Longed for stirrings in the local investment sector are a positive sign that New Zealand businesses may be able to keep calling Aotearoa home.
What do hydrofoiling freight boats, chicken-free chicken and a customer feedback platform have in common?
Not much, except that they are the first Kiwi businesses to be backed by Australian investor Blackbird Ventures which has announced it’s spreading its wings and establishing a $30m dedicated New Zealand fund.
Things are stirring in the New Zealand venture capital space. For years, little but tumbleweed blew through the sector that is supposed to help promising Kiwi startups through their fast-growing teenage years. Instead, most have been forced to go offshore for vital expansion capital – think aerospace star Rocket Lab, biofuels success story Lanzatech, and even auction site Trade Me which was sold to a British private equity firm this year.
Blackbird Ventures’ flight across the Tasman is the latest in a series of events indicating there may be life in Aotearoa’s venture capital (VC) sector yet.
In April business incubator The Icehouse announced Icehouse Ventures, an entity that will manage $100m worth of investment over the next five years in startup companies seeking to expand. One of its backers is Simplicity, the first KiwiSaver fund manager to dip its toes into this riskier end of the business spectrum. Icehouse Ventures has just announced its latest investment, $4.3m in medical device developer Surgical Design Studios which was spun out of Auckland University’s medical school two years ago.
Then in May’s Budget, the government revealed a $300m fund aimed at plugging the country’s long acknowledged funding gap. The new fund will help keep mid-sized startups of between $2m and $15m in New Zealand for longer, economic development minister David Parker said. It’s a welcome shot in the arm for the New Zealand Venture Investment Fund (NZVIF), which was set up in 2002 to kick-start a local VC industry but hadn’t received any additional government funding in years.
Now Blackbird has announced a $30m fund dedicated to Kiwi businesses. Partner Sam Wong and analyst Tip Piumsomboon (who is originally from Christchurch) are moving over to set up a New Zealand office, and the firm will throw its annual founders’ shindig, Sunrise, at Auckland’s ASB Waterfront Theatre in October – the first time it’s been held outside of Sydney.
Blackbird had been planning to come over for a while and the government’s funding announcement has merely provided a boost says Piumsomboon. However, it will surprise no-one to learn that the venture capitalist is now in talks with NZVIF.
The pipeline of startups with global potential is the attraction, she says. Blackbird’s first New Zealand investment was the customer feedback platform AskNicely in 2017. “After AskNicely we started seeing this really high-quality deal flow coming to us,” she says.
When Blackbird started seven years ago Australia was suffering from the same paradox as New Zealand. They had great startups like software toolmaker Atlassian and email marketer Campaign Monitor, but a dearth of Australian venture capitalists willing to invest in them.
Blackbird saw an opportunity. Its ethos is to invest in the early stages and then make follow-on investments into startups that show traction. “That allows us the best chance of gaining material exposure to the most valuable companies,” says Piumsomboon.
History is now repeating itself in New Zealand. “Companies like Rocket Lab, Xero, PushPay and Allbirds, all founded by Kiwis, are global leaders in their respective categories, and the next generation of New Zealand companies that are emerging behind them are (the likes of) Halter, 90 Seconds, Sunfed and PredictHQ.”
“These guys have been able to raise early-stage rounds of capital from angel syndicates and have offices in New Zealand, but [there’s] still very little venture capital in New Zealand, like Australia seven years ago.
“It creates a compelling investment opportunity for us to build a local venture fund.”
The VC sector is also coming of age because of wider market trends, she says.
The rise of online distribution models means startups don’t need large sales teams on the ground. “Tech created in our own backyard can now sell globally from the outset, which makes the market so much broader.
“We’ve seen this in Australia, and many Kiwi founders are starting to build their businesses to be global from the beginning.”
Xero is a good example, she says. “Because of the high-quality product and modern software distribution model the company has been able to grow to half a billion dollars worth of sales last year without a massive direct enterprise sales workforce.”
Another driver is the falling cost of starting a software business. “Development tools and platforms are now available much more cheaply and efficiently. Business models can now be tested, quickly iterated and scaled for much lower costs than a decade ago.”
This is not restricted to software, Piumsomboon says. “Autonomous vehicles, robotics, synthetic biology, 3D printing, clean meats, they all offer that same opportunity of quick progress due to the falling cost of hardware stacks and component parts.”
An additional advantage specific to New Zealand is its strong pool of technical talent. New Zealand universities rank well in engineering and sciences, and there is a stream of people who have cut their teeth in companies such as Xero and Trade Me. Because of this talent pool, tech startups such as PushPay and Vesta tend to keep their development teams in New Zealand and set up offshore marketing offices as needed.
Now, we are seeing the next generation of them splitting off and forming their own startups, (for example, FreightFish was co-founded by former Halter chief technology officer Max Olson). Luckily, the chances of New Zealand stopping its talented youngsters from racing off on extended OEs are looking better than they have for a while.
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