regional investment fund feasibility study...the feasibility study was conducted to answer the...

Regional Investment Fund Feasibility StudyVenture Taranaki TrustJune 2019

Taranaki Regional Investment Fund Feasibility Study© 2019. For information, contact Deloitte Touche Tohmatsu Limited. 3

1. Executive Summary 5

2. Introduction 9

3. Purpose and Approach 12

4. Investment Landscape 16

5. Fund Options Considered 25

6. Suggested Fund/Funding Model 31

7. Summary 40

8. Appendix 42

− Appendix 1: Restrictions and Disclaimer 43

Contents


Glossary of Terms

B Billion

GDP Gross Domestic Product

K Thousand

M Million

MBIE Ministry of Business, Innovation and Employment

MPI Ministry of Primary Industries

NZ New Zealand

NZTE New Zealand Trade and Enterprise

NZVIF New Zealand Venture Investment Fund

PGF Provincial Growth Fund

R&D Research and Development

SIPO Statement of Investment Policy and Objectives

SME Small to Medium Enterprise

TPK Te Puni Kokiri

TSB TSB Bank

US United States of America

WWF World Wildlife Fund


1. Executive Summary


1. Executive SummaryBackground

Tapuae Roa is a collaborative regionaldevelopment Strategy and Action Plan betweenthe Taranaki local government authorities,Venture Taranaki, local business leaders, localIwi and central government (through MBIE).The strategy was launched in August 2017 andidentified a long list of potential opportunitiesto help inform a regional action plan.

The Tapuae Roa action plan (released in April2018) identified an investigation into theviability of a regional investment fund as animmediate action point.

Scope

Our initial objective was to assess thefeasibility of establishing a singular Taranakiregional investment fund. Prior to Deloittebeing engaged, Venture Taranaki hadcompleted initial background research into asingular regional investment fund concept.After review of the background materials andour initial research we formed the joint viewwith Venture Taranaki that a singular fund maynot be the right fit for the region to achievesome of the expected outcomes under thisworkstream.

The scope of the feasibility wassubsequently widened to also consider theviability of a regional investment fundingmodel on a case-by-case basis.

To determine the feasibility of a regionalinvestment fund, it is important to consider theactivities that need to occur prior to securingfunding. The diagram on this page highlights ata conceptual level the activities and processesthat need to occur prior to securing capitalplacement.

A key success factor of regional investment iswhether the regional investmentenvironment is conducive to generatinginvestable opportunities.

As such, in considering the feasibility ofestablishing an investment fund and/orfunding model we have also considered:

• The wider regional investment ecosystem;

• The advantages and disadvantages of bothinvestment options considered;

• How well each option would fit with theTapuae Roa four futures; and

• The other three Tapuae Roa foundationareas, particularly the Talent, Enterpriseand Innovation foundation.

1. ExecutiveSummary

2. Introduction 3. Purpose andApproach

4. InvestmentLandscape

5. Fund OptionsConsidered

6. Suggested Fund/Funding Model

7. Summary 8. Appendices



Investment Landscape

Our experience shows that for an investmentmodel to be successful there needs to be:

• A healthy pipeline of investableopportunities; and

• A good conversion rate of opportunities todeals completed.

For these things to occur, a vibrantinvestment ecosystem is required to generateinvestable opportunities (refer to page 19 foran example of an investment ecosystem).

There are a number of positive attributes inthe Taranaki investment ecosystem, wherecomponents for a successful investmentecosystem are already present. To furtherenhance investment outcomes, the followingareas of the regional investment ecosystemneed to be considered:

• A regional investment integrator role;

• Investment readiness programmes; and

• Investee and investor matchingmechanisms.

Stakeholder feedback received indicated thatinvestor readiness and investor matchingprogrammes within the region are either not:

• Well known; or

• Being widely used.

While our report has highlighted these issues,it is our understanding that they are beingseparately reviewed in detail as part of otherongoing work streams (particularly the workbeing completed on developing Taranaki’sinnovation ecosystem).

Investor readiness and an effectiveinvestment ecosystem on their own will onlyget you part of the way to investmentsuccess. Understanding capital funding gaps(if they exist) is just as important.

For a regional investment fund to besuccessful, the fund will need to have a clearinvestment philosophy in terms of deal size,sector involvement and the stage of capitalbeing provided.

Funding options considered

Two options for regional investment wereconsidered:

• A singular regional investment fund; and

• A regional investment funding model thatwould allow for case-by-case investment.

The identified advantages and disadvantagesof the two options considered resulted in aweighting towards a case-by-case fundingmodel. This was further reinforced fromstakeholder feedback received.

However, at the stakeholder workshop held on13 May 2019, a hybrid model between the twooptions emerged, with investment optionsvarying between sectors. The hybrid modelhad stakeholder buy-in to investigate further.

Our view is that a hybrid model could besuccessfully established for investmentfunding purposes.

1. ExecutiveSummary








Sector by sector approach to funding(hybrid model)

Each Tapuae Roa future is a clearly identifiablesector, and as such should be viewed as havingseparate and unique funding profiles.

We believe that a hybrid approach todeveloping a regional investment fundingmodel (using both a singular investment fundand a case-by-case funding model) will ensurefunding requirements that are unique to eachfuture are met.

Energy futures

The sector attributes and a national fundinggap for the sector make it well suited for asingular investment fund to be established.

Taranaki, with its existing energy sector andexpectations of significant transition within thesector is an ideal location for such a fund.

Significant work will be required in establishinga singular energy focussed fund, including;considering the investment objectives of thefund; type of the fund (open vs closed); thevehicle to house the investment fund (limitedpartnership vs corporate unit trust); and mostimportantly fund management experience andcapability. All of these aspects will have abearing on considerations like the minimumviability of the fund; initial fund establishmentcosts; and ongoing operating costs.

We recommend that these items are consideredas part of a detailed business case to furtherexplore these critical considerations.

Māori economy futures

A case-by-case investment funding model isbetter suited for the Māori economy sector.There are already a number of existing local Iwifunding sources within the region to supportinvestment cases as they arise.

Visitor sector futures

A case-by-case investment funding model isbetter suited for the visitor sector.

Our experience of this sector suggests thatinvestment funding in this space iscollaborative in nature through a mix of localpublic, private and Iwi investment.

Food futures

We believe there is potential for a singular fundfor this sector, the focus of it needs to befurther refined to provide a clear perspective onthis.

Therefore, in the short term, a case-by-casefunding model would be better suited tosupport food futures funding requirements.

Future considerations

Going forward the investment funding modelshould be reviewed at the same time as theTapuae Roa Strategy and Action Plan to ensurethe model is still fit for purpose and is stilldelivering the right outcomes for the region.

While in the current environment it may bedifficult to divert funding from existing regionalpools of capital into a regional investmentmodel, this may not be the case in the futureonce investment confidence has beenestablished.

In the meantime, key regional players andstakeholders can still play a critical role indeveloping the regional investmentecosystem(s) - i.e. the enabling elements.

Lastly, the establishment of an investmentintegrator role will further enhance the Taranakiinvestment ecosystem. The integrator rolecould continue developing and supportingTaranaki’s investment ecosystem to ensurethere is a wide understanding of what and whois involved in becoming investment ready andidentifying the optimal capital funding partnersand solution(s) for businesses.

