in the productive part of the economy is investment is entirely skewed towards property in this country because our tax system directs people towards tax-free capital gains on property and not to put their money into the kind of deep and liquid capital markets where you would get a venture capital fund like the one that we’re having to launch.

So, in a sense, we’re actually having to launch this to plug a gap because the Opposition was so vociferous in its opposition to levelling the playing field through the tax system, which would have enabled financing and investment to flow from the unproductive property investment markets and into early stage capital. So we’re actually having to compensate for the poor decisions that the Opposition have made.

I also just wanted to address a point that they’ve raised about the links between this venture capital fund, the existing Venture Investment Fund, and the New Zealand Superannuation Fund. And, actually, that’s part of the design, because what we’re trying to do here is to create a series of linked funds—right?—that actually have relationships with each other, and can, essentially—and it was Andrew Bayly talking about the chain of investment from angel to venture capital to expansion capital to private equity, and that actually, what we’re trying to do here is to create an ecosystem of funds where New Zealand businesses can get started in the garages and so on, and kind of attract capital at different stages and actually kind of grow and evolve through those.

That is why the relationship between the super fund and the Venture Investment Fund and this new venture capital fund is so significant. And I agree, I think it should be explored in select committee, just to allay some of those fears, one of which David Carter pointed out, which was the notion—and I want to dispel this—that we’re directing the super fund what to invest in. We’re actually not. We’re not saying which companies they should be investing in. What we’re saying is that, of the capital that they hold, $240 million should be set aside for early stage expansion capital rather than for the later stage part of the market. It would be interfering if we were telling them which businesses to invest in, but we’re not.

Now, Madam Speaker, I want to direct attention to a particular part of the bill and that’s—ah! Mr Speaker—clause 35 in the bill, and about two paragraphs down it mentions the directions that the policy statement may include and the guardians must have regard to. Then, three bullet points down, it says, “(c) the Government’s commitment to a low-emissions economy:”. The reason why I wanted to draw attention to this part of the bill is the Productivity Commission, which the previous National Government established an inquiry into about how to get to a low-emissions future, had, in their report, a number of recommendations that related to investment, decision making, and to, particularly, the innovation system. They made the very good point that, as the Government does work its way through its economic development priorities, and as it looks at its research, science, and technology policy and its investment funds and so on, that, actually, all of those things together need to, at the very least, not result in supporting businesses that would result in a higher emissions profile for the country. So, at the very least they should be neutral, and in an ideal world we should be investing in and supporting start-ups and businesses that support the transition to a low-emissions economy.

You know, there has been commentary in the past about the fact that, for example, the ACC fund doesn’t have a climate-related strategy; the New Zealand Superannuation Fund does, and it’s one of the world-class funds in its kind of category. But what we’re actually saying with this fund—and we also did with the Provincial Growth Fund—is to include in its decision making that the people who are making these investments need to consider the businesses that they are investing in in terms of what that could do to—

Order! The member’s time has expired.

Thank you, Mr Speaker. It’s pleasure to take a call on the Venture Capital Fund Bill [Microphone feedback]—whoops, funny noise—and I think the last speech was living proof that the longer you go, the deeper you dig. I couldn’t recognise virtually anything that the last speaker, the Hon James Shaw, said when I compared it with what the Minister who introduced the bill said earlier in the afternoon. I did listen to David Parker quite closely and I thought a lot of what he said made sense.

It’s interesting though that we’ve tried to transform the New Zealand economy for most of my life now and we’ve never achieved it yet. One of the reasons we don’t achieve that is the nature of our economy and our position in the world is very different than anyone else’s. So it will be difficult to achieve that transformation.

Before I get on to the bill, I want to comment on a couple of other things that the last speaker said, because he talked about the tax changes that the Government’s made and how they’re going to introduce capital into this type of investment. They certainly will not, because the tax changes that the Government’s made to date, in respect of ring-fencing and brightline and things like that, will make no difference to where people invest their money, because those people don’t have spare cash to invest. The people they’re taxing have got no cash and they will not invest in this type of a fund. So that’s a complete nonsense.

The next thing he said was that this fund has been put up there as, effectively, a grant fund, not an investment fund. That beggars belief of mine. I don’t understand it. That’s extraordinary. He then went on to say that “We’re not going to interfere on where those investments are made, but it resembles the Provincial Growth Fund.” I then had a vision of Shane Jones going around the country dishing out the superannuation funds cash. I just can’t believe what I’ve heard. None the less, this bill, for me, is, or could be, a valuable tool in, I guess, our opportunity in New Zealand to promote some businesses—not businesses so much as initiatives or business ventures—that have for years struggled to get funding in New Zealand. Often, the best of them have been picked by overseas investors and taken away from the country. So I do support the reasons for promoting this fund.

