Waikato Business News March/April 2023

30 WAIKATO BUSINESS NEWS, MARCH/APRIL 2023
Growing unicorns –
NZ’s changing startup
& VC landscape
Entrepreneurs may be the commercial heart of New Zealand,
with the start-up sector is poised for hockey stick growth, but
by international comparison, we still have a long way to go.
Thanks to our ability to
bootstrap ideas and
disrupt stagnant industries,
New Zealand has witnessed
some remarkable success
stories in the last five years.
Some starts-up have gained
unicorn status by surpassing
the market capitalisation mark
of $1 billion dollars with a few
possibly reaching dragon status
– surpassing $1B in a single
raise. These include Predict
HQ, Timely, ArchiPro, AllBirds,
Harmoney, Red Shield, Petlife,
Soul Machines, Hnry, Crimson
Education, Vend, Vital, Xero,
Unleashed and Rocket Lab.
But compared with other
countries, such as the US, Germany,
the UK, Australia, Israel,
and India, NZ is still in an emergent
phase when it comes to how
we support, fund, and develop
new commercial ventures.
NZ hasn’t seen the enormous
wealth from successful start-ups
that many of those countries have
enjoyed over the last 20 years.
So how can New Zealand
foster new commercial ventures
better and create more unicorns?
What’s holding us back?
The Downturn
The current economic downturn
is driving venture capitalists
to cautiousness and conservatism.
We have seen an end to
the ‘easy money’ and the seemingly
limitless supply of readily
available capital of the last few
years.
The New Zealand start-up
sector is well-positioned for significant
growth, but there are
now likely to be more checks and
balances before an investment is
made.
The onus is on start-ups to
get their house in order and
demonstrate why they stand
out from the crowd. People and
emotions will play key roles in
investors’ decision making, so
getting the right advice is crucial.
Fortunately, there is a wealth of
accessible and affordable help
now available.
Experience and awareness
Many early-stage companies
don’t have a firm grasp on how
the VC process works or how to
attract the right investors, particularly
during seed, series A,
series B, and series C funding
rounds.
We have an opportunity to
grow founders’ awareness of venture
capital and private equity by
making it easy and affordable for
them to access information, support,
and advice.
Misconception
We also need to challenge
some of the preconceptions and
stereotypes people hold about
venture capitalists and demonstrate
the valuable role investors
play in helping entrepreneurs
and our economy.
Gone are the days when
investors were out to beat founders
down, and exercise control as
quickly as possible. To be successful
in venture capital today,
investors understand the need
to be a founder-friendly partner
VENTURE CAPITAL
BY PHIL TAYLOR
Partner, Tompkins Wake
who can invest, incubate, and
incentivise their entrepreneurial
partner. However, more
recently, we have seen the balance
swing back slightly towards
investors.
Venture capitalists recognise
that terms need to be favourable
for all parties. They understand
the need to preserve incentives
for founders, typically through a
healthy shareholding.
Attitude
A lack of ambitious aspiration
also hamstrings many
Kiwi entrepreneurs. Many are
quite happy to sell out for $20-
30 million, buy their bach,
boat and ford ranger ute and
retire early. You must be pretty
extraordinary to be the leader
of a billion-dollar unicorn. But
the reality is many institutional
VC investors aren’t looking for
a start-up that will just do well.
They want unicorns.
Market growth & maturity
Despite all the challenges,
now is the perfect time to
establish a start-up. The venture
capital landscape has changed
over the last four to five years,
influenced by growth in the
number of venture capital funds
and increasing maturity in the
market. And it’s been good news
for start-ups.
In 2002, the New Zealand
Government issued funds
through New Zealand Growth
Capital Partners NZGCP, making
$300 million available to the
start-up market. This was a real
tonic for the sector and made
it easier for start-ups to find
investor money in New Zealand,
rather than looking offshore.
Today, we have more than
65 active funds, which has seen
investment in the start-up market
grow by more than five times
over the last 20 years.
NZGCP’s funds gave the
market time to grow and mature
to the point where it is now
self-supporting. The influx of
international funds that have
come into New Zealand combined
with investment by homegrown
funds demonstrates
the durability of our start-up
ecosystem.
Our talent and innovation
will continue to be drawcards
for foreign VCs, as will our high
education standards and ‘no
corruption’ status.
We have seen several large
venture capital funds mature
from a typical initial size of say
$10 million fund size to up to
$250 million. They now have
cash to reinvest and appreciate
the benefits of their previous
experiences, particularly during
tough times.
The need for ‘Smart
Money’
While venture capitalists are
looking for the right start-up,
entrepreneurs also need to
make sure they’re partnering
with the right VC. We call it
‘smart money’, and it is largely
about being satisfied with the
following three things:
• Knowledge & connections:
VCs with a deep knowledge
of their particular sector.
Think of someone who can
facilitate connections with
suppliers, help recruit the talent
the business needs, and
offer structured training and
support.
• Deep pockets: VCs with deep
pockets and the ability to help
with follow-on funding. This
could be through their own
fund or other funds they can
tap into. As we head further
into an economic downturn,
start-ups will need larger
cheques at later stages, and
funds to tide them over to the
next round.
• People first approach: VCs
who know how to put people
first and can help avoid
founder burnout. Successful
VCs understand the importance
of putting people first.
Forget the accounting and
finance metrics. It’s all about
the people - looking after
them is not just the right
thing to do, it’s good business.
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MIKE NEALE
027 451 5133
mike.neale@naiharcourts.co.nz
RA PIRIPI
021 838 887
ra.piripi@naiharcourts.co.nz
MONARCH COMMERCIAL LTD MREINZ
LICENSED REAL ESTATE AGENT (REAA 2008)
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