1. ExecutiveSummary







2. Introduction


“Taranaki, where talent becomes enterprise – Kia eke panuku”– Tapuae Roa mission

2. Introduction

Introduction

Venture Taranaki, as the central vehicle responsible for many of the projects flowing from the Tapuae Roa Action Plan,has engaged Deloitte to complete a feasibility study into the viability of establishing a Taranaki regional investment fund.

The feasibility study was conducted to answer the question “is a Taranaki Regional Investment Fund feasible?” and“will it address the success factors of Tapuae Roa?”.

In considering the feasibility of a regional investment fund, it is important to consider the regional investmentenvironment that will support the fund. If the local investment environment is not conducive to producing a growingvolume of investable opportunities, then the outcomes of any regional investment funds may be impaired as aconsequence.

Therefore the key components of this report include:

• Setting out the investment landscape of what is involved in the investment process and success factors to allow forthe effective and efficient provision of capital; and

• The benefits and shortcomings of establishing a singular regional investment fund versus a case-by-case fundingmodel.

As the scope of this report is a feasibility study, the outputs of this feasibility study should be read as being the precursorto the development of a business case to establish a regional investment model.

1. ExecutiveSummary







“Attractive lifestyle”, “Talented people” and “Modern high value economy”– Tapuae Roa vision

2. Background

Background

Tapuae Roa is a collaborative regional development Strategy and Action Plan between the Taranaki localgovernment authorities, Venture Taranaki, local business leaders, local Iwi and central government(through MBIE). The strategy was launched in August 2017 and identified a long list of potentialopportunities to help inform a regional action plan.

The Tapuae Roa Action Plan (released in April 2018) focusses on eight areas of activity and investment,split between four “futures” (sectors) and four “foundation” areas (enabler areas). An overview of theTapuae Roa action plan is set out below:

TapuaeRoa Action

Plan

Energy – carving out an internationalbusiness in low emission andrenewable energy just as Taranaki haspreviously done in the oil and gassector.

Four Futures(sectors)

Four Foundations(enablers)

Food – extending Taranaki’s capabilityin food production and processing.

Māori Economy – developing Māorienterprise and talent.

Visitor Sector – lifting the scale of theTaranaki visitor sector to the levels ofother regions in New Zealand.

Talent, Enterprise, and Innovation -building the skills and businesses of thefuture.

Vibrancy and Liveability –continuing to ensure that Taranaki is agreat place to live and work.

Accessibility and Connectivity –transport and digital connection.

Investment – investment sources andchannels for development.

Source: Tapuae Roa Action Plan

Investigation into the viability of a regional investmentfund was identified as the immediate action point forthe Investment Foundation.

1. ExecutiveSummary







3. Purpose and Approach


Investment is an enabler for the Tapuae Roa focus areas3. Project Purpose

Investment Foundation

Investment has been identified as the ultimateenabler for all the other components of theTapuae Roa strategy and action plan.

The Tapuae Roa Action Plan ascribed thefollowing attributes of success to theinvestment foundation:

• Increasing local investment – especiallyfrom non-traditional investors;

• Evidence of a growing culture of localinvestment in business and community;

• Increasing international investment –especially foreign direct investment;

• Active investigation – investors activelyseeking out and reviewing opportunities;and

• Increased longevity of investment –investment in larger and more long termprojects.

Problems and challenges that need to beaddressed

The main barrier to achieving success for theinvestment foundation was that limited fundsare available through central and localgovernment sources. Other challenges

identified in the action plan include:

• The key to a successful investmentprogramme is connecting investors withopportunities;

• Getting investment opportunities sufficientlyde-risked to make them attractive is achallenge;

• Different investors will have different riskappetites; and

• A key element of de-risking is feasibility andinvestigation.

Any future investment funding model will needto bridge the challenges highlighted above.

Leadership requirements for regionalinvestment

Key leadership attributes for the investmentfoundation identified by the Tapuae Roa actionplan included:

• Credibility – investment opportunitiesthrough Tapuae Roa are likely to be wellaccepted in the community and well-researched making them attractive;

• Connection – Tapuae Roa can linkinvestors with opportunities whiledemonstrating stability;

• Promoting local opportunities- localpeople looking to invest money do notnecessarily invest through national orinternational brokers;

• Showing the way – local organisations canshow the way. Councils, trusts or localinvestment funds can lead by example andencourage matching investment from peersand the private sector;

• Re-investment – identifying existing publicor private regional investors and looking forways to help them re-direct theirinvestment in priority projects for regionaldevelopment; and

• Leveraging – investment that leveragescommunity action is money well spent.

Immediate priority action

The Tapuae Roa action plan identified that theinvestigation into the viability of a regionalinvestment fund was an immediate actionpoint.

1. ExecutiveSummary







A fund is the end point, not the means by which you get there3. Project Scope

A fund is the end destination of the journey

To determine the feasibility of a regional investment fund, it is important to consider the activities that need to occur prior to the placement ofcapital. The diagram above highlights at a conceptual level the activities and processes that need to occur prior to successfully obtaininginvestment funding. The funding component is the last stage of the investment process.

While this feasibility study is focussed on whether the establishment of a regional investment fund is viable, the success of the investment fundwill depend on whether the regional investment environment is conducive to generating investable opportunities.

Overview and scope re-alignment

The initial objective was to assess the feasibilityof establishing a singular Taranaki regionalinvestment fund.

Prior to Deloitte being engaged, VentureTaranaki had completed initial backgroundresearch into a singular regional investmentfund concept. Through review of thebackground materials and our initial researchwe formed the joint view with Venture Taranakithat a singular fund may not be the right fit forthe region to achieve the outcomes of TapuaeRoa.

The scope of the feasibility wassubsequently widened to also consider theviability of a regional investment fundingmodel on a case-by-case basis.

As such in considering the feasibility of establishing a singular investment fund and/or a case-by-case funding model we have also considered:

§ The wider regional investment ecosystem

§ The advantages and disadvantages of each option considered

§ How well each option would fit with the Tapuae Roa four futures?

§ Does it achieve the success factors of the investment foundation?

1. ExecutiveSummary







3. Project Approach

Document review and desktop research

Initial research into the feasibility ofestablishing a regional investment fund or acase-by-case funding model comprised ofprimary data sources including review of:

• Initial background research initiated byVenture Taranaki;

• Tapuae Roa action plan;

• Tapuae Roa investment enabler draft actionplan;

• Desktop research into the New Zealandinvestment environment; and

• Deloitte proprietary information sources.

Focussed stakeholder engagement

Secondary data sources used in the feasibilitystudy included focussed stakeholderengagement through conference calls with:

• Local government authorities;

• The TSB Community Trust;

• Iwi representatives;

• Angel investors; and

• High net worth individuals.

Stakeholder workshop

A wider stakeholder workshop was held on 13May 2019 to:

• Enable key stakeholders to provide inputinto the feasibility study;

• Share insights from our review ofbackground material and initial desktopresearch;

• Provide insights about the New Zealandinvestment landscape, including theessential components of the investmentecosystem that are already in place in theTaranaki;

• Highlight key themes emerging fromfocussed stakeholder engagement; and

• Obtain feedback on the initial feasibilityassessment for each option considered.

