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New Zealand; Taiwan: Joint Venture Capital Investment Agreement

(Oct. 19, 2012) On October 3, 2012, the Republic of China (on Taiwan) (ROC) and New Zealand initialed letters of agreement on the Strategic Cooperation on Joint Investments in Venture Capital Funds. The landmark accord between the two countries, which already enjoy “robust economic and trade relations with complementary industrial strengths, … will boost cooperation, create new business opportunities and yield greater profits,” according to an official with Taiwan’s Council for Economic Planning and Development. (Rachel Chan, Taiwan, NZ Kick Off Venture Capital Cooperation, TAIWAN TODAY (Oct. 18, 2012).)

The pact had been concluded earlier in the year, on March 5, 2012, by representatives from the two jurisdictions (Press Release, Ministry of Economic Affairs, R.O.C., Taiwan Signs Venture Capital Cooperation Agreement with New Zealand (Mar. 14, 2012).) It is viewed as an important step in the broader aim of initiating formal talks on an economic cooperation agreement. Aside from promoting venture capital activity in the region, the purpose of the agreement is to “open access to networks and markets in Taiwan and its Asian neighbours for fund managers and the high growth companies they invest in.” (Jason Krupp, Private Equity Deal Signed with Taiwan, STUFF.CO.NZ (Oct. 17, 2012).) From Taiwan’s perspective, the treaty is a key element in the country’s push for greater regional economic integration. (Chan, supra.)

The new venture capital agreement provides for Taiwan’s National Development Fund, with more than US$7.3 billion in assets, and the New Zealand Venture Investment Fund Ltd. (NZVIF), with about US$166 million in assets, to each make contributions of US$80 million for the joint backing of startup companies in their respective jurisdictions. The cap for each joint project will be US$20 million. (Id.) Venture capital fund managers must raise 40% of the total fund capital for a venture from private sources. (Krupp, supra.) In practice, this means that if a New Zealand or Taiwan venture capital fund manager raises NZ$30 million from private investors, the partnership could invest around NZ$45 million, for a total fund size of NZ$75 million (about US$61.5 million), a considerably expanded scope. (Id.)

Half of either fund must be invested in the given jurisdiction’s companies. However, in the view of Franceska Banga, NZVIF Chief Executive, the agreement will probably increase the amount of capital available to New Zealand companies, despite the fact that its aim is to invest in the two jurisdictions’ companies equally, because the impetus for the pact is “Taiwan’s interest in New Zealand’s bio-tech, agri-tech and creative technology sectors.” (Id.)

According to ROC government figures, trade between New Zealand and Taiwan was valued at more than US$1 billion in 2011, an increase of almost 7.5% over 2010. (Id.) Taiwan is New Zealand’s eighth largest export market, according to Banga. (Krupp, supra.)