Waikato regional economic profile - Waikato Regional Council

10 Capital10.1 SummaryA financial system that provides firms with adequate access to finance on acceptableterms is crucial to enabling the country to achieve its full economic developmentpotential. 377 Robust data on capital are almost nonexistent at the regional level. Itappears that there a number of sources of finance available for firms at various growthstages and relatively few young company finance deals have been recorded in theregion. The vast majority went to Hamilton firms, mostly to firms in the software sector,followed by pharmaceuticals, biotechnology and life sciences. There are no Waikatofirms listed on the stock exchange.10.2 Sources of financeTable 16 shows the sources of finance available for firms at various growth stages,some of which are discussed in this section.Table 16: Sources of financing by business growth stage 378Concept Inception Survival Growth Expansion MaturityOwnersFriendsRelativesOwnersFriendsRelativesBanksGovernmentgrantsInstitutionalNew partnersProfitsCapitalmarketsProfitsCash flowInternationalfinancingSuppliersCustomersVentureGovt grantsSuppliersCustomersVentureGovt grantsLicensingLeasingJoint Divestiture ofventures segmentsThe Reserve Bank of New Zealand publishes Money and Credit Aggregates that arebroken down by sectors but not regionally. Information about debt funding 379 at theregional level is not available from the banks also.Equity 380 markets provide an important source of financing for some companies andindustries. Certain sectors, such as research and development-intensive industries,tend to be more dependent than others on issuing equity to finance investment. Theseindustries are expected to grow more rapidly in countries with better developed equitiesmarkets. 381Business angels 382 and venture capital funds 383 are a distinct part of the larger marketfor financing small firms in that they focus on higher-risk ventures. Angel investors aregenerally involved in the early development of an enterprise, with venture capitalfinancing coming at a later stage. The firms that are financed by both groups often377Ministry of Economic Development (2011a) Access to finance.378PwC (undated, p. 1).379A debt is an obligation owed by one party (the debtor) to a second party, the creditor; usually this refers to assetsgranted by the creditor to the debtor. Debt increases the debtor’s liability and must be paid back over a fixed periodof time. Debt funding can be short or long term and come from many sources with many different financing options.Sources include banks, finance companies, trade credit, factoring companies and credit card facilities.380Equity finance refers to the provision of funds in exchange for a share of ownership of the firm. It is an alternativeform of financing to debt.381Capital Market Development Taskforce Secretariat (2009, p. 6).382An angel investor is a wealthy individual or professionally organised firm or group who invest in entrepreneurial firms.Although angels perform many of the same functions as venture capitalists, they usually invest their own capitalrather than that of institutional or other individual investors.383Venture capital refers to independently managed, dedicated pools of capital that focus on equity or equity-linkedinvestments in privately held, high-growth companies. Many venture capital funds, however, occasionally makeother types of private equity investments. Outside the United Sates, this phrase is often used as a synonym forprivate equity.Doc # 2069885 Page 123