I do find this House is full of irony, and it goes on and on. Today, the Prime Minister raised this fund in her answer to question No. 1 as showing us what the Government’s achieved in its last two years of operation. Well, if this fund is the most important thing the Government’s achieved in its last two years of occupying the Treasury benches then they’ve got some serious challenges. Very shortly after that, both the Prime Minister and the finance Minister then talked about no new funds going to the superannuation fund under the National Government and how irresponsible that was. They then tell us, “We’re going to give it all away in a grant.” So, not only have they reinstituted contributions to the super fund, but they’re going to give it away, according to James Shaw. So, I do find significant irony in the way this thing is being funded. I do think, as I said, it’s a worthwhile venture and I hope it’s successful, but I do find it ironic that we’re actually using funds that, effectively, were given to the superannuation fund to invest for New Zealand’s future. Those taxpayers, who are looking forward to a future funded by the superannuation fund, I hope they don’t miss out because of it.

Just one last point I’d like to make is that the superannuation fund might be extraordinarily successful and might have been for the last 15 years, but I would invite any of you to have gone back to the 90s—and, in fact, I experienced this myself—and chaired a superannuation fund and just see how successful those type of investments were in the 90s. They don’t always succeed.

So, we are supporting this bill to the select committee and, as I said, I do think it’s got some merit. Thank you.

This is a split call. I call Dr Deborah Russell—five minutes.

This is an excellent bill, and it’s an excellent bill because it deals with one of the long-term problems that is facing New Zealand. That problem is the problem with productivity. It’s been talked about and talked about and talked about. And we do have a problem with productivity in this country. It hasn’t been solved by the private sector, and, with respect, it hasn’t been solved, I guess, by many of the Governments preceding us. But we are, at least, trying to look ahead—to look ahead not just for the next three years on the electoral cycle but to look ahead for 30 years and try to get something right in respect of the New Zealand economy. That’s what this bill is about. It’s about trying to deal with our productivity issues.

We’ve got some structural problems with investment in New Zealand. We are a small economy. We are not just a small economy; we are a small economy that is a long way distant from other economies that we might team up with. So it’s not for us to operate, say, like Ireland, which is right on the doorstep of Europe. We actually operate across the stretches of the Pacific. It limits investment in this country, it limits the investment that we can raise here, and it means that it limits what we can do with our companies to help them to grow.

This particular bill is about trying to find a way to help our successful companies to grow. It’s addressing a very particular gap in the market. We know that people with bright ideas operating out of their garage can actually get seed funding to go a bit further. We know that large companies can attract investment, but there is that gap in the middle of investment of around about between $2 million and $20 million that smaller start-up companies need in order to take the next step. And that is what this bill is about.

We’ve made, as a Government, a number of moves in this space. We’ve introduced an R & D tax credit. We’ve removed some of the tax incentives with respect to residential properties, which force investment in a particular direction. This is yet another one of these moves—setting up this venture capital fund to try to address those problems—because the reality is that, in this space, the private sector has failed. The private sector has failed in this space. Now, it might not have failed in market terms, but it has failed in terms of developing the sort of economy that we want and the sort of productivity that we want in New Zealand. The market is the answer to many things, but not to everything. In this case it has failed.

So what this fund does—and I think it’s a pretty important thing it does. We’ll be setting up this fund and then using the New Zealand Venture Investment Fund—the existing entity—to match funding from the Government via the New Zealand super scheme with private sector investors. So, in terms of looking at assessing risks and the like, of course the Government is not going it alone. It is going it with those private sector investments—the people who already run venture investment funds—to try to get the best of the private sector knowledge and the heft that Government can bring to ensure that we develop some real investment in this space.

I do want to just address one concern that was raised by some of the members of the Opposition worrying about the New Zealand Superannuation Fund having to divert $240 million from the funds that go into it. I have to say that’s a bit rich coming from the Opposition who, during their time in Government, didn’t put any money into the New Zealand Superannuation Fund at all. There are a few crocodile tears over on that side of the House I think.

However, I welcome the fact that the Opposition wants to work on this in the select committee. I am looking forward to working on it with members from across the House to make sure that this legislation is right. We’ll be working hard on it, and I’m sure that we can get it right. I commend this bill to the House.

It’s a pleasure to speak to this Venture Capital Fund Bill. As the House has already been advised, the National Party will be supporting it to the first reading. But as we consider this bill, and after hearing some of the recent contributions, particularly from the co-leader of the Green Party, I do wish to restore a dose of reality into the House.

Earlier this year I was fortunate to be invited to two dinners in my electorate. Both dinners had two venture capitalists at the dinners—American venture capitalists who were actually spending time in Hawke’s Bay because it’s a lovely part of New Zealand. But we had in-depth conversations about venture capital, how it’s used and—

💬 Greg O’Connor: Making it to the National Party.

No, I never got any money from them. However, we did talk about the risks involved. I remember a departing thought that came from one of them, who said to me, “About one in 10 of my investments actually do really well, and the rest either lose money or break even.”

