• Sat. Jun 25th, 2022

Foreign investors, mature startups redraw New Zealand’s VC funding landscape

ByASNF

Dec 27, 2021

Over the last two years, New Zealand’s startup scene has seen record venture and early-stage investment. Despite the pandemic, 2020 saw $158 million invested into 108 deals, representing the third year in a row of over $100 million in investment in startups. According to a PwC report, 2020 was also the third year of more than 20% year-over-year growth in dollars invested.

“Early-stage investment as an asset class is maturing in New Zealand,” Suse Reynolds, chair of New Zealand’s Angel Association, a network that connects angel investors to business owners, wrote in the PwC report. “A noticeable trend is that deal sizes are getting larger as early-stage ventures and angel-backed ventures scale and require larger quantums of growth capital.”

This boost in access to capital can be attributed to a few things. Even as a small country, New Zealand has a reputation for producing global companies, with notable exits like Vend, Seequent, Rocket Lab, Pushpay, Aroa Biosurgery, LanzaTech and Xero garnering the attention of foreign investors — like Founders Fund, Sequoia, Horizons and Aspect Venture Partners — who are either investing into local VC funds or directly into startup rounds. Those exits are providing returns, which investors are putting into other early-stage New Zealand startups to keep the ecosystem healthy and churning.

In fact, in 2020, investors provided more follow-on capital than ever before, which shows a commitment to support startups as they scale, grow and hopefully exit — a sign of a maturing investment scene, according to Young Company Finance deal data.

One of the biggest catalysts of the increase in VC investments, however, has been the Elevate NZ Venture Fund, a $300 million fund of funds program that will invest capital into VC firms over the next five years.

I’m hopeful over the next five years we’re going to start seeing more unicorns and real successes coming out of the market, which I think will create a positive halo effect and that’ll create the next generation of founders. Elevate Acting CEO James Pinner

As the country that’s probably best known for producing dairy and being the place where “The Lord of the Rings” was filmed starts to pursue technology as its next big export, it’s worth mapping out the funding landscape as it stands today, and what is expected of it in the future.

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

Elevating Kiwi startups into scale stage

New Zealand’s government established the New Zealand Capital Growth Partners (NZGCP) in 2002 as an initiative to stimulate the early-stage startup ecosystem. After about 18 years of smaller-scale projects, the entity came up with the Elevate fund, and that might just be what gets today’s New Zealand early-stage startups into the next phase.

Elevate launched in March 2020, just as the entire world was locking down. To date, about half of the $300 million has been invested into six VCs to fill the Series A and B capital gap in New Zealand. One major stipulation of receiving funding from Elevate is that VCs have to raise matching capital from other investors that is at least equal to the government’s commitment. The goal is to stimulate $1 billion of investment into early-stage New Zealand businesses over the next 14 years, preferably from sources outside NZGCP.

Peter Beck, founder and CEO of Rocket Lab, served on the business advisory council on this project and would have liked to see a caveat in the stipulations that would limit funding eligibility to VCs that managed to bring in international venture capitalists to match Elevate’s investment.

While that caveat didn’t make it into the final language, Elevate did end up enticing some foreign VCs across the pond.

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