Funding gap slows plans for 'accelerator exchange'   15 Sep 2016

Thursday 15 September 2016 12:16 PM

Creative HQ says funding gap slows plans for 'accelerator exchange' with China

By Paul McBeth

Sept. 15 (BusinessDesk) - Creative HQ, the Wellington business incubator, says its efforts to create an "accelerator exchange" that would help Kiwi start-up get a foothold in China has thrown up gaps in government funding after it got plenty of praise but was told the concept didn't meet any criteria.

Creative HQ already gets a Callaghan Innovation grant for its incubator but chief executive Stefan Korn said conversations with the government funding agency, New Zealand Trade & Enterprise and the Ministry of Business, Innovation and Employment haven't yielded money for the exchange programme, with the agencies liking the idea but saying it falls outside their remit.

"We believe it's a government thing to fund these programmes because it's a very clear and measured result, especially for early stage," Korn said. "Currently it falls between all of the buckets. In general, everyone thinks it's a great idea but no-one wants to fund it."

The lack of funding means Korn can't say when a New Zealand group of firms could travel to Chengdu, and he's trying to find private sector alternatives if the government doesn't come to the party.

Creative HQ included Chengdu-based Chicken Run in its three-month Lightning Lab XX Accelerator programme, giving the Chinese free-range chicken firm exposure to a Western style of developing an early-stage company. Since the programme finished in June, Chicken Run is on track to triple sales by end of the year as it seeks to grow into a multi-million business by the end of 2017.

Chicken Run sat alongside the accelerator's other start-ups as part of a plan to forge links between Wellington and Chengdu exposing early stage firms to a foreign market, where Chinese firms can test their services in a relatively safe English-speaking market, while New Zealand start-ups would get support in the world's second-biggest economy.

Korn said New Zealand hasn't taken full advantage of its 2008 free-trade agreement with China, largely focusing on increasing exports of commodity products rather than pursuing high-value business opportunities.

"We've been looking at one small aspect of that whole picture, which is the early stage business space, around investment and innovation," Korn said. "Generally our start-ups and smaller companies don't go to China because it's seen as being in the too hard basket, and generally Chinese investors don't invest in early stage companies in New Zealand because it's also seen as the too hard basket."

Chicken Run's experience showed an appetite from Chinese companies for exposure to the Western experience that wasn't available in Chengdu's 80 incubators, without the expense of going to the US, and Creative HQ now wants to take a handful of local companies to China to gauge their readiness and appetite to enter that market.

Korn said it's easy enough for Creative HQ to wear the cost of accepting Chinese companies in its Lightning Lab programmes, however taking New Zealand companies is more costly and something which he says the government should help foster.

If it gets off the ground, Korn says the accelerator exchange has the potential to be self-funding within five years if it can create a big enough deal flow that Creative HQ can then charge a success fee on.

"Once you've established the model and you've got some successes, for example investment has happened, the model would work in a way where you take a small success fee of any investment that happens," he said. "If you've got enough deal flow and investments that happen, it actually pays for the running of the programme."

Korn said the time is ripe for New Zealand to pursue an exchange along these lines with the Communist Party of China's five-year plenary plan including innovation as a central pillar, paving the way for increased Chinese investment in start-ups.

New Zealand's consul-general in Chengdu, Alistair Crozier, helped drive the exchange, building connections with city officials. Chengdu is China's fastest-growing city and has become a hub for food and beverage, high-tech manufacturing, and digital sectors, which Korn cites as creating a natural fit for New Zealand firms, and because it's smaller than the top tier cities such as Shanghai and Beijing it's easier to get noticed, he said.

(BusinessDesk receives assistance from Callaghan Innovation to help cover the commercialisation of innovation.)

(BusinessDesk)

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