💬 Hon Grant Robertson: Some of yours have been terrible, Lawrence.

Here we are—Minister of Finance, you should be worried about this, because here we are investing $240 million of the New Zealand Superannuation Fund, putting it into something that the private sector won’t do, and that we want to support businesses in New Zealand. Now, I accept the very genuine argument that there is a gap in the market somehow to be filled. But let’s not kid ourselves that this is going to be the panacea, and somehow the Government, or even the New Zealand Superannuation Fund officials, know how to do this better than the private sector. This is a risky business. We are, effectively, investing New Zealand super funds to take a risk in uncharted territory.

If you go and do a Google search, as I’ve done today, and you go and look at what happened in the UK.

💬 Fletcher Tabuteau: Well done!

Yeah, nah, I learnt how to use Google! What happened in the UK in 2009 is they had a significant fund. At the end of that, they found it made no meaningful contribution to the ability of businesses to scale up as was desired.

💬 Todd Muller: This is real.

This is real. So what I’m saying is while we’re happy, on this side of the House, to support this bill to first reading, we have concerns about, effectively, a directive to the New Zealand Superannuation Fund. We have concerns about the level of risk, because, ultimately, these funds that are being put at risk are New Zealand super funds, and we need to be really careful about that. Thank you, Mr Speaker.

Thank you, Mr Speaker. I just would reflect on that previous speaker, Lawrence Yule. It’s an interesting day to be talking about having some overseas businessmen around for dinner, but I’ll take his word that there was no donation involved. So if I can get on with the rest of my presentation.

As someone who has sat nervously for about three years as a director of a company, who required personal guarantees for the investment that they had borrowed for their directors so that they could go to the next step, I can fully understand the nervousness of anyone who is borrowing money and who is making a decision to expand. Fortunately, for myself and my family, that particular period passed, and the company did expand, and we were fortunate.

However, the reality of it is that New Zealand is a country where many of those successful businesses that operate today were actually built on the basis of Government investment. We only really need to go to New Zealand’s wealthiest man, Graeme Hart, who made all his money—and Mr Scott will know—from Government Print, which he got for a song in the Wairarapa, and which he very wisely, smartly, and through great business acumen, has turned that and other businesses he acquired into a worldwide, significant fund.

But the important point is that New Zealand Print—the organisation that he bought—was something that was built on the basis of taxpayer’s money. So it is with those of us who may have shares in power companies and those with shares in the utilities that have been sold off, which actually accounts for much of the wealth here and of overseas investors. All those things were built up on the basis of New Zealand taxpayer investment. They got to a certain level and they were then sold on. New Zealanders got the opportunity. Some held on to them. Some moved them on. The reality of it was the base was built by New Zealanders—the base was built by taxpayers.

That’s what this seeks to do. It’s an understanding that New Zealand—all the speakers opposite have talked about it and on this side of the House—is a small market. New Zealand is a small market. Mr McKelvie talked about the fact that there have been problems at various times in New Zealand with companies making that next step. There’s that great myth in New Zealand of the batch, the BMW, and the boat: boat, batch, and BMW. Now, they’re the thing that so many New Zealand companies, New Zealand start-ups, New Zealand people who’ve done the right thing, taken the chance, worked hard, but get to a certain level, and going to that next step is just too hard.

The good old Kiwi way—“Well, I’ve got my BMW, I’ve got my bach, I’ve got my boat, I’ll sell the thing on now and move on and enjoy it”. But that really underlines what the problem has been in New Zealand, that we haven’t gone to that next level. The odd company has—Frucor, the creator of V, down in the territory of South Canterbury. That was a company that grew considerably, went to Australia—was successful here, went to Australia. V, you’ll see that brand around the world. But, of course, it’s now owned by Suntory, I believe it is, the Japanese company. So these are the very companies that—we reach a certain level in New Zealand. Again, whether it’s the fact that we are isolated in more ways than geographically that when it just gets too big—I do consider, from my very early days, you might remember the Mr Asia syndicate in New Zealand. It was a syndicate that grew New Zealand out.

💬 Hon Grant Robertson: That’s not the kind of venture capital we’re after, Greg.

It was actually—if I can stand here and contradict my Minister of Finance—true venture capital, a true market where a group of New Zealanders not only cornered the heroin market in New Zealand they cornered the heroin market in Australia, and they then went on to attempt to corner the heroin market in the United Kingdom. It was only when they fell out in their very traditional criminal way, and instead of sorting the issue out in court they sorted the matter out in a much more traditional manner, which ended up with one of them, the protagonist, lying upside down in a quarry in Chorley in northern England, minus his hands and his head—perhaps there are those who argue that’s a much cleaner way of doing business. But can I just go back—I know it’s a long way from the New Zealand Venture Capital Fund Bill which we are discussing today, but I think I’d like to build a picture of what we’re trying to achieve here. While there are those I would think that, perhaps, lying upside down in a quarry in Chorley, handless and headless, [Interruption] some might think it might be a good place for them to end up—no, I couldn’t possibly say that. But the reality of it, can I say, that the venture capital—what it does mean is that was purely a market where people did go and they fell apart. Perhaps if there had been better invested along the way, things might have been different.