Assess funding options for the Tapuae Roafour futures

In assessing the feasibility and viability of eachfunding model, initial insights; feedback fromstakeholders; and desktop research has beentested back against the funding requirementsof each sector.

We have then developed potential investmentsolutions for each of the four futures of TapuaeRoa, and considered whether the proposedfunding models will achieve the successattributes of the Tapuae Roa investmentfoundation.

1. ExecutiveSummary







4. Investment Landscape


There is no shortage of investment capital, rather a shortage of investableopportunities

4. Investment Landscape

Investment landscape

In looking at the feasibility of the last stage in theinvestment process (investment funding) one needs toconsider the process by which an opportunity becomesinvestable.

The activities and processes that turn an idea into anopportunity, and that opportunity becoming investableare supported by a wider ecosystem.

Therefore in assessing the feasibility of establishing aTaranaki regional investment fund we have performeda high level scan of the investment landscape to:

• Pinpoint and define components of the investmentecosystem that lead to successful investmentoutcomes;

• Identify components of the investment ecosystemthat are present within the Taranaki region;

• Understand the strategies and investmentobjectives within existing local investment funds todetermine if they are aligned to Tapuae Roainvestment objectives.

There is a clear pathway to successful capitalraising processes and a wider ecosystem thatsupports it

1. ExecutiveSummary







4. Investment Ecosystem Components

Investment ecosystem

Investment in its purest form is the allocation of capital toopportunities. Investment does not happen in a vacuum,there is a wider range of supporting activities that occurprior to the raising of capital (which is the last step in theinvestment process).

If we classify the activities based on what they are actuallytrying to achieve, that is if we take the word “investment”out of the equation, a pattern begins to emerge.

Nearly every activity, regardless of whether they areperformed by a private sector company, a non-profitorganisation, a foundation, an individual, or a governmentagency involves organisations playing at least one of fivekey roles:

• Developing new ideas and opportunities for investment;

• Providing tools or resources to get investment ready;

• Creating incentives to encourage development of newideas and opportunities for investment;

• Collaboration with other players in the investmentecosystem to allow for the optimal matching ofecosystem components with the needs of eachinvestee; and

• Seeking and providing capital for investment.

Ingredients for an investment and fundingecosystem

For the purpose of this report, we have referred to theseroles as Innovators, Enablers, Convenors, Motivators,Integrators and Funders.

Innovators - The group of people andorganisations that generate new ideas andopportunities.

Enablers – Create the environment to facilitate thegeneration of opportunities by providing resourcessuch as training and advice.

Convenors – Bring other players in the systemtogether to share knowledge and resources, andsolve challenges.

Motivators – Provide incentives to encourageinnovators to develop opportunities.

Integrators – Play multiple roles and maintain anevolving platform for other components to pluginto – including filtering opportunities forinvestment.

Funders – Provide the financial resources foropportunities to develop, grow and mature.

Investment does not happen in a vacuum

1. ExecutiveSummary







4. Investment Ecosystem Success FactorsAspects of an investment ecosystem are already present in the regionBringing the ecosystem together

The success of any investment ecosystem is dependent on the quality, quantity and conversion of opportunities into deals. Multiple roles are oftenessential to making an investment successful, and each role involves the application of a specific set of skills and strategies. Taking an ecosystem-basedapproach to regional investment should have a dramatic impact on improving the quality and quantity of investable opportunities being generated. Anincreasing volume of investable opportunities should also improve the conversion rate of opportunities to deals completed. Some high level examples ofthe national investment ecosystem are set out below:

Academicand

ResearchCrown

ResearchInstitutes

GovernmentGrowth

Programmes

VentureTaranaki

Programs &Events

Accelerators

Incubators

SharedSpaces

CrowdFunding

AngelInvestors

VentureCapital

PrivateEquity

MayoralForums

RegionalEconomic

Developmentforums

SOLGM

Chambers ofCommerce

CentralGovernment

Agencies

High networth

individuals($10M+)

High NetWorth

Individuals

LGNZ

EntrepreneursAngel HQPowerhouse

OtagoAngels

EnterpriseAngels

MIG Angels

Pencarrow PrivateEquity

Waterman CapitalCrescent Capital

Direct CapitalRangatira Investments

Crescent Capital

GoFundMeGivealittleSnowball

Effect

PioneerCapitalMovac

GD1IcehouseVentures

CallaghanGrowth Grant

NZTE 700

CallaghanInnovation

NZTEMBIEBusiness

MentorNZ

NZVIF

Stratford DCNPDCTRC

STDC

Hamilton CityCouncil

WellingtonCity Council

AucklandCity Council

ThamesCoromande

l DC

TaranakiChamber ofCommerce Tapuae Roa

SteeringGroup

TaranakiMayoralForum

WaikatoMayoralForum

KiwiNetConnect South

JohnsonCorner

SustainableBusinessNetwork

TheOrchard

Petri Dish

VodafoneXLaunchpad

FinTech

TheIcehouse

CreativeHQ

Soda IncVenture Up

GreenXchange

SproutLightning LabThe Factory

TechweekFielddays

NZTE ShowcaseIce AngelsShowcase

SCIONESR

AgResearch

Open PolytechnicAra Institute

MasseyUniversity WITT

University ofWaikato

Wintech Weltech

LaunchTaranaki

WREDAWEDAATEED

1. ExecutiveSummary






Legend

= Taranakiexamples


4. Investment Deal FlowInvestment readiness will increase the size of the funnel and alsoimprove the conversion rateDeal flow

For any regional fund or funding model to be successful,there needs to be a pipeline of opportunities that areinvestment ready.

A regional investment ecosystem will also ensure that theconversion rate of leads to deals being completed willimprove over time. On a national basis the averageconversion rate from leads to deals as observed by NZTEis 1%.

On a regional basis, the number of deals that could becompleted by a singular regional fund is likely to be wellbelow 10 per year.

Growing the deal flow funnel at a regional level andimproving the conversion rate will result in a growingnumber of deals able to be completed.

Investment readiness programmes are essential togrowing the pipeline of investable opportunities within theregion.

Leads1,200

Face to Face meetings500

Due Diligence50

Deals10

Typical deal flow funnel:

Source: NZTE

An effectiveecosystem willensure there is agrowing pipelineof investabledeals

Nationally theconversion rate ofleads to deals is 1%

1. ExecutiveSummary







4. Investment Integration

The role of an integrator

There is an opportunity to establish anintegrator role to assist in developing andconnecting the investment ecosystem, and toleverage and support the investment readinessprogrammes.

This would be an overarching role to work withthe previously identified components of theecosystem such as the Innovators, Enablers,Convenors, Motivators and Funders in buildinga robust and successful investment ecosystem.

The role would incorporate the following areasof focus in relation to the Tapuae Roa strategydocument:

• Alignment with Tapuae Roa:Opportunities that are aligned with TapuaeRoa objectives should be identified anddirected into agreed investment readinessprogrammes.

• Connection with specialists:Investees should be connected with relevantspecialists to assist with bridging knowledgegaps identified through the business needsassessment (such as sector and industryspecialists).

