Parker DavidVENTURE CAPITAL FUND BILLSecond ReadingHon DAVID PARKER (Associate Minister of Finance): I move That the Venture Capital Fund Bill be now read a second time.Let me start by reiterating the underlying purpose of this bill which puts in place a key element of the Wellbeing Budget's economic package. I think we all in this House know that the world is in the midst of a technological revolution which is borne of the confluence of affordable computing power mobile positioning systems sensors robotics big data and the internet of things artificial intelligence and genetics. We know that digitalisation of many parts of the economy creates challenges that we are dealing with under the banner of the future of work. The flip side of the size of that challenge is the enormous opportunity to improve the efficiency of existing methods of production and to commercialise new products and services that are borne of this revolution. In the opinion of this Government it's the duty of this Government to help New Zealand chase down as many of these commercial opportunities as we can in this highly competitive world so that we harness the jobs and the value that can be created for the benefit of our economy.We know that many high-growth early-stage New Zealand entities currently struggle to access capital they need when they're in their expansion phase. This is caused by a shortage of available capital investment at the series A and B stages. New start-ups earlier in their journey are already well served by angel investors with some seed capital support from the Government. And that improvement of that market was actually caused by Government intervention not dissimilar to the one that we're now proposing.But the mid-sized capital raising between $2 million and $20 million in size normally is not as well supported in the New Zealand capital markets. So the $300 million Venture Capital Fund (VCF) which this bill creates helps fill this capital gap for these companies as they expand. It'll help increase the amount of technology that gets commercialised and this will lift the level of innovation and productivity not just within those companies but across the country. I expect that the additional $300 million in the fund will be leveraged by investments from the private sector so that more than $300 million will flow into this part of our capital markets. The effect will be that more of our start-ups in New Zealand stay for longer along with the benefits this brings.I would add that I'm not arguing that these start-ups shouldn't be sold overseas and in a way we're not even trying to discourage it. But we are keen that they have the access to capital they need to grow and are not forced to sell or forced to sell too soon by the current capital constraints. The initiative put in place by this bill will in our view keep more start-ups in New Zealand for longer and support the proportion of these firms that stays in local ownership.The Venture Capital Fund will also help to establish extensive domestic and international networks and develop world-class capability and experience in working with start-ups. And that will ultimately give them the ability to raise domestic and international private capital without further Government intervention. Alongside the R & D tax credit the ring-fencing of losses and extending the brightline test it's all helping weight investment towards the productive sectors which we think is key to lifting economic performance and productivity.As we conduct the second reading of this bill I want to highlight the process to undertake to develop this legislation. We had public submissions on the bill and we had separate consultation with the venture capital (VC) market to support its implementation. In developing the VCF we've worked hard to listen to the market as well as to the Guardians of New Zealand Superannuation and the Venture Investment Fund. And I'm pleased to say that our engagement with the market shows widespread support for the initiative. We also received broad support from the select committee and as a result of their input we've strengthened the purpose section of the bill to provide a clear signal that we're doing this to improve New Zealand's productivity.As a result of consultation and feedback a number of other amendments have been made to the bill. We've made it clear that one of the purposes of the VCF is to encourage the further development of private VC funds so that capital is increasingly raised from New Zealand investors in the private sector and to ensure also that there is an appropriate focus on the New Zealand market. Progress has already been made in the private sector support for private seed markets and we want to stimulate this for series A and B capital rounds.Achieving an inclusive economy is of course an important part of the Government's overall economic strategy and the bill now better reflects this by including the ability for directions that the Guardians must have regard to in their oversight of the VCF. But equally by giving the Guardians the job of independently allocating capital we're harnessing the Guardian's expertise reputation and proven track record. They really do have a history of making wise investment choices and we think their involvement will help. They've also got a solid reputation for responsible investing and adhering to an environmental social and governance framework and we're confident this will carry over into their oversight of the VCF. Of course the primary focus for the Guardians is to apply best practice to the VCF investments while employing that environmental social governance framework to deliver other objectives of the bill.By establishing the capital fund we're not only supporting New Zealand's most innovative firms; we're also stimulating capital available to invest in high-growth firms in the future. By establishing this in the manner set out in the bill we're confident that the funds created will attract other investors. So ultimately we believe this is going to foster investment and innovation in high-growth high-wage businesses. We'll be nurturing a thriving capital market in New Zealand that is more comparable with the global counterparts.Before I take my seat I would note that I think New Zealand has made enormous progress in growing the sophistication of our economy since the Catching the Knowledge Wave conference that was held by the Rt Hon Helen Clark. And it was there that New Zealand industry and Government came together and identified that in order for us to increase the value of our offering to the world in order to pay for the things that we like to import to sustain our standard of living we needed to broaden our exports beyond our traditional core towards technology and higher-value exports. They identified three main technologies to be supported: ICT creative industries and biotechnology. The subsequent National Government focused biotechnology quite wisely on food and beverage and the related technologies and as a country we have since made enormous progress to the point where technology-related exports are now our third largest and fastest-growing source of exports—third after services in tourism and agricultural exports—and our technology exports are growing in sophistication and value. We're seeing this recorded in statistics. Not only is it part of the reason why exports are growing strongly but it's also reflected in the number of offshore hires by New Zealand's technology companies who are expanding abroad as they broaden their export reach.One of the indicators of success is the number of people that they are employing in offshore markets in order to increase their sales efforts. We have capability that is growing in this area. We wouldn't have had it had it not been for the interventions of the Hon Pete Hodgson back in those days when he brought the Israeli innovation model to New Zealand and started supporting early-stage capital markets. The earliest iteration of that was through the Venture Investment Fund. It's had a slightly negative rate of return but has met its overall objective of stimulating the sector. That morphed down to the last Government into support for seed capital which was appropriate and this endeavour says Look we've got those seed companies coming through. We need to better support their globalisation efforts as they take their goods and services to the world by filling this gap in our capital markets for series A and B capital rounds."—which as I said at the start is generally in the realm of $2 million to $20 million.I'm confident that we've got the mix right: administration largely through the Venture Investment Fund; oversight by the super fund who oversee who will be effectively chosen as the VC fund managers; and the private sector through those VC funds bringing some matching money from the private sector and making the investments into the New Zealand economy which will improve the productivity and growth of our country which will flow through to better-paying jobs for New Zealanders and higher export earnings in the future. I commend the bill to the House."