When fundraising, New Zealand startup founders should play the ‘Kiwi card’

New Zealand, a country of 5 million people in the South Pacific, has witnessed a shifting tech startup landscape over the last couple of years. While some major global companies like Xero, Rocket Lab, LanzaTech and Seequent have shined a spotlight on New Zealand’s startup scene, the country historically hasn’t had access to much venture capital.

As a country with an economy that primarily exports agricultural products, the New Zealand startup world has usually relied on funding from a community of high-net-worth individuals and family offices who probably made their millions through real estate or farming.

In March last year, the New Zealand government launched Elevate, an NZD $300 million fund of funds program that’s been providing millions to local VCs to invest into the startup community to fill the early-stage capital gap. At the same time, foreign investors have been flooding onto the scene, attracted to the small country that has a reputation for producing great companies. Founders and VCs in New Zealand are hopeful that the increase in funding from multiple sources is a signal that technology might just become the country’s next big industry.

That is, if the momentum that has led to more early-stage capital continues.

We spoke to two founders (Peter Beck of Rocket Lab and Cecilia Robinson of Au Pair Link, My Food Bag and Tend) as well as two investors (Phoebe Harrop, principal at Blackbird Ventures, and Robbie Paul, CEO of Icehouse Ventures) to nail down the top tips for New Zealand founders looking to put their mark on the markets. Here’s what we learned.

Think big and back yourself

New Zealanders typically tend to have an introspective view, failing to think big and globally from day one, Beck said. This is in part due to the fact that Kiwis grow up in a culture that suffers from “tall poppy syndrome,” a phenomenon where people who have achieved any measure of success are derided, cut down or sabotaged. As a result, not many people want to be a tall poppy.

Play the Kiwi card. New Zealand sits favorably on the minds of the international community. Icehouse Ventures CEO Robbie Paul

“If you’re going to build a company, it’s incredibly painful, it takes a lot of work,” Beck told TechCrunch. “Why would you waste your time building a little company? Let’s build a big company. So go after big problems.”

In order to psych yourself up to tackle those big problems, don’t be too humble. New Zealand consistently punches above its weight and produces world-class entrepreneurs and tech startups, Paul said.

“Back yourself and know you can win on a global stage,” Paul told TechCrunch. “While starting on a rock at the bottom of the world comes with challenges, there are plenty of advantages, too.”

Don’t get starry-eyed over a big check

“Remember that the least valuable thing an investor ever gives you is their money,” said Beck. “As you think about building your business, how and where you want to go, make sure you utilize investors to help you get there. People get starry-eyed by the check and don’t really sit back and go, ‘Well, is this person actually strategic to me or not?'”

When Beck was building Rocket Lab, he was highly selective about the investors he brought in, saying the differentiating factor between investors is not their capital, but rather who they can call. For example, Khosla Ventures participated in Rocket Lab’s Series A round, which Beck said opened the door to another big VC, Bessemer, to invest, in a Series B. DCVC led the Series C, but by the time Rocket Lab got around to its Series D, Bessemer was paving the way to Greenspring, which is a limited partner (LP) of Bessemer. Sovereign wealth funds, where the real big checks come from, participated in the company’s E round, and they were LPs of Greenspring.

“So as your company continues to grow, there are larger and larger pools of capital that you can then go and attract, and if all you’ve got is John from Pakuranga, John doesn’t have the phone number and credibility to sovereign wealth funds,” said Beck. “It’s all about setting up the company so that when you want to do a bigger round, you can go and tap that venture capitalist’s LPs and then it can tap that LP’s LPs and ultimately end up in sovereign wealth funds or others that can write a $100 million check no problems at all. It’s a smooth path there, and where it’s tricky is when there’s no path or the path is truncated, and the challenge with New Zealand is even though there are some better quality venture capital firms in New Zealand, where are their relationships with LPs?”

Sectors where New Zealand startups are poised to win

As a remote island nation in the middle of the South Pacific, New Zealand is experiencing the stirrings of a burgeoning startup scene. The country has historically been capital-starved, but recent investments from the government and foreign investors have significantly increased access to early-stage venture capital funding. Now, certain industries are emerging as potential areas where New Zealand can win in the tech space.