But in New Zealand, and I go back to what I’ve talked about before, is that necessity to be able to take another step. This Government, we’ve come in, we’ve had to rebuild a lot. We’ve had to rebase this country. I’m someone who believes before you go to the next step, you’ve actually got to have a pretty good base to build on. What we’ve found when we’ve come into Government, is we haven’t got a good base to build on. I don’t want to repeat the things we’ve found, the money we’ve had to invest in virtually every Government department. Anyone listening, anyone in this town, will know full well that every Government department—every stone that we have picked up there has been rats running under it, and those rats represent an absolute lack of investment, lack of funding over years. We’ve had to fix it, and fix it we are. But fixing it, as is often pointed out—fixing those things that are the base of New Zealand, that make New Zealand the country it is, that make New Zealand one of the easiest countries to do business in, that is one of the best countries to live in, but you can never take that for granted. As it’s constantly pointed out, someone’s got to pay the bills.

What this piece of legislation is about is ensuring that we can pay the bills, because those who pay the bills, those who create the wealth, create the wealth built on the basis of what we as a Government are doing—built on the basis of good education, built on the basis of good secondary services, good education right across the board, our polytechs etc. This is so important that for those that come out of that, we build on that base, but they’ve got to have jobs. They’ve got to have the ability to create that wealth when we give them those skills. This is what this bill is meant to do. This isn’t a start-up; it isn’t a start-up. As someone pointed out to Mr Bayly—Mr Bayly was talking about those parts of start-ups, those investments that are the most risky. The most risky are the start-ups; this isn’t a start-up. This is, actually, people who have actually proven they have a track record. These are people who have proved that they can make it.

We’ve talked a bit about Rocket Lab. It’s interesting that the Opposition did bring up Rocket Lab. Rocket Lab, under the system that was actually in place then, were turned down for this very investment that would have meant that now, when we do see those rockets taking off from Māhia Peninsula and sit there in pride and know what they’re delivering to space—there’s still that, “Wouldn’t it be nice if that was truly a company that was fully owned by New Zealanders?”. That, actually, it was a true New Zealand company that New Zealanders had the opportunity to invest in. Let’s just make sure—but there’s no point lamenting that. What this is about is making sure that when the next Rocket Lab does come along there is the opportunity, and yes, there is some risk involved; of course there is going to be risk involved. However, the risk is mitigated somewhat by the fact that those who are going to be accessing this fund will have a track record, and will have an idea that has been shown to work. It’s that $2 million to $20 million—that area as, say, if you’re bigger than that you will be able to attract those overseas financers; you will be able to attract that overseas capital. But there’s that middle ground of probably too small to be a risk for the big venture capitalists from overseas, probably too big for the local mum and dad investors in New Zealand. So this fills a gap.

But what it really is, is it just shows that this Government is addressing issues right across the board, from fixing up the infrastructure that we’ve found—and under our leader, under the Hon Jacinda Ardern, this country will end up in much better shape across the board. I commend this to the House.

Thank you, Mr Speaker. Mr O’Connor invited us to picture what it would be like with this bill in place. He talked about asset sales with the Government Print, he talked about drug dealing, and he talked about investment. I’m not sure if he meant the venture capital fund would be investing in the drug-dealing, or whether the venture capital fund would be investing in the next Government Print that might be an asset sale. He talked about education—venture capital into education. Well, I’m all good with that; private sector money, venture capital money into education. Fantastic idea, Mr O’Connor, but I don’t think that’s what he was really getting at.

We are supporting this with some reservations. Now, quite a few of the speakers on the other side talked about the gap in the market, and I contend that the New Zealand capital market is not as small as the other side would have us believe. It is connected to the global capital markets. There are hundreds and hundreds of traders sitting at their desks every day looking for opportunity, across the world. That includes opportunity in New Zealand; that includes opportunity in small, privately held opportunities for venture capital. They get that information through the fantastic networks that we have in New Zealand. We have fantastic networks which promote and put out there the opportunities to invest in New Zealand. I’m talking about the chambers of commerce, I’m talking about Business New Zealand. I’m talking about the venture capital funds that already exist in New Zealand; they’re forever picking over proposals, ideas. Icehouse is another example where, across the country—very well-known facilitator of venture capital into new ideas.

So the idea that no one understands what these ideas are that we have in New Zealand and, therefore, are not willing to invest is just nonsense. New Zealand is very, very well connected. The venture capital markets are very well connected, just as our New Zealand stock exchange is connected to the global capital markets. So I dispute that there is a thinness and a lack of understanding. The gap, therefore, in my view, does not exist. In fact, it was quite ironic that the other side were talking about the seed side of venture capital, the beginning stuff—plenty of money there. The private equity side—that’s the area post-venture capital, if you like—loads of money there, but not enough money in the little gap between, where they’re wanting to invest.