• Specialist investment assistance:In conjunction with investment readinessprogrammes, identifying and connecting tothose specialists able to provide theinvestee with the requisite expertise andassistance throughout the investmentprocess.

• Early identification of potentialinvestors:Early identification and engagement willensure opportunities flowing through theregional investment ecosystem are matchedwith optimal investors (ensuring value iscaptured).

For the ecosystem to operate effectively, thepurpose and development of each componentneeds to be harmonised (i.e. focus should notbe on a single component in isolation of theother ecosystem components).

The integrator can play a key role inharmonising the ecosystem and fosteringconnections between each component.Therefore the integrator needs to be able towork with all aspects of the investmentecosystem to foster greater levels ofcollaboration and coordination.

De-risking local investment opportunities

Investment readiness programmes are a keyenabler that ensure regionally, a pipeline ofopportunities are ‘investment ready’.Investment readiness programmes are alreadyoperating in the Taranaki region, including:

• The Business Mentor NZ programmethrough Venture Taranaki;

• Johnson Corner Growth Operating SystemLab; and

• NZTE capability funding scheme throughVenture Taranaki.

While these are some of the existingprogrammes within the region, feedback wehave received from stakeholders suggests thatthere is:

• A lack of awareness of regional investmentreadiness programmes; or

• An underutilisation of the programmesavailable in the region.

To ensure that any regional investment fundand/or funding model is successful, theinvestor readiness components of theecosystem need to be understood andeffective.

A regionally coordinated approach toinvestment readiness will ensure:

• A growing volume of opportunities that areinvestment ready within the region;

• An improved conversion rate ofopportunities to deals; and

• Credibility for the local investmentenvironment.

It is our understanding that other detailedprojects are under way in relation to investorreadiness programmes.

1. ExecutiveSummary







4. Investment Fund SpecialisationInvestment funds tend to specialise in terms of sector, size of dealconsidered and the stage of funding provided

Fund specialisation and focussed investment beliefs

Most funds have a deep and focussed investment fundparadigm. The funds that are present in New Zealand aregenerally no different and most of the existing players inthe national context specialise in:

• Size of deals considered; or

• Stage of investment; and/or

• Sector(s).

Investment funds tend to be attracted to specific dealsizes and investment opportunities of a certain maturityand sector. The table in the top right highlights thatearly stage investment is usually funded by angel andventure capital. Typically the amount of capital investedincreases as an organisation/opportunity matures.

The deal size that funds are attracted to depends on theirinvestment philosophy (whether they provide venture,expansion or buyout capital). Investment funds also tendto specialise in sectors that they have expertise in.

The table to the right highlights the stage of fundingprovided by deal size and sector preference for threeinvestment funds currently operating in New Zealand.

Angel VentureCapital

ExpansionCapital

Buyout

Maturity of organisation

EV

Investment lifecycle

InvestmentReadiness

Crescent CapitalPioneer CapitalMovacInvestor:

• $20M - $100M• $10M - $50M• $5M- $10MDeal size:

• Venture capitalType ofcapital: • Venture to

expansion capital• Expansion to buy

out capital

Example fund investment deal size and type of funding

• Healthcare• Industrial• Financial services• Technology• Education• Consumer brands

• Agri-tech• Technology

• TechnologySectorsinvested in:

1. ExecutiveSummary







4. Investment Funds Operating in New ZealandThere appears to be no shortage of investment funds in NZExisting funds in the national investment landscape

Within the national investment landscape there is already a number of venture capital and private equity partners. The funds that are operatingin New Zealand tend to meet existing market funding gaps. What this means is that there appears to be more capital than investableopportunities.

1. ExecutiveSummary







Investor profiles

The profile of an investor determines how theylike to invest and their preferred deal size. Aninvestor in their simplest form is a person ororganisation that allocates capital for futurefinancial return. Investors can be broken intotwo distinct categories being:

• Retail investors; and

• Institutional investors.

Retail investors

Retail investors are generally high net worthindividuals who typically invest directly ratherthan via a fund. Capital invested tends to besourced from their own money. Theseinvestors tend to invest in much smalleramounts than institutional investors and havethe following attributes:

• Unsophisticated investors - who tend toinvest in mature established opportunitiesor in the stock market through brokers;

• Sophisticated investors and businessowners – who tend to invest larger amountsof capital in a range of businesses in boththe SME sector and stock market; and

• Angel investors who invest in early stageinnovative businesses.

Retail investors tend to want to:

• Directly invest on a case-by-case basis;

• Want some form of control or role in thetarget; and

• Invest for a longer term.

Institutional investors

Institutional investors tend to be a fund innature which allocates capital to generate areturn for their capital provider (shareholders,unit owners etc).

Institutional investors tend to allocate largeramounts of capital and typically comprise ofventure capital funds; private equity funds;mutual funds; and hedge funds.

Control

Institutional investors have the ability toacquire a significant level of control overinvestments which can range from 30% -100% acquisition of an opportunity. Retailinvestors in general do not gain the same levelof control as institutional investors on a like-for-like basis.

The table below expands upon the exampleprovided on page 22 to show investor profilesand where capital is sourced from.

4. Investor ProfileInstitutional investors are able to allocate greater amounts of capital and exertmore control than retail investors

Crescent Capital

• Healthcare• Industrial• Financial services• Technology• Education• Consumer brand

Pioneer Capital

• Agri-tech• Technology

Movac

• Technology

Investor:

Sectorsinvestedin:

• $20M - $100M• $10M - $50M• $5M- $10MDeal size:

• Venture capitalType ofcapital: • Venture to

expansion capital• Expansion to buy

out capital

Private investor

• Sectors of personalinterest

• $50k- $5M

• All stages

• Institutional• Institutional• InstitutionalInvestorprofile:

• Angel• Retail

• Shareholders/ unitowners

Source ofcapital: • Shareholders/ unit

holders• Shareholders / unit

holders• Own money

1. ExecutiveSummary







5. Fund Options Considered


5. Fund optionsRecap

The purpose of Section 4 was to highlight thedimensions of the investment process thatculminate into a successful capital investmentprocess. To summarise:

• Aspects of an investment ecosystem arealready present within the Taranaki;

• The regional investment ecosystem could befurther strengthened through theestablishment of an investment integratorrole;

• Investment readiness programmes in theregion are not well known or not being bestutilised;

• Generally speaking, there appears to bemore capital available than there areinvestable opportunities; and

• Existing funds in New Zealand tend to haveniche industries and sectors that they willinvest into, with set parameters around sizeof deal and stage of capital provided.

Now that we have explored the pre-investmentcomponents, we will now look to address theissue of funding models.

Fund options under consideration

While investigation into the viability of asingular regional investment fund wasidentified as an immediate priority, from initialwork undertaken by Venture Taranaki it

became apparent that a singular fund may notbe the right fit for the region to achieve theoutcomes of Tapuae Roa.

As such, the scope of the feasibility study waswidened to also consider the viability of aregional investment funding model. Twooptions are therefore being considered as partof this feasibility study.

The first option was to investigate thefeasibility of establishing a Taranaki Regionalinvestment fund as a singular fund, withinvestments into the fund from a range ofpotential parties, including:

• The New Plymouth District Council’sPerpetual Investment Fund;

• The South Taranaki District Council’s LongTerm Investment Fund;

• The TSB Community Trust;

• The region’s Iwi Trusts;

• Retail investors; and

• Institutional investors.

