The Minister for Economic Development Stuart Nash unveiled plans for New Zealand’s Business Growth Fund in his Budget 2022 announcement in May. The Government is earmarking $100 million over the coming year for investment as a minority shareholder in the fund, alongside private banks.
The investment model has already been rolled out in the UK, Ireland, Canada, and, most recently, Australia. The new fund's goal is to improve access to finance for small and medium businesses and formed part of a package of Budget 2022 initiatives to drive economic security and innovation and green initiatives.
‘SMEs are a core part of our economy, contributing about 30 percent to New Zealand’s GDP. Many are poised to grow if given the opportunity and can play a key role in our economic security and transition to a low emissions economy,’ said Stuart Nash.
‘The Government is committed to improving SME’s access to finance, and to establishing a Business Growth Fund… It is intended the Fund will help fill a gap in the capital market for SMEs that require growth capital not available through current market providers.’
Positive investment for SMEs
Gavin Lennox, investor and former Group CEO of The Icehouse, takes up the story. ‘Over 10 years ago, the UK faced an issue – how to help SMEs get access to capital to grow. Their answer was the Business Growth Fund or BGF. Today, the UK BGF has over £3billiion invested in over 400 SMEs, with positive results for investors, the companies and the overall UK economy. Canada, and most recently Australia, have adopted similar models.
‘I was encouraged by the New Zealand Government making an announcement as part of last week’s budget, to commit up to $100m to an NZ BGF. There's still a way to go to get all stakeholders on board, primarily the major banks and potentially some other aligned investors like KiwiSaver providers, however it's a major step in the right direction.’
The new NZ BGF will take a minority shareholding in businesses that are poised for growth. It will also tap into a talent network to help build out governance and advisors. Startups are well served by venture capital, and profitable larger businesses by private equity, while SMEs face greater challenges in accessing equity capital.
The Icehouse has for decades helped grow the capability and ambition of Kiwi business owners. Pairing that capability with equity capital from the NZ BGF can help fuel growth delivering jobs, investor returns and desperately needed productivity improvements for the country.
Closing the gap and raising capacity
‘I too am encouraged by the prospect of the Business Growth Fund,’ says Liz Wotherspoon, Chief Executive of Growth at The Icehouse. ‘The Icehouse is dedicated to building a vibrant community of Kiwi business owners and leaders who have the confidence, skills and connections to enable their companies to grow and thrive. These SME business owners are the unsung heroes of the NZ economy and funding growth can be a challenge.
‘There is definitely a gap for growth capital for Kiwi business owners in NZ and this fund has the potential to play a part in closing this gap. We need to raise the number of companies with the capacity and desire for growth and exploring and providing alternative funding models is definitely a very good idea.
‘We see with our SME customers that now, more than ever, that they need capital, advice and expertise to help them grow and thrive post-COVID. If they can access the knowledge, connections and investment they need to enable them to reach their true potential, we can really move the dial on transforming the SME sector.’
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