There is capital on the planet, so much money looking for a home that in parts of the world we have negative interest rates. There is so much capital that money that was printed in the last 10 years is looking for a home and it is looking for anything that it can put its hands on, including venture capital. There is no shortage of capital out there. People can borrow at zero in some parts of the world, swap it, and bring that money into New Zealand—no problem. So I dispute the idea that there is a gap in the market.

My problem with the whole idea of this venture capital fund is that we haven’t learnt our lessons from the New Zealand Venture Investment Fund (VIF). I remember those days. I remember it was quite easy to access that free money. It was cheap money, interest rates were a lot higher, but for a venture capital fund to turn up, apply one for one for the VIF fund, they’re very likely to have received the money. It was cheap money, it was zero-interest loans, and various other structures. But, basically, the taxpayer was subsidising the private sector investor into a venture capital proposition.

So my question for the Minister is: if a professional investor is unwilling to invest in an idea, why should the taxpayer? I’ve described the liquidity in that market—why should the taxpayer have to invest and take on that risk, when a private individual is unwilling to do so?

The other problem I have is that the venture capital sector is already being invested in by the Government or by the super fund. The super fund already allocates a certain amount of money to this end of the market; the venture capital end of the market. Just as the ACC fund invests a certain amount of their large portfolio into the venture capital; the high-risk end of the market.

💬 Hon David Parker: But they don’t.

But they are able to, and they are mandated to, and they are not investing. [Interruption] Mr Parker says they don’t—and this is the whole point: why would we want politicians to interfere in the professional judgment of a board of ACC or the board of the New Zealand Superannuation Fund, when Mr Parker has just said they don’t invest enough into the sector, even though he knows that they are able to do so? So he’s come across, you know, “Government knows best. Labour Party knows best. And you will overallocate more money into this specific sector”, because Mr Parker thinks that’s the best thing to do.

So the boards, the governing bodies that we’ve set up over the years, the fantastic performance the New Zealand Superannuation Fund has performed—and ACC fund as well, by the way, has outperformed the market—is at risk because Mr Parker wants to come across the top and direct them in how they are to invest. So that is the other problem I have with this model.

The other issue I have is that for the very good reasons the fund is promoted, the Minister talks about the idea of accessing and growth and productivity and access to market, but then why not allow an apple orchardist to have funding to take on the global market? Why not a sheep and beef farmer or dairy farmer to take on some taxpayer funding to do what they want to do for their business? Why not a local engineering company to say, “Look, I’ve got a machine that I’ve built and I’m selling 10 per month, and I think I can sell 100 per month overseas.”; why can’t they access this venture capital fund? And that’s the whole point: they shouldn’t be able to—they shouldn’t be able to. They should be going to the private sector, convincing their neighbours, their families, their friends, and their banks, to invest in the idea. And if it is a good idea, they will invest in it. And if an Australian partner wants to invest, great. Frucor was used as an example—I think, as a good example by Mr O’Connor—as a New Zealand company that grew, went and got some access to capital from, I think he said, Australia, and now is associated with a large distribution company. Fantastic. Great story. It doesn’t have to be 100 percent owned by New Zealand. In fact, you don’t want it to be; you want the distributors to own some of that change.

So although we support this bill, I do have some reservations, and I think I’ve outlined them reasonably succinctly.

Thank you very much, Mr Speaker. It’s a pleasure to rise in support of this bill. At the outset, what I want to do is congratulate the Minister in whose name this bill is, the Hon David Parker. This is truly an idea that came from him. It is something that I know he has concerned himself with for many years, both in his own life as a person who has undertaken investments over the years—and has been an entrepreneur and somebody who sought to continually drive forward new ideas, new products, and new companies—but also as a Minister who is aware that we as a Government do have to step up to improve New Zealand’s productivity and also step up when there are failures in particular parts of the market. So Minister Parker, I want to thank you for putting this in front of the House and putting so much of your own effort into getting us to this point today.

We’ve just heard from the retiring Mr Scott. I guess the thing that I really focused on in that speech was the fact that Alastair Scott was telling us there was no gap to fill in the market. Let’s pick someone at random—I don’t know—Peter Beck from Rocket Lab, who says that there is a gap to fill in the market. Do we trust Peter Beck from Rocket Lab or do we trust Alastair Scott in this regard? It’s not just Peter Beck from Rocket Lab who has said to the Government and said to New Zealanders that there is a gap; there are many, many other people indeed.