The second option was to investigate thefeasibility of setting up an investment fundingbusiness model that is supported by distinctsources of capital to enable investors tocollaborate more efficiently and effectively on acase-by-case basis.

How each option was assessed

In this section of the report, for each optionconsidered we will highlight the:

• Advantages of each option;

• Disadvantages of each option; and

• Themes from stakeholder engagement oneach of the options.

1. ExecutiveSummary







5. Regional Investment Fund

The table below provides a high level analysis of the advantages and disadvantages of a singular investment fund.

Advantages

• A readily available source of capital that has been raised to meetthe requirements of the Tapuae Roa Strategy and Action Plan;

• Streamlined decision making from a specialist fund resulting inshorter capital allocation timeframes;

• The value of the fund can increase over time (through thecompounding effect of the time value of money);

• A single fund is easier to engage with rather than multiple groupsof funders;

• Greater level of transparency on the success of the fund(outcomes are able to reported from one entity); and

• In-house investment expertise and capability is readily availablerather than being reliant on a wide pool of organisations and/orindividuals.

Disadvantages

• A singular fund will not meet all investor requirements, as certaininvestors prefer to have involvement in the investment decisionmaking process and have some form of control over or in theinvestment itself;

• High barriers to access existing large pools of capital in the regionto capitalise the fund up to a sufficient scale;

• Large pools of capital in the region have existing SIPO’s andinvestment objectives which would make it very difficult for themto participate in a regional investment fund;

• The singular fund would likely have a complex investmentphilosophy and portfolio (i.e. investments across the entireinvestment lifecycle, and across each of the four futures);

• Due to the diversity of the fund focus (four futures and the entireinvestment lifecycle), it would likely attract a higher managementcost due to the diverse specialist skill sets required;

• A high risk that if a fund were established, there would be limitedopportunities in the short term to invest in;

• There is potential for future “fund frustration” due to lack ofinvestable opportunities which may result in sub-optimal capitalallocation and misalignment with Tapuae Roa Strategy and ActionPlan objectives; and

• A singular investment fund may not be the optimal investmentpartner for some opportunities.

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5. Case-by-Case Funding Model

The table below provides a high level analysis of the advantages and disadvantages of a regional investment funding model.

Advantages

• Capital providers are able to retain decision making by being ableto choose investments which are most appropriate for theirportfolio, interest and investment risk appetite (i.e. describedthrough SIPOs, investment charters & strategic documents etc.);

• Investees have access to a more diverse range of capital sourcesand specialist capabilities;

• A wider range of projects and initiatives are able to be supported(i.e. economic, social and regional projects);

• A higher likelihood that investees are matched with the rightinvestor which will create more valuable partnerships as funderswill have the right level of investment sophistication and sectorexpertise to understand the value proposition of opportunitiespresented;

• Greater flexibility in funding mechanisms, which will allow formixed or co-funding opportunities across investors and alsobetween private and public investors (e.g. NZVIF, CallaghanInnovation, PGF etc.); and

• Potential to access alternative funding arrangements (e.g.strategic assets, grant funding, and loans etc.)

Disadvantages

• Less end-to-end control over the investment process;

• Longer lead time for investment decision making and in thematching of appropriate capital sources with the opportunitiespresented; and

• Potential negative perceptions of the value proposition for thefunding model due to a lack of a single purpose investment fund.

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5. Stakeholder engagementStakeholder engagement

Feedback from stakeholders was consistentacross most stakeholder groups and reinforcedthe advantages and disadvantages of eachoption, with six clear themes emerging:

1. Regional investors want control overthe investment process:

• Stakeholders want the ability to pick andchoose opportunities that need funding;

• There needs to be mechanism in theregional investment model that canaccommodate each funder’s investmentprofile and investment focus area; and

• The regional investment model needs to beflexible to allow for a range of fundingoptions (i.e. co-funding, partnering, directinvestment) through the use of fundersexisting decision making processes.

2. Difficulty in accessing existing capitalfunds:

• Access to existing funds in the region wouldbe difficult, due to existing funds in theregion having misaligned investmentobjectives, strategies and stakeholderexpectations through SIPO’s; investmentcharters; and foundational documents.

3. Pre-investment processes are just asimportant as the placement of capital:

• To achieve successful investment outcomes,pre-investment processes need to be

effective to ensure there is a growingnumber of investable opportunities;

• There was a view that there is no shortageof capital and funding sources in the regionand beyond, however there is a lack ofinvestable opportunities; and

• The regional investment funding modelshould not just be about capital – fundersneed to bring more that just money (i.e.other benefits such as market access,expertise, the potential for vertical /horizontal integration, local, national, andinternational market connections).

4. Lack of buy-in to an untested fundmodel:

• Stakeholders expressed concern aboutplacing funds with a team and concept thatis unproven;

• There is more willingness to participate in aregional investment model once the modelhas been established and there is a trackrecord of good decisions and positiveoutcomes; and

• There is not enough information forinvestors to determine their appetite tocommit to a singular regional investmentfund.

5. Other enabler and foundationactivities of Tapuae Roa support theinvestment environment:

• The other enabling foundations of TapuaeRoa are just as critical as the investmentfoundation;

• Tertiary education, labour marketstrategies, innovation strategies andenterprise initiatives will play a key role indetermining the success of the investmentfoundation; and

• The access to and connection with otherregional initiatives and activities beingundertaken by the various funders in theregion needs to be reflected within aregional investment funding model.

6. Regional collaboration is critical:

• Ensuring the right governance mix is inplace to deliver a regionally inclusiveprocess will be crucial to the success of theregional investment funding model;

• For the regional investment funding modelto operate successfully, development of theright resource mix to engage in a complexenabling environment with a diverse rangeof stakeholders and ecosystems will berequired;

• The vehicle to deliver the desired outcomesshould not duplicate the role or purpose ofexisting organisations and groups within theregion. Whatever vehicle is selected for thedelivery of the investment funding model, itshould drive collaboration and enhance theeffectiveness of existing components of theregional investment ecosystem.

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5. Fund options explored | Stakeholder engagement

Summary of funds explored

On balance, the advantages anddisadvantages for each option were moreweighted towards a case-by-case regionalinvestment funding model. The analysis ofeach option identified that conceptually:

• The funding gap that a singular fund modelwould be trying to bridge has not beenclearly defined;

• A singular fund would have a complexinvestment philosophy and portfolio;

• There is a higher risk of ‘fund frustration’due to a very limited number ofstrategically aligned investmentopportunities in the short term;

• Access to existing large pools of capitalwithin the region would be difficult; and

• A singular regional investment fund modelmay not meet all regional investorrequirements.

The advantages and disadvantages of eachoption were also reinforced by stakeholderfeedback received. Emerging themes fromstakeholder engagement included:

• Regional investors wanted to retain morecontrol over the investment process;

• There are high barriers to accessingexisting pools of capital from investmentfunds in the region;

• Pre-investment processes were seen asjust as important as the placement ofcapital;

• There is stakeholder willingness toparticipate in a regional investment modelonce the model has been established andthere is a good track record of gooddecisions and positive outcomes; and

• Other enabling elements of Tapuae Roathat support the regional investmentenvironment should not be overlooked.

