The new technology incubators and repayable loan scheme for startups are about to be reviewed by the Ministry of Business, Innovation and Employment as they start to crank up halfway through a three-year pilot.
The new technology incubators and repayable loan scheme for startups are about to be reviewed by the Ministry of Business, Innovation and Employment as they start to crank up halfway through a three-year pilot.
Some 19 companies have had repayable loans approved to date, although the 11 grants approved in the 2014/15 financial year fell well short of the allocated $10.2 million annually. The total amount paid in the scheme's first year was $2.54 million while so far this financial year to June 30 the total paid and committed is $7.1 million (the grants are paid in three tranches).
Modelled on an Israeli incubator system, three privately-owned technology incubators were set up in late 2014 to commercialise capital intensive intellectual property mainly from universities and Crown research institutes.
Powerhouse Ventures, which is planning to list this year, has been around for 10 years and already had a technology pipeline to commercialise. The new incubators – Astrolab in Auckland and WNT Ventures in Tauranga – took longer than expected to set up infrastructure and incubate ideas, leading to the underspend of the first year's available grant money.
Callaghan Innovation programme manager Elena Higgison said a one-off exception was made for the leftover funding to carry over to the 2016 financial year.
Repayable grants of up to $450,000 over two years help develop technology typically before angel investors will risk their money while $35,000 pre-incubation grants allow incubators to explore whether a promising technology stacks up for investment.
More companies are expected to get repayable grants this financial year with a steady pipeline of ideas in pre-incubation, Ms Higgison said. So far 52 pre-incubation grants have been made, and the expectation is half will make it to incubation.
Final decisions on the MBIE review would be made by July 1 to give the technology incubators and the five founder-focused business incubators a one-year runway on their future operational funding.
The review will scope the whole startup system to see what gaps or overlaps exist.
The Israeli government has a separate fund to provide follow-on investments to the most promising incubated startups and the MBIE review will consider if that's needed in New Zealand or whether the New Zealand Venture Investment Fund fills that role.
The founder-focused incubators have previously been told their operational funding will stop in mid-2017 unless they change to a new business model.
The programme expects the technology incubators, who receive a total $4.9 million in operational funding, to become financially sustainable within three years based on returns from an early investment exit. The Israeli model allows eight years and Ms Higgison favours five.
The government's $450,000 repayable grants are matched by $150,000 in private sector investment. Grant repayments begin when the incubated companies make sales with the first repayments due in the 2017 financial year.
About 60 companies are expected to get grants during the pilot with international experience showing an average 60% repayment rate.
The rule of thumb for angel investment is that one in 10 startups deliver the "home run" that provides the money to cover losses from the half that fail, while the remaining four return little more than the original investment.
Technology incubators are required to make most of their investments in ideas from public research organisations. It's understood Callaghan originally said 90% of investments had to be sourced from the public sector but that has shifted to 60% based on deal flow.
Powerhouse has had 11 repayable grants for its 20-strong portfolio and 20 pre-incubation grants. Chief executive Stephen Hampson said the repayable grants "make a significant difference" as it encourages private investors to come in at an earlier stage than normal.
WNT Ventures boss Carl Jones said it has had three repayable grants for all the companies in its portfolio and the "pipeline is looking healthy."
Astrolab has received five repayable grants though chief executive Brett Oliver was prepared to name only one incubated company, Motion, due to commercial sensitivity.
Mr Higgison said there were some teething problems with the new programme due to Callaghan's internal processes. Three repayable grants to Astrolab were sent back to the pre-incubation process because the ideas weren't considered ready for the larger grant, a move that upset potential investors. The process is now working smoothly, both parties said.
A ministerial press release last July included repayment grants to a number of unnamed entities that weren't yet companies. But Callaghan said no grants were paid out until the incubators set up a company structure around the approved technology.
(BusinessDesk receives assistance from Callaghan Innovation to write on the commercialisation of innovation).
(BusinessDesk)