This is a bill that is primarily focused on how we address one of the long-term challenges facing New Zealand, and that is our low productivity. Every Government over a succession of Governments and over the decades has said New Zealand has a productivity challenge. We even saw yesterday an attempt to rehash, to microwave up the soggy, old fish and chips of the last Government’s productivity strategy—putting that back out in front of us again yesterday. That’s not the path. The path is actually to undertake some truly innovative investments to help lift our productivity. And as a Government, we’ve done that with the R & D tax credit; we’ve even done that with the investment signals that we’re sending in the housing market as well, in terms of the foreign buyer ban and the brightline test and so on; we’ve done that with our investment in skills; and we’ve done that with our investment in innovation across the board. This is another part of that with the establishment of the venture capital fund, and it is an area where there is a gap.

Nobody is arguing that if you’ve got a start-up business in the garage, you won’t find someone to give you some money for that. For the most part that actually comes through family and friends and overdrafts, but also through things like the seed capital investment fund and other small start-up support funds. This is about the next stage. This is about the businesses who will, in the future, generate many jobs for New Zealand if they get the opportunity to move forward to the export market, if they get the opportunity to build better networks for their companies, and if they get the opportunity to build on their good ideas that they’ve had to begin the start-up. So this is about a gap, it is about market failure, and it is about addressing one of the long-term issues that sits in front of us.

I do want to correct some of the misapprehensions that I have heard from across the House. This is not about politicians deciding what’s good to invest in. This is also not even about taking a risk or a punt without a commercial basis beside it; this is actually about leveraging funding. This is actually about making sure that there is the New Zealand Venture Investment Fund working with fund managers—and on a matching basis, getting that investment. So there is commercial acumen at the table right away. This is not about taking risks that are undue; this is about actually leveraging funding, getting a functioning venture capital market going in New Zealand, and getting those with the commercial acumen and expertise to be able to do it. The difference is that this Government is prepared to put some skin in the game to make that happen, not to sit back and hope for the best. We heard from Mr Scott who said, “Well, people can make these investments.” There are people with capital out there who could do this; the problem is that they haven’t. This is the opportunity that we are opening up now. It’s that the Government has some skin in the game and we will be delivering this through a commercial model, through a fund of funds approach, and through the expertise of fund managers.

The second misapprehension that we want to correct is to make sure that members opposite understand that this is not about the super fund per se; the super fund itself is actually ring-fenced away from this. What this is about is the expertise of the guardians of the super fund in helping manage this and working with the New Zealand Venture Investment Fund to make sure that we manage this fund in the best interests of all New Zealanders. So the guardians of the super fund—it will require some minor amendments to that legislation as part of this—have got the role of overseeing this in the first instance, with the venture investment fund, on a commercial basis.

The other part of this that I want to address is the way in which New Zealand as a country sees ourselves on the world stage. When we have big ideas and good ideas like the ideas that Peter Beck had at Rocket Lab, what we don’t want is that the intellectual capital, and the job generation of those good ideas, drifts offshore without a New Zealand involvement in it for the long term. Yes, by all means, let’s have this as partnerships between New Zealand funds and others, but let’s make sure that the value that gets generated out of these good ideas is value that New Zealanders hang on to. I know that it’s something that Mr Parker, again, has spent a lot of time talking about—how we continue to generate value in New Zealand and capture that value in front of us today.

So I strongly support this bill. When I look at what we are trying to achieve here and what other things that will look like success for us, it’s that we’ve actually got an engagement here that’s in line with commercial principles; that fund managers are securing private capital alongside that Government funding to, in fact, more than double, if we can, the amount of money that’s available; that fund managers have got access to all the expertise they need, and, obviously, that’s the support of the guardians, and making sure that we do that; that we attract new fund managers here; that we deepen domestic capital, we deepen the capacity of our venture capital markets here in New Zealand; that we’ve got viable options for New Zealand companies to progress and develop in New Zealand; that we’ve got good returns that are appropriate to the sector; and, ultimately, that, actually, private capital does function in an efficient way, and the Government, at the end of this, can exit knowing that it’s helped create a vibrant venture capital market in New Zealand. Those are the elements that I see as success from this fund.

But it is true that there is nothing ventured, nothing gained. I’m not quite following down the path of my colleague Greg O’Connor around the venture capital nature of the Mr Asia syndicate, but I do think, short of that, there are some opportunities to make sure that we do push the boat out a little. From time to time, in the interests of future generations, Governments have to push the boat out and say, “We will put some skin in the game to make sure that we actually are building on the new ideas of our entrepreneurs and innovators.” I’m pleased that the Opposition is supporting this to select committee. I invite them to enter into this with an open mind—an idea that there are new ideas that we should be grabbing hold of, and that there are New Zealanders out there who deserve our support to be able to take their ideas forward. I think this is an excellent bill, an excellent fund, and I commend it to the House.

Bill read a first time.

The question is that the Venture Capital Fund Bill be considered by the Finance and Expenditure Committee. Those of that opinion will say Aye. To the contrary No—

💬 Hon David Parker: I raise a point of order, Mr Speaker. I just want to check that this doesn’t obviate my motion in respect of the period.

No, I’ll just declare it—the Ayes have it—and now you can move the motion.