Overall there is greater supporting evidencefor a case-by-case funding model to deliverthe Tapuae Roa objectives.

However, at the stakeholder workshop heldon the 13 May 2019 a hybrid model betweenthe two options emerged from the discussionas an option that stakeholders wanted toexplore further.

In section 6 of this report, we have exploredhow a hybrid regional investment model couldbe established.

A hybrid investment model emerged from discussions

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6. Suggested Fund/ FundingModel


6. Sector approach to fundingA sector-by-sector approach to designing an investment model

A sector approach to funding

Investment funds tend to operate in certaindeal ranges, specific sectors, and certainstages of the capital lifecycle. As such asingular regional investment fund would notbe able to easily support all of the objectivesof the four futures of Tapuae Roa on thatbasis.

In short, a single fund to cover investmentacross four distinct sectors and all stages ofthe capital lifecycle could be seen as complexand confusing to the retail and institutionalinvestment community.

While the feedback we have received fromstakeholders is that there is stronger initialsupport for a case-by-case funding model todeliver the Tapuae Roa objectives, we believethere could be a role for a singularinvestment fund.

To support the Tapuae Roa objectives, a mixof a regional investment funding model and asingular investment fund presents as asuggested way forward.

A hybrid investment model looks at theunique aspects of each sector in determiningwhich model is most appropriate.

The table below summarises the fundingmodel to support each Tapuae Roa future.

The following sections provide further insightto the selected model proposed for eachsector.

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Funding model

Singular investment fund

Applicable sector (TapuaeRoa Futures)

• Māori economy futures

• Visitor sector futures

• Food futures

Regional investmentfunding model

(case-by-case)

• Energy futures


6. Energy Futures Funding ModelThe specialised nature of the sector, its capital requirements and afunding gap make it attractive for a singular investment fund modelTaranaki energy sector strengths

The Taranaki energy sector employs over1,950 people, generating $2.08B in GDP(2017) and is able to attract a talentedworkforce while also offering high payingjobs.

The Taranaki region is building on itsstrengths and is already taking the nationallead in cleantech energy through the H2 andNew Energy Development Centre projects.

The region already has a long history andtherefore credibility in the energy sector.With the proposed development of the NewEnergy Development Centre, the region willcontinue to have the relevant capability andcapacity to really lead this sector in thefuture.

The future focus on the new energy sectorwithin the region will be a real point ofdifference for the domestic and internationalinvestment sector.

Energy sector investment fundingattributes

Investment into new energy opportunitiesrequires demonstrated:

• Specialist industry knowledge;

• R&D focused programmes alongside anunderstanding of global new energy

trends; and

• Connections with capital providers thathave a higher risk appetite for large scaleinvestment into new technologies andhave global potential.

Is there a funding gap?

The 2017 Global Cleantech Innovation Indexproduced in partnership with the WWF andCleantech Group identified that New Zealandhas limited private early-stage financing forCleantech.

Our market scan of the New Zealandinvestment landscape did not identify anyinvestment funds that support this specificfunding need. Historically, there has beenlittle or no new energy financing in the NewZealand energy sector.

As such, there is a real gap in New Zealandfor the funding of pre-commercial and earlystage new energy opportunities.

Proposed approach to energy futuresinvestment funding

The sector attributes and existing nationalfunding gap for the sector make it well suitedfor a singular investment fund to beestablished to meet the future fundingrequirements of Tapuae Roa energy futureinitiatives. The existing international marketfor new energy investment is growing. Our

research identified that venture capital dealsin cleantech energy grew from $488M USD in2017 to $3.4B in 2018.

To establish interest from local funders,equity would initially need to be sourcedfrom both national and foreign investmentpools given the scale of fund required and itsrisk profile.

The initial marketing of the fund shouldtherefore have a wider national andinternational focus in the European and USGreen venture capital markets.

The New Energy Development Centre andthe regional H2 Hydrogen projects ifsuccessful will be a point of difference for theregion, and should assist with generatingfuture deal flow.

Over time this would result in a more matureenvironment for capital investment in thesetypes of projects.

In order to establish a singular investmentfund focussed on energy, furtherconsideration is required in key areas like;fund focus; fund structure, target stage ofinvestment; management capability, andregulatory requirements. We havehighlighted these consideration items on thefollowing pages.

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6. Energy Futures Investment Fund Establishment and BusinessModelThe investment fund needs to have a clear investment philosophy andinvestment objectivesWhile it is conceptually feasible for theTapuae Roa Energy Futures to be funded bya singular investment fund, within thissection we will explore key areas of viabilityto be considered.

Fund focus and marketing

To attract institutional investors, the energyinvestment fund needs to have a clearinvestment philosophy and investmentobjectives, including:

• The expected rate of return that the fundis aiming to deliver; and

• A clear definition of the assets beingtargeted and asset portfolio allocation.

The energy investment fund marketing andmessaging about where investments will beplaced (national and international), theinvestment lifecycle focus (angel, venture, orexpansion), and the targeted rate of returnalso need to be consistent (e.g. it would bedifficult to attract institutional investors if thefund was focussed on regional investmentsof a VC nature with a planned average rateof return of 8%).

Fund Structure

Investment funds are usually either closed oropen funds.

Closed funds tend to raise a fixed amount ofcapital to fund a predetermined number ofinvestments (e.g. $50M raised to fund 10X$5M investments), with funds raised usuallybeing locked in for a pre-determined timehorizon.

Closed funds tend to raise capital fromsophisticated and institutional investors, andas such do not have the same amount ofregulatory administration cost as open funds.

Open funds are able to raise capital at anytime through the issuing of shares or othersecurities. Capital is able to be raised fromboth institutional and retail investors. Ascapital is able to be raised continuously andis open to retail investors, there is a greaterlevel of regulatory requirements that need tobe complied with during fund establishmentand ongoing.

Limited Partnerships and Corporate UnitTrusts are investment vehicle structuresbeing used in New Zealand for investmentfunds. The selection of the vehicle to housethe investment fund will depend on a rangeof things including:

• Whether the fund is to be listed;

• The type of investor that the fund is beingmarketed to;

• How investors are expecting to realisetheir investments; and

• The amount of liquidity required in thefund.

There are tax considerations in using aLimited Partnership, for example whereinvestments are on capital account (and notsubject to capital gains tax), and individualinvestors are able to take advantage of theirindividual tax status (i.e. Iwi investmentgroups are able to utilise their tax status).

The corporate unit trust vehicle is bettersuited to open funds where capital isrequired to be raised on an ongoing basis,and where capital is being raised from retailinvestors.

The selection of an investment fund vehiclemay need to consider whether the fund willbe co-investing in deals with other nationalfunds such as NZVIF and the recentlyannounced NZGIF.

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6. Energy Futures Investment Fund Establishment and BusinessModel – continuedThe fund manager pedigree and networks are critical to establishing aninvestment fundMinimum viable size

The minimum viable size of the investmentfund is correlated to:

• The nature of the fund (open vs closed)

• The number of planned investments; and

• The stage of investment focus of the fund.

The fund size range will be a function of thenumber of investments that are expected tobe entered into and the deal size range. Tomitigate concentration risk, capital isnormally allocated across a number ofinvestments.

