NZGIF’s new initiative promises to accelerate growth amongst SMEs focused on decarbonisation.
The accelerator is expected to overcome the capital constraints SMEs often face when seeking to rapidly expand their business, says Jason Patrick, chief investment officer at NZGIF.
It offers potential risk-priced debt facilities of up to $5 million for up to five years in the form of non-dilutive lending, which doesn't require the recipient to give up equity in their company.
Patrick says when NZGIF spent time with businesses, it identified a lack of debt facilities for early-stage decarbonisation companies as a gap in the market and in the broader New Zealand climate finance market.
A 2022 MBIE report reflects these findings, indicating a range of problems with both access to finance and firm capabilities in both micro-firms and SMEs with revenue between $3 million and $30 million.
The report concludes that banks tend to be the main source of finance for these businesses because there are few other known or widely used alternatives. “We thought we could do something about that,” says Patrick.
NZGIF was established in 2019 to facilitate investment in decarbonisation initiatives across a range of New Zealand’s sectors. It received an additional $300 million in the last Budget, taking its total investment capital to $700 million. So far, $400 million has been committed to more than 20 investments ranging from solar systems to methane inhibitors.
“On a portfolio basis, we’ve now roughly driven about one-and-a-half times the capital into the opportunities that we put in ourselves,” says Patrick.
The funding for the new initiative will come from money NZGIF already has and will be offered as two streams: pipeline and asset finance. Small and mid-sized businesses often need some flexibility with their financing, says Patrick, with these two streams proving the easiest for NZGIF to identify.
Pipeline finance provides debt funding of up to 75 percent of the cost of goods sold for a growing pipeline of committed customers or projects. Asset finance provides funding for revenue-generating assets of up to 75 percent of the asset's value.
Patrick says that NZGIF also brings other capital investors into its opportunities, as the goal is to build the overall market.
Wellington-based electric vehicle infrastructure and services company Thundergrid is one of two ‘transactions’ made with the initiative so far.
Working towards its goal of ‘energy equity’, the business supplies electric vehicle charging stations and manages charging networks for large customers.
People often find green businesses too risky to invest in, says Thundergrid CEO Jonny Parker. As a result, many struggle to “get off the ground”.
“While we were in startup mode we kept in touch with NZGIF to see if we were a good fit for their funding model,” says Parker. “After some time we started to gain some great traction and the organisation stepped up and really helped”.
Through the initiative, NZGIF provided a $1 million working capital facility to support Thundergrid to deliver on a scaling pipeline of customers and revenue growth.
Parker says the funding also helped grow the team and make “strategic hires”. In the last few months, the business has doubled its staff to about 20 people.
Founders interested in the initiative should be aware that they will have to commit to providing accurate insights and working with NZGIF to get a report that works for both parties, says Parker. “It’s not just, ‘here’s some money and we’ll see you in a month’ sort of thing, they really join you on the journey as you go”.
In October, Thundergrid was purchased by Switzerland-headquartered Landis+Gyr as part of the latter’s strategy to accelerate its expansion of electric vehicle solutions in Australasian markets. Thundergrid remains New Zealand operated.
Hot Lime Labs, a producer of sustainably sourced carbon dioxide used to increase food production in glasshouses, is the other transaction.
The GFA offered the business a $1 million asset finance facility to support the rollout of additional equipment.
“Securing a facility from NZGIF allows us to reduce the barrier for customers to access our technology, supercharging the pace at which we can make an impact for customers – and the environment,” says CEO and co-founder Tijs Robinson.
Patrick says the plan is to do one or two more transactions to show the initiative is viable before NZGIF takes it to the investor market, which he predicts will take six to 12 months.
The mandate for the new initiative is simple, says Patrick. “We have to invest on a commercial basis, everything that we invest in has to have a decarbonisation benefit for New Zealand, and we always have to have a plan to scale,” he says.
He describes himself as “quite bullish” about NZGIF and the GFA’s future despite the change in government. “National has been a strong supporter of climate action in general for some time and, as the lead in any coalition, I can’t imagine that particular policy position changing,” he says.
Emphasising the commercially oriented mandate of the organisation, he says that NZGIF would be a very attractive tool in the policy toolbox for the incoming political party. “We’ve already demonstrated that we’ve made a bunch of successful investments. We’ve driven private capital, and we’ve made money for the Crown.”
He welcomes SMEs with commercialised low-carbon technology focused on decarbonisation efforts in New Zealand to get in touch.
For more information, contact investment manager Guy Wilson: firstname.lastname@example.org
Mary Hurley brings three years experience in the online media industry to the Caffeine team. Having previously specialised in environmental and science communications, she looks forward to connecting with founders and exploring the startup scene in Aotearoa New Zealand.
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