GOVERNMENT-BACKED groups are proposing to invest up to $225 million in New Zealand’s fledgling biotechnology sector. But there are doubts whether there’s enough Kiwi biotech projects worthy of suchinvestment.

South Island entrepreneur Howard Paterson’s biotech venture capital firm Quest VC has canned its fund plans because there’s a lack of potential investments in New Zealand.

Quest pulled out of the government’s $100m Venture Investment Fund (VIF) last year, claiming the fund’s investment criteria were too inflexible. It was due to list its own fund on the stock exchange last month.

“But if you raise these things, you have got to use the money and put the money to work and that putting it to work became an issue,” said Quest director Stuart McKenzie.

Though Quest prefers to focus on the agri-biotech area, dismissing the medical biotech area as too costly and risky for New Zealand investors, McKenzie said in general there were few projects arising from our science sector that matched the needs of venture capitalists. Products must have the potential of attracting a large market and be backed by individuals who had the fortitude to see them through, he said.

Given the lack of opportunities, if the government’s biotech taskforce gets its $200 million fund it will be investing in “some pretty speculative stuff,” said McKenzie.

Last week the government’s Biotechnology Taskforce released plans to boost the country’s fledgling biotech sector into a $10 billion industry within 10 years. Key to the recommendations was the establishment of a $200 million investment fund, including $50 million from government coffers.

Taskforce chairman Bill Falconer says the fund will act like an investment banking service, able to invest increasing levels of funds in biotech firms as they grow.

Saying Quest’s experience is “surprising,” Falconer said Quest has only limited capital, so it can only invest in small projects. ” Another eyeing New Zealand’s biotech sector is VIF general manager Franceska Banga.

So far the government’s $100 million fund, designed to boost early stage investment, has invested $55 million in four funds: $15 million in Telecom’s and US-based private equity firm Advent International’s $103 million TMT Management fund; $20 million in Infratil’s and Orion NZ’s $60 million IO Fund; $10 million in the $30 million Endeavour I-Cap fund; and $10 million in the $30 million No.8 Ventures No. 2 fund. A further $10 million is earmarked for investment banker Tony Bishop’s $30 million Singaporean fund, “once the paperwork’s signed.”