Investment lifecycle

The stage of investment focus of the fundalso has a bearing on the size of the fund.Typically as the investment focus increasesin maturity, the amount of capital per dealalso increases on average.

Operating requirements

Anecdotally, our research indicates thatannual operating costs for investment fundsrange between 2% -3% of funds beingmanaged.

Operating costs include investment oversightand management costs, due diligence andlegal costs, and compliance costs (audit, taxand regulatory costs).

Establishment costs

Establishment costs of the fund depend onthe nature of the fund and the type ofinvestor being targeted. Legal andinvestment advisor costs are typicallyincurred by the investment manager and areincluded as capital of the fund manager.

Our research indicates that establishmentcosts can range between $1M to $2M+depending on the nature of the fund beingestablished (open vs closed) and the type ofinvestors being targeted.

Fund management

The most critical component of establishing asingular investment fund is the selection ofthe fund management. If the fund is to beprimarily marketed to institutional investors,the likelihood of attracting institutionalcapital will be dependent on the skills,experience and ability of the fundmanager(s) to gain access to opportunitiesthat institutional investors would nototherwise be able to.

Ultimately, investors in singular investmentfunds place a very high level of reliance onthe fund manager or management.

An investment fund manager needs to beable to market a believable universe ofinvestable opportunities to potentialinvestors. As such, a prerequisite of the fundmanager is to have credibility within theappropriate institutional investor community.

If the fund has a multi stage investmentfocus (i.e. placement of angel, VC andexpansion capital), the fund will likelyrequire more specialist resources which willcome at a higher annual operating cost.

1. ExecutiveSummary







6. Māori Economy Futures Funding ModelThere are a number of local funding sources that already exist for theMāori EconomyMāori sector investment attributes

Nationally and regionally, there are anumber of funding sources for the MāoriEconomy futures that already exist,through:

• Ngā Iwi o Taranaki;

• Tui ora;

• Parininihi ki Waitotara;

• Out-of-region Iwi organisations;

• The national Te Puia Tapapa fund

• TPK;

• MPI Māori Agri-business pathway fund;

• MBIE Māori innovation, visionmaturanga capability, tourism growthand science investment funds; and

• TSB Community Trust.

Is there a regional funding gap?

The Māori economy, in our view, ispresently very stimulated throughout NZ.There is genuine intent to create economicgrowth and wellbeing for tribal members.

Typically, Iwi prefer to have more controlover investments they are involved in andidentify specific opportunities across arange of related business activities (e.g.whenua-based cultural tourism etc.)

However, there is still room for a co-ordinated approach to regional investmentin the Māori economy sector to ensureTapuae Roa initiatives are being funded ona collaborative basis.

Proposed approach to Māori economyfutures investment funding

A case-by-case investment funding modelwould be better suited for the Māorieconomy sector.

The establishment of a regional investmentintegrator role should be able to fosterrelationships between all of the local Iwi,Tapuae Roa initiatives and key centralgovernment fund managers.

Any opportunities that are identified in theregion that support the Māori Economyfutures of Tapuae Roa should be seen as acollaborative approach to work with Iwi toassess their investment readiness and/orfunding potential.

The proposed solution also allows flexibility

for co-funding of opportunities throughother private and public funding channels.

The benefit of this approach is that:

• Initial feasibility work on theopportunities is completed by the Iwisector; and

• Buy-in is obtained as part of thefeasibility and opportunity assessmentprocess - thereby ensuring values andexpected outcomes are aligned

In summary, there is an existing activeinvestment community in the region whichwill welcome new opportunities for thissector on a case-by-case basis.

1. ExecutiveSummary







6. Visitor Sector Futures Funding ModelFunding tends to be collaborative in nature through a mix of public,private and Iwi investmentVisitor sector investment attributes

The landscape for visitor sector investment isquite fragmented with a range of public andprivate funding mechanisms available.

A feature of what we see in this sector is thatthe public sector plays a support role to unlocka visitor based opportunity.

Subsequent to initial public sector support, theprivate sector develops the strategic asset orsimilar.

This collaborative approach to funding can tendto reduce the capital required by any one party.Examples of this approach include:

• The Waikato Innovation park;

• The Waikato regional theatre development;

• The New Zealand cycle trail initiative;

• TSB Festival of Lights;

• Len Lye Centre;

• White Island scenic tours; and

• Rotorua tourism hub (which has beendeveloped over many decades).

In summary, the visitor sector future alignsclosely to the outcomes being sought by thelocal government and Iwi sectors.

Regionally, a number of projects are alreadybeing progressed, including:

• Taranaki Cathedral project; and

• Taranaki Crossing experience project.

Therefore it is our view that the preferredfunding model that would best support thevisitor sector future is a case-by-case modelsupported by a local collaborative investmentmodel.


Many of the typical funders of the visitor sectorare already present in the region, including:

• Iwi;

• Local government; and

• High net worth individuals.

Recently, a new national tourism investmentfund has also been announced. As such, theredoes not appear to be an identified funding gapthat needs to be bridged for the visitor sector.

Proposed solution

In our view a case-by-case investment fundingmodel would be better suited for the visitorsector future.

The visitor sector funding model will require asignificant amount of coordination between localgovernment, central government, Iwi and theprivate SME sector. An integrator role would bevery beneficial to ensuring successfulinvestment outcomes for this sector.

1. ExecutiveSummary







6. Food Futures Funding ModelThere may be an opportunity to consider a singular investment fundmodel for Food Futures Initiatives in the future once the fundingopportunity is clearly defined

Food futures regional investmentattributes

The outcomes being sought from the foodfutures sector are intertwined with theprimary, innovation and education sectors.The region is already undertaking work ondeveloping the regional future food sectorthrough the:

• Future foods - food network businesscase; and

• Major regional food opportunities project.

The overall objective of the Tapuae Roa foodfutures is to move the region from beingreliant on primary sector volume-basedproducts to value-based products.

In principle, we see this as a sector of greatopportunity from a NZ standpoint - the moveto value-based products derived from theprimary sector is aligned to demonstratedexport demand and return potential.


Until the future foods strategy is definedfurther it is difficult to determine if there is aniche opportunity that could lead to asingular fund being required to foster andsupport it.

As the shift from a volume based to valuebased approach for the sector emergesthrough a systematic approach, anopportunity for a singular fund maypresent.

Proposed solution

In the short term a case-by-case fundingmodel would be better suited to supportFood Futures initiatives until a moredefinitive value-add food strategy isdetermined.

Similar to the proposed solution for thevisitor sector future, the food futures fundingmodel will require a significant amount ofcoordination and collaboration betweenmultiple stakeholders within the region. Assuch an investment integrator role shouldhelp enhance any investment outcomes.

1. ExecutiveSummary







6. Other Funding ConsiderationsThe investment funding model should be reviewed in conjunction with the TapuaeRoa Strategy and Action Plan to ensure the model is still fit for purposeFuture considerations

As regional investment matures and thenumber of investable opportunities grows, itwould be appropriate to review the investmentfunding model for each of the four futures.While in the current environment it may bedifficult to attract funding from existingregional pools of capital into a singular regionalfund, this may not be the case in the future.

