The swift demise of a business support agency portends a sharp change in how government relates to industry, argues Duncan Greive.
A version of this ran in The Bulletin, the Spinoff’s morning newsletter. Subscribe here.
KiwiSaaS was born late in 2021, with $11.2m in funding to function “as a community-building initiative to connect the businesses working in New Zealand’s SaaS sector”, according to the Ministry of Business, Innovation and Employment (MBIE). “SaaS” referring to software-as-a-service, or cloud software (think Xero). A year earlier, minister David Parker had announced funding of $216m for New Zealand Trade and Enterprise (NZTE) to “enable them to offer in-market services to twice as many exporters”.
These two covid-era funding streams expressed a more expansionist view of the relationship between government and business, but one broadly in line with that of the Helen Clark and John Key governments. It represented the apotheosis of a movement that had been steadily building for at least 20 years, since the era-defining Knowledge Wave conference, where hundreds of leaders, officials and academics discussed how best to lift New Zealand’s economic performance.
Its co-chair was then-prime minister Clark, who gave a speech sketching “a strong focus on entrepreneurship, the attraction and retention of talent, the transformation of public and private institutions, and incentives to promote innovation and creativity”.
A decade later this was the theme of Sir Paul Callaghan’s series of widely admired speeches, challenging New Zealand to become “the place that talent wants to live”. Hard sentiments to resist – but how to execute them?
The ideas became an array of initiatives, led by an agency in Sir Paul’s name, Callaghan Innovation. Some are small endeavours like a plethora of regional co-working spaces, California portal the Kiwi Landing Pad, and the “brand New Zealand” agency NZ Story.
Others are much more costly, such as a initiatives delivered through NZTE or NZ Growth Capital Partners, government-backed investment funds which are now more than 20 years old and have invested hundreds of millions of dollars into various businesses. The work is constant: just this week, The Spinoff’s Joel MacManus perceptively reported on Wellington’s desire to become a climate tech hub.
The intent of all this is broadly to stimulate a tech and innovation-centric economy that means New Zealand can supplement wool and milk with exports of digital services and IP. It’s one that all parties broadly agree on. What appears to be changing, is this government’s vision of its role in advancing that.
How to deliver it?
Consider KiwiSaaS, that agency which received $11m in government funding in 2021, and which has an obligatory photo of someone in a t-shirt featuring Callaghan’s “talent” quote prominent on its website. Its funding runs out this Sunday, and Judith Collins, minister for science, innovation and technology, has declined to renew it.
The agency was set up to promote the SaaS industry – the kind of digital subscription economy which firms like Xero and Pushpay have turned into huge international businesses.
When the funding first became imperilled in April, senior figures at a number of significant SaaS firms, including Xero, Parkable and LawVU signed a letter asking Collins to reconsider. The Taxpayers Union (TPU) critiqued the group, calling the request “crony capitalism”.
After declining its extension, Collins provided a statement to the NZ Herald’s Chris Keall, saying “New Zealand already has a number of SaaS success stories… discussions have been happening with the sector to explore a future model for KiwiSaaS that is not dependent on government funding”. Many successful industries have trade associations, Collins implied; most are funded by their members rather than government.
This was not solely a flinty right wing perspective. Former Xero exec Nick Houldsworth wrote on LinkedIn that “in the early days of SaaS in NZ (early 2010s, yikes) there was no real government support, no Callaghan, few if any incubators [or] angel networks... None of that stopped the industry from taking off.”
A generational divide
This speaks to an emergent divide between different generations of New Zealand’s tech community. Houldsworth typifies older hands, some of whom view much of the government participation as nice-to-haves at best, if not a kind of talent drain which keeps good people from working on actual businesses.
That’s the view of Rowan Simpson, an investor who played key roles at TradeMe, Xero and Vend. He coined the term “startup derivatives” to express a skeptical view of the role of organisations like KiwiSaaS. “It’s not enough for an organisation like KiwiSaaS to just point at a growing sector and say ‘we help that sector’,” he says. “They should be able to describe exactly who they help, what constraint those people or teams have, and how the specific things they do hope to remove or reduce those constraints… There are enough cheerleaders already – we need to spend money on things that make more of an impact.”
Current SaaS startup founders The Bulletin has spoken with have a markedly different view, saying they feel that KiwiSaaS’ resources and events, like annual conference Southern SaaS, created a level of education and community to which they might not have otherwise had access. They say that such international ambitions might be harder to achieve without it.
Regardless, after 20 years of consistently expanding support, it appears that the coalition is much cooler on the government’s ability to impact business through such initiatives.
If not that, then what?
What, if anything, will replace that approach? It’s not entirely clear, but BusinessDesk’s Jem Traylen and Peter Griffin have been pulling that thread a little lately. Griffin published a withering assessment of Melissa Lee’s business development portfolio last week, concluding that “until the government has a coherent economic development strategy to attract more capital and support the diversification of the economy, Lee will be little more than a sideline cheerleader for our export-orientated businesses.”
Traylen covered minister for small business and manufacturing, Andrew Bayly, and was similarly curious about his stated intention to focus less on a strategic plan, and instead to “do more stuff” – she found that hard to square with a budget which dedicated just $2m to manufacturing, which doesn’t buy much stuff.
In some ways smaller budgets are themselves the point. Traylen singled out this from finance minister Nicola Willis as “quote of the week”, one which functions as a verdict on perceived mission creep from successive governments across a number of sectors. “There will be more people in hard hats and high vis and probably fewer people wearing a lanyard on Lambton Quay, and I’m okay with that.”
A new direction?
Perhaps the only major initiative that hints at a fresh vision for the role of government is one which has barely gotten started. The ministry for regulation was Act policy and, despite its name, exists to find areas in which regulation is holding the country back (more properly it should be the ministry against regulation). There are many tax and regulatory settings which those in the innovation sector argue are unfit for purpose. They point to fast moves in space regulation which helped Rocketlab succeed, and say such work, more than creating agencies or VCs, is the best role for government.
Interestingly, this is precisely where Collins went when asked for a vision of the government’s role in helping technology-focussed businesses succeed. She spoke of “making it easier” for businesses involved in sectors like gene technology and AI, before directly addressing the operating environment for such businesses. “Work is underway on our election year commitments of creating a dedicated biotech regulator as well as investigating a global growth tech visa and ESOP [employee share option] taxation.”
The Ministry for Regulation functionally replaces the Productivity Commission, the last government attempt to fix our under-performing economy. It was shut down earlier this year, and as economist Eric Crampton observed in a column for Newsroom, the National and Act parties that closed it were the same that dreamed it up in 2008.
Will the Ministry for Regulation leave a more profound legacy? It’s essentially about the government getting out of business’s way, for better or worse. A different method of approaching the same issue as that big, contentious fast track bill. Applications for the regulation ministry’s leadership closed earlier this month – the faint but unmistakable beginnings of a new era in government’s conception of its relationship to business.
Disclosure: The author has a very small shareholding in Parkable, one of the firms discussed in this story