Bill referred to the Finance and Expenditure Committee.

💬 Hon David Parker: Sorry, I just wasn’t clear. I thought that if that had gone through I might have been I querying my own—

ASSISTANT SPEAKER (Adrian Rurawhe): No, no.

I move, That the Venture Capital Fund Bill be reported to the House by Monday, 2 December 2019, and that the committee have authority to meet at any time while the House is sitting (except during oral questions), during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, and outside the Wellington area, despite Standing Orders 191, 193, and 194(1)(b) and (c).

I would just ask if I could just have an indication from the Clerk that I’ve correctly read the motion? Thank you.

I want to explain why the Government thinks it is appropriate to shorten the period. It’s, essentially, because we want the capital to flow to this sector and we think that delays aren’t in the interests of the country. We did consider producing this legislation during the Budget itself and introducing Budget night legislation, in which we considered whether we should push through all stages under urgency as part of the Budget legislation. We chose not to do that because although at one level it’s a relatively simple bill, we thought that it was appropriate to consult in more detail with the guardians of the New Zealand Superannuation Fund, with the Venture Investment Fund, and with the venture capital (VC) industry. In the time since 30 May, that’s what we’ve done. So there’s already been considerable pre-consultation with the industry that’s affected, the VC fund management industry, but also with the guardians of the super fund and the New Zealand Venture Investment Fund.

I can give an illustration of the need for this to happen quickly. I was at a meeting with a number of VC fund managers, and a person with a long track record in these funds gave the example of his own involvement in five Wellington-based IT firms, all of which have a funding need—what you’d call a series A round—that needs about $1 million each. Contrary to what other members said, it’s not easy to access that money in respect of these start-up ventures. You can’t access public funds because of the directorial risk for making a public offering. As a consequence of that, you either have to choose between competent directors, if you’re getting an external director, or non-public methods of fund-raising. In addition, the costs of accessing public markets have gone up because of the complex prospectus processes that we have now in New Zealand. So you’re, effectively, driven to private equity sources, and private equity is easy enough to get—

ASSISTANT SPEAKER (Adrian Rurawhe): Can I just—sorry to interrupt the Minister, but it’s actually a very narrow debate on—

Well, it’s the reason for the urgency, sir. These funding needs are real.

ASSISTANT SPEAKER (Adrian Rurawhe): I’m just indicating to the Minister that if he’s creating debating points, then that will extend the debate, so he needs to be quite concise and to the point.

Thank you. The other reason, I would say, is that you never know when you’re going to have a liquidity event in the world. New Zealand encountered a liquidity event in 2008, at which point capital markets stopped to function, and our VC industry and a lot of things that were good actually went on the shelf then for a while. Now, there are some clouds on the horizon internationally, and it could be that the co-funding that we want to get for these matched funds is less likely to be available from international and New Zealand markets in a year than it is now. None of us know when these liquidity events can change quickly from being available to being a lot more closed. So although none of us can predict that future, that’s another reason to do this promptly.

So we think, given the nature of the bill, that the period ending 2 December 2019 is a reasonable one to request of the select committee, and we think that they will be able to meet that date in a way that’s not unreasonable.

National just wants to record that it objects to a truncated select committee process. The Standing Orders have been developed over a long period of time to allow reasonable select committee processes that should only be truncated under very special circumstances, and what the Minister has just taken us through is a range of reasons as to why there’s suddenly urgency. The first question that I would ask of the Minister is: what’s suddenly become urgent that wasn’t evident to him as Minister 18 months or two years ago? He has had an enormous amount of time to develop this legislation and get it before the House without now thumbing his nose at a democratic process.

He further said that this is a simple bill. It is not a simple bill when he’s instructing the guardians of the New Zealand Superannuation Fund to give over $240 million to this created venture fund of $300 million. That is an issue that I think the select committee needs to examine very, very carefully. The New Zealand Superannuation Fund has been extremely successful, and one of the reasons that it has been successful is because politicians have not interfered with it. This is the first time since it was established in, from memory, 2006 or 2007 that we now have a Government moving to politically interfere with the decisions that the guardians of the super fund make. So to argue that it is a simple bill is simply not true.

The second reason given by the Hon David Parker is that the funding needs out there are suddenly urgent. No, this economy has been in decline since the Labour - New Zealand First - Green Government came to power. There is a complete lack of confidence from the business sector, which Mr Parker has chosen to ignore. I think I can recall his comments on some business surveys saying they are just rubbish—

💬 Hon David Parker: Junk.

“Junk.”, he said. Rubbish, junk—well, if he’s proud of that remark, I’m surprised. And he’s now saying that the funding needs are urgent. Can I suggest to Mr Parker that the funding needs became more urgent the day he said to New Zealand businesses, when they lacked confidence, that they were junk.