Deep tech, medtech/biotech, climate tech, and crypto and blockchain are all areas that investors say they’re either actively investing in or watching for signs of scale.

Note: All monetary amounts are listed in New Zealand dollars unless otherwise stipulated. 

Deep tech

New Zealand has the right mix of deep tech-focused capital and resources, strong engineering schools and major success stories that are helping create technologically sophisticated, globally scalable startups.

During the first half of this year, total investment in New Zealand’s early-stage sector increased 78% from the first half of 2020, 42% of which went directly to deep tech startups, according to PwC. Much of that funding came from New Zealand Growth Capital Partners (NZGCP), a government entity established to create a vibrant early-stage environment in New Zealand, via its Elevate fund of funds program that provides capital to New Zealand VCs investing in Series A and B rounds.

Last October, Elevate allocated $20 million to a fund managed by deep tech VC firm Pacific Channel. More recently, Elevate committed $17 million to Nuance Connected Capital’s fund focused on deep tech innovations, as well as $45 million to GD1’s Fund 3, which focuses on deep tech as well as connected hardware, enterprise software and health tech.

New Zealanders make really good founders. … There’s something about just growing up on a farm or, you know, playing beer float out in the lakes and rivers; New Zealand is just really resourceful. Blockchain NZ Chair Bryan Ventura

Then there are groups, like Outset Ventures, formerly LevelTwo, that are geared toward helping seed and pre-seed deep tech startups get going. Outset is home to New Zealand’s only two deep tech unicorns, Rocket Lab and LanzaTech, both of which have spun out numerous other deep tech companies. Outset continues to be a resource for seed-stage startups that need not only money, but also connections to larger companies and access to workshops and labs. Just last year, Outset and Icehouse Ventures, a VC firm, partnered to raise a $12 million fund, which launched this April, for early-stage science and engineering startups. Imche Fourie, CEO of Outset, said the company has already made 40 investments from that fund.

Notable deep tech companies out of New Zealand include Foundry Lab, a startup that creates metal castings quickly and cheaply with a microwave; Soul Machines, a platform that creates lifelike digital avatars that animate autonomously, responding to interactions and interpreting facial expressions, with personalities that evolve over time; and Dennisson Technologies, a wearables company that’s developing soft exosuits that incorporate 4D material technology to actively assist people with limited mobility due to physical or neurological disability.

The most Kiwi of deep tech startups, however, is Halter — a company that spun out of Rocket Lab and produces solar-powered smart cow collars that allow farmers to remotely shift and virtually fence and monitor cows in order to optimize pasture time. Founder Craig Piggott grew up on a dairy farm watching his parents struggle with the relentless work. After studying engineering at Auckland University of Technology and working at Rocket Lab, Piggott combined his experience to come up with a somewhat wacky and ambitious hardware and software play. Rocket Lab founder Peter Beck, who backed Halter, told TechCrunch he thinks it will be a globally scalable billion-dollar company.

The epitome of New Zealand’s deep tech scene is its over $1.75 billion space industry. Rocket Lab, which is now a U.S.-owned company after a SPAC merger, put New Zealand on the map as a place with minimal air traffic, clear skies and favorable aerospace regulations. As a result, companies are forming that can either send payloads into space or provide services to existing space companies.

Outset-backed Zenno Astronautics, for example, is developing a fuel-free satellite propulsion system that uses magnets powered by solar panels. Dawn Aerospace is working toward a remotely piloted aircraft that could take off like a normal airplane, drop a satellite payload and be back home in 15 minutes. And Astrix Autonautics, a startup founded by three Auckland University students, is being trialed by Rocket Lab to see if they can more than double the power-to-weight ratios of solar arrays used today.

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

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.

I don’t think it’s reasonable to expect the next Microsoft to be headquartered in New Zealand. But the next Microsoft may have offices here and it still might be founded by Kiwi. Rocketlab CEO Peter Beck

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.”