As a case in point, the Bay of Plenty RegionalCouncil investment philosophy has evolvedover time from playing more of asupport/enabler role to a now strong directinvestor into a local angel fund.

A track record of investment success will intime improve the ability for the regionalinvestment funding model to attract more localinvestment from existing pools of capital.

Other local organisations such as the councilsand the TSB Community Trust may be wellplaced to support enabling components of theinvestment ecosystem which are a vital part ofdelivering investable opportunities, an examplewould be the Talent, Enterprise and Innovationfoundational aspects of Tapuae Roa.

What follows is then a commitment to fosterand develop the investment ecosystem intotality that considers:

• Increasing incentives for collaborationbetween education, innovation andbusiness, so “talent becomes enterprise”;

• Increasing the quality and quantity ofinvestable opportunities;

• Focusing on opportunities that are able tobe scaled on a national and internationalbasis to ensure domestic and foreigninvestment is attracted to the region; and

• Investing in a regional integrator role toensure that the overall investmentecosystem is understood and strengthenedover time.

Establishing an ecosystem integrator role couldgreatly assist in harmonising the ecosystemand foster connections between each of thefive components. We understand that work isalready underway in the region to harmoniseand strengthen the innovation components ofthe ecosystem through the innovation hubproject.

The feasibility study has identified that in thecurrent environment it would be difficult forlocal government to contribute from existingfunds into a regional investment fund model.

This may not be the case in the future. TheBay of Plenty Regional Council investment inQuayside Holdings Limited is an example ofhow public funding can be used to fund directlyin regional opportunities.

This will be a function of time, as the directinvestment component of the Bay of PlentyRegional Council model was the last part thatwas established over a number of years.

The key future consideration is that theinvestment funding model should be reviewedat the same time as the Tapuae Roa Strategyand Action Plan is reviewed to ensure themodel is still fit for purpose and is stilldelivering the right outcomes for the region.

The funding model should be flexible enough toevolve to meet the region’s investmentrequirements today, and also into the future.

Other enabler funding modelrequirements

While our proposed solution for investmentfunding has focussed on the Tapuae Roa fourfutures, funding requirements for the otherthree enabler foundations of Tapuae Roashould not be overlooked.

Out of the other three enabler foundations, theTalent, Enterprise and Innovation foundation isthe enabler that will directly support thedevelopment of investable businessopportunities.

In our experience funding for the Talent,Enterprise and Innovation activities is providedvia a combination of public and private fundingmechanisms. For example, within the regionTSB Community Trust and Venture Taranakiare also funders or support initiativesassociated with Talent, Enterprise andInnovation, alongside the local businesscommunity.

1. ExecutiveSummary







7. Summary


7. Summary

Summary

For an investment model to be successfulthere needs to be:

• A growing pipeline of investmentopportunities; and

• A good conversion rate of opportunities todeals completed.

For these things to occur, there needs to bean investment ecosystem capable ofgenerating investable opportunities.

There are positive attributes to the Taranakiinvestment ecosystem, but there is still a lotof opportunity to further develop andstrengthen it.

To promote successful investment outcomes,the following areas should be considered:

• Establishment of a regional investmentintegrator role; and

• Reviewing the existing investmentreadiness programmes.

A high performing ecosystem and investorreadiness are critical pre-steps to dealconversion success.

Investment funds tend to specialise in terms

of the size of deals considered and stage offunding provided within limited sectors, andtherefore tend to exist to meet a specificfunding need.

Nationally, there are a number of venturecapital and private equity funders present.Sector, industry and investment lifecyclespecialisation differentiates the existingplayers in the market.

A common ‘catchcry’ is that there is morecapital in the market than there are investableopportunities, which is to say funds cannotexist in a vacuum.

Two options for regional investment wereconsidered:

• A singular regional investment fund; and

• A regional investment funding model thatwould allow for case-by-case investment.

The advantages and disadvantages of the twooptions considered resulted in a weightingtowards a case-by-case funding model. Whilethis was reinforced through stakeholderfeedback, there was still support for a singularfund that emerged from the stakeholderworkshop.

Looking at each of the four futures individuallyas sectors, it is apparent that each future has

unique funding requirements.

We believe in the short term that a hybridapproach to developing a regional investmentfunding model (using both a singularinvestment fund and a case-by-case regionalinvestment funding model) will provide abetter platform to achieve the Tapuae Roainvestment foundation success factors.

The singular investment fund approach is bestsuited to the Energy sector, with a Regionalinvestment funding model (a case-by-caseapproach) more aligned at this stage to theother three - the Maori economy, Visitor sectorand Food.

There is significant work to be undertaken todevelop the Energy Fund from a concept to arobust business case. We have attempted tooutline some of the key considerations that willneed to be investigated as part of that process.

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8. Appendix


8. Appendix 1: Restrictions and Disclaimer

Restrictions and limitations

• This Report is provided exclusively to Venture Taranaki and itspartners involved in implementing the Tapuae Roa Action Plan. It isnot intended for general circulation or publication, nor is it to bereproduced or used for any purpose other than that outlined in thisreport and the Engagement Letter without Deloitte’s prior writtenpermission.

• We do not assume any responsibility or liability for lossesoccasioned to Venture Taranaki or to any other parties as a result ofthe unauthorised circulation, publication, reproduction or use of thisReport or any extracts therefrom.

• We reserve the right to review all recommendations included orreferred to in this Report and, if we consider it necessary, to reviseour recommendations in the light of any information which becomesknown to us after the date of this Report.

Reliance on information

• In preparing this Report we have relied upon and assumed, withoutindependent verification, the accuracy and completeness of allinformation that is available from public sources and all informationthat was furnished to us by Venture Taranaki.

• We have evaluated that information through analysis, enquiry andexamination for the purposes of forming our views on the feasibilityof establishing a regional investment fund. However, we have notverified the accuracy or completeness of any such information norconducted an appraisal of any assets. We have not carried out anyform of due diligence or audit on the accounting or other records ofVenture Taranaki. We do not warrant that our enquires haveidentified or revealed any matter which an audit, due diligencereview or extensive examination might disclose.

Disclaimer

• This Report has been prepared with care and diligence and thestatements and conclusions in this Report are given in good faithand in the belief, on reasonable grounds, that such statements andconclusions are not false or misleading.

• We cannot guarantee that any forecasts of future benefits will beachieved. Forecasts are inherently uncertain. They are predictions offuture events which cannot be assured. They are based uponassumptions, many of which are beyond the control of VentureTaranaki and its management team. Actual results will vary from theforecasts and these variations may be significantly more or lessfavourable.

Indemnity

• We assume no responsibility arising in any way whatsoever forerrors or omissions (including responsibility to any person fornegligence) for the preparation of this Report to the extent thatsuch errors or omissions result from the reasonable reliance oninformation provided by others or assumptions disclosed in thisReport or assumptions reasonably taken as implicit.

• Deloitte’s Master Terms of Business forms part of the engagementletter with Venture Taranaki, dated 3 April 2019 (the “EngagementLetter”). The Master Terms of Business contains Deloitte’s standardclauses relating to indemnity from third party claims and limitationsof Deloitte’s liability to Venture Taranaki.

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7. Conclusions andSummary

8. Appendix

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