The third reason he gives is the pending potential liquidity crisis led by international circumstances, and I accept that there are clouds gathering on the horizon because of international pressures, not helped by politicians around the world with a bent on stopping the ability of nations to trade as freely as they have previously been able to. There are clouds gathering on the New Zealand horizon because of international factors, but don’t think that those factors are only international; they are also demonstrated very clearly by the lack of business confidence in this Government. Mr Grant Robertson shakes his head as if to say New Zealand businesses are tremendously confident in the process of this Government. Get out there during the next week of recess and go and talk to businesses.

💬 Hon Grant Robertson: I’m out there.

He says he’s out there. Well, then, he’ll come back next week a lot better informed than he is now.

So I don’t want to take long in this debate, except to register that the Standing Orders have been developed over a long period of time to allow select committees to do their job and to do it properly. We have no idea at this stage whether there will be many submissions to this legislation. There may be because of the interest in superannuation as an issue to all New Zealanders and the fact that the Government is now looking to take $240 million out of the New Zealand Superannuation Fund to establish its New Zealand Venture Capital Fund. There may be a lot of submissions, and bear in mind that if the Minister also bothered to talk to the chair of the Finance and Expenditure Committee, he would be able to find out that the select committee is already very, very busy—

💬 Hon Grant Robertson: Oh, I’m sorry you’ll have to do some work.

I’m not sorry at all. It’s the legislation the Government has put before us, Mr Robertson. I’m happy to do the job and examine it properly, but I don’t believe that under these circumstances, the need to report it back by 2 December has been adequately explained by this Minister.

In summary, it’s being done for a couple of reasons, in my opinion: one, to restrict the ability of people to make submissions—or to restrict the ability of the select committee to adequately hear those submissions—and the second reason, and probably the more appropriate reason, is that this Government has very little on the Order Paper and, therefore, is trying to truncate the process to get the legislation out of the select committee by 2 December so that it’s actually got some work to do as we come back after a lengthy Christmas recess.

The Standing Orders are developed for good reason. New Zealand’s democracy is one that I think is held in high regard right around the world. One of the reasons that it’s held in high regard is because of its select committee process, and I don’t believe it’s appropriate for the Government to move this particular motion in an attempt to truncate a select committee process that is an icon of the New Zealand democratic system. Mr Parker should be ashamed of himself for coming into the House today and truncating that very process.

I just want to make a brief contribution to reinforce the comments made by the Hon David Parker. The Guardians of New Zealand Superannuation and others have been consulted with at some length about this proposal, despite what David Carter, the member who has just resumed his seat, might have to say. They are, in fact, engaging very constructively. They’re very pleased to be a part of this. They’re even more pleased that someone is finally putting money into the New Zealand Superannuation Fund.

ASSISTANT SPEAKER (Adrian Rurawhe): That’s not actually the motion on the Table. We’re talking about the shortened report-back period, and so you need to address that.

The point I’m making is that the shorter report-back period is a completely acceptable path for us to be going down, because the negotiations have taken place with the New Zealand Superannuation Fund. This shortened report-back period will enable us to get on with making the investments that New Zealand needs to see.

Well, wasn’t that an interesting contribution from a man who stood up because he felt he needed to defend Minister Parker—

ASSISTANT SPEAKER (Adrian Rurawhe): And I’m going to say the same thing to you: this is a narrow debate on the shortened report-back period, and you should address that.

The report-back period, sir, is far too short. I was interested to listen to Mr Parker’s initial comments before you closed them down. He was talking about private equity, which is not too much different from venture capital in the ability to access that being relatively easy.

Now, the problem with this report-back period is that the Minister started off by suggesting that he even thought about urgency—he even thought about bringing this through an urgency debate. That was his starting point? The starting point should surely be the Standing Orders, which is what David Carter was discussing. So, for me, that’s where the starting point should have been, and the reasons to bring it to a shorter period were totally unconvincing. I’m not convinced at all that because of some cloudy storm out there on the horizon, some global issue that might arise, we should be investing. In fact, that’s a reason not to invest. If you really think that the economy is going to deteriorate and assets are going to shrink, then you wouldn’t want to invest your money today, because you would expect the value of those things to diminish sooner rather than later. So that’s just a fallacious argument. That makes no sense at all.

I think there should be a proper process which allows people to contribute to the select committee process around even just the one issue of governance, and political interference is just one area that we could debate in select committee and have other people contribute on. Minister Robertson suggested that the only people that really needed to be consulted were the guardians of the Superannuation Fund. Well, that’s just nonsense. There are a whole lot of other issues that need to be discussed here. There are international participants. Minister Parker quite rightly discussed the idea of international participation—you know, entities moving offshore. That’s OK. Offshore guys investing internally—that’s OK. So, surely, those people would want to contribute to the process as well.

So, again, there is no reason to shorten the process. In fact, you’ll be excluding some of those people because of the shortened time period. So no real reason to shorten it up—totally unconvincing. It needed two Ministers to try and convince us, and, with that, I’ll let it rest.