New Zealand’s startup ecosystem poised to grow more ‘tall poppies’

Awkward teen years bring change, growth and challenges

New Zealand, a country of just under 5 million people, has historically flown under the radar of venture capitalism. A geographically isolated country with a “no worries!” culture and an economy based on raw materials, Aotearoa hasn’t stood out to investors in the Asia-Pacific region, especially not when they could set their sights on larger markets in China and Southeast Asia.

Now, investors see New Zealand as a country with a track record of building companies with global exits in SaaS, health tech and deep tech. Notable companies and exits like Xero, Pushpay, Aroa Biosurgery, Vend, Seequent, Halter and Rocket Lab have put local startups on the map, but the scene is still immature and will need steady direction before it becomes a globally competitive ecosystem. That said, the signs are all pointing to technology being New Zealand’s next export industry, as long as everyone keeps pushing in the same direction.

“For a very long time, startups in New Zealand had been crying out for capital,” said Imche Fourie, co-founder and CEO of Outset Ventures, a deep tech incubator in Auckland that invests in seed and pre-seed science and engineering companies. “That’s changed so much the last couple of years partly because the government’s been putting more initiatives into attracting international capital. It’s been ridiculous how much money is flooding into the country at the moment.”

Despite the pandemic, venture and early-stage investment in New Zealand is reaching record highs. In 2020, VC investments totaled NZD $127.2 million (USD $86 million), up from NZD $112.2 (USD $76 million) in 2019, due to a near doubling of transactions from 46 in 2019 to 92 in 2020. According to Crunchbase, money raised by New Zealand startups increased 30%, from around $1 billion to $1.3 billion, from Q1 2020 to Q4 2021. In addition, in 2020, investors provided more follow-on capital than ever before at 56%, or NZD $109 million (USD $79 million), which shows a dedication to supporting startups through to exit, according to a PwC analysis.

New Zealand investors say most of the money is coming from either international (mainly U.S. or Australian) VCs or the government. Last March, the New Zealand government launched the Elevate NZ Venture Fund, an NZD $300 million (USD $203 million) fund of funds program that invests into VC firms aimed at filling the Series A and B capital gap for high-growth New Zealand tech companies.

The fresh capital signals a shift both in the country’s economy and mindset around diversifying its exports and strengthening GDP at a time when the cost of living is quickly becoming unsustainable for many Kiwis.

Housing prices in New Zealand are among the most unaffordable among OECD nations, and an active supermarket duopoly sees Kiwis spending the fourth-most per capita on groceries in the world. Not to mention the banking and electricity oligopolies running the country. Taken together, you’ve got a society primed for wealth inequalities.

For a country with limited resources that relies on trade, developing thriving tech exports may not just be a good idea — it may be a necessity to survive.

“We’ve long had a strategic focus in New Zealand on moving away from commodity exports like timber, wool, milk powder, and attracting more value for what we export,” Phoebe Harrop, an associate at Blackbird Ventures, a New Zealand and Australia-based VC, told TechCrunch. “Technology startups are the pinnacle of that strategy. And it’s something we should be good at because we have a really good education system and we have this unusual cultural dynamic of people going out and spending time overseas in Silicon Valley, London, Amsterdam, Berlin, getting world-class experience, and then usually wanting to return home and do something here.”