The Technology Investment Network (TIN) has released its 2023 report which takes a deep dive into Aotearoa New Zealand’s tech investment ecosystem and those who are most active in it.
We were delighted to participate in the launch event panel discussion alongside other valued members of the investment community, providing:
- Our views on why, despite global venture funding falling between 30 - 35%, NZ tech funding grew by 8.2%,
- Our thoughts on why offshore investment accounted for 55% of the total capital raised in 2022, which tipped $400m, and
- Our insights into the 14% increase in deep tech’s share of investment [from 8% of total investment in 2021 to 22% in 2022].
Here are a couple of the questions which were asked to the panel, and answers provided by Pacific Channel partner, Kieran Jina:
Q What does NZ need to do to attract more foreign investment?
I think it’s great that Aotearoa New Zealand is attractive enough that over half of the total capital funding has been generated internationally. This speaks to NZ’s attractiveness. During the venture capital boom in 2020/21, foreign investors were seeking other markets with more modest valuations. Now that they are investing in NZ, I believe they have discovered underappreciated potential, and in 2022 have continued to see value compared to other markets.
What I’d question is at what stage this foreign funding is going into, as I suspect most of this is at late-stage investment, which highlights that there’s still a gap in NZ’s capital markets post-Series A.
I think we also need to make a considerable effort to attract foreign investors into early-stage deals, especially into deep-tech. To achieve this, we need to address the maturity of deals, how we present our ambition, and how we show that we have the capability to execute. Let me explain:
- Maturity: In deep tech at least, many foreign investors are accustomed to projects being supported by large grants prior to commercialisation. Because we don’t have grant funding programmes of the size and scale needed, many of our early-stage companies are forced to commercialise too early. Effectively, by investing early at modest valuations, NZ private capital markets are addressing what public funding is not.
- Ambition: Foreign investors are not coming to NZ to invest in companies looking to solve small problems – they can find plenty of those types of companies in their own backyard. They are looking for ambitious companies looking to take on the world. Founders and CEOs need to better articulate their ambition and be capable of demonstrating a reasonable pathway to execute that vision. This involves communicating your long-term mission, but also showing how an easier-to-address smaller market can serve as a proof point along the way. In my view, the responsibility for this lies with the early-stage local investors who have the expertise, skills, resources and knowledge to help companies demonstrate this.
- Capability: Particularly relevant to deep-tech, foreign investors are accustomed to teams that have significant experience. As investors, we need to be encouraging companies to recruit this talent so any change to visa settings would obviously be helpful here.
Q: From your point of view, what makes deep tech such an interesting proposition to investors?
First off - Returns both in terms of impact and financial.
Investors see hundreds of deals every year. Typically, investors are people who want to see a better future, so the companies that tend to get funding are those with missions that resonate with investors. In my view, we’re seeing an increase in the share of capital going towards deep tech because investors and innovators are recognising that deep-tech investments can deliver impact in areas like climate change, food security and health, in addition to financial returns. While the next flavour of kombucha might make our daily lives slightly better, it’s not going to solve the world’s big problems.
The reality is that over the past few years, an increasing number of deep-tech venture capital funds have been established which have provided funding but more importantly, capability. The investors behind these funds are attracted to deep tech as an asset class which has demonstrated returns through exits that can be achieved following technical proof. If as a company, you are solving a strategic problem for a corporate, you don’t necessarily need to build a big, capital-intensive sales engine as part of the journey.
Secondly - Our university system used to be considered an ivory tower, but that's changed. But with the establishment of organisations like Wellington's Uni-Ventures and UniServices in Auckland that are designed to work with university innovators to shape their research to create impact, New Zealand as a whole, is doing a much better job of encouraging entrepreneurship, which is why we are seeing much more deal flow.
If you are interested in finding out more from our team about New Zealand’s deep tech investment ecosystem and the opportunities to grow the level of investment to solve more complex problems, make sure you get in touch with us as we’d be happy to chat with you.
