Phoebe Harrop is the director of venture capital firm Blackbird Aotearoa.
OPINION: At the dawn of the 21st century, regional New Zealand had a thriving agricultural economy. But that wasn’t enough – we were falling behind.
In 2006 Sir Paul Callaghan and Shaun Hendy published Get out of fats, pointing out a puzzling productivity gap with other countries and arguing that investing in Aotearoa’s innovation economy was the only way to close this gap:
“The World Bank has rated New Zealand as the easiest place to start a business and the third easiest place to do business. Our market-friendly credentials are immaculate. Yet our GDP per capita is at the lags behind, primarily due to slower labor productivity gains, primarily due to underinvestment in technological innovation that leverages labor.
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Their prognosis? Fostering a thriving tech sector would require some sort of marriage between the public and private sectors.
Public funding had to play a role. Intellectual property protections like patents aren’t enough to compensate early innovators for taking risks, which means they won’t take enough.
Private investment is also needed, as incumbents don’t tend to fund their own creative destruction: Fonterra would never have invented oat milk. Left alone, private sector innovation efforts would be too narrow and in service of the status quo.
Venture capital, which takes risky bets on unproven startups, was the missing ingredient. Markets do not provide enough risk capital on their own. But once launched, a virtuous circle is set up: start-ups in seed capital, which attract more investors to settle.
We’ve come a long way
I returned to New Zealand in 2021 after seven years working in London and Melbourne. I was lucky enough to land my dream job, find and invest in New Zealand’s most ambitious tech founders.
In proofreading get out of the grass and looking back on my first year at home, one thing is clear: we’ve come a long way since 2006.
New Zealanders have raised world-changing companies, from Lanzatech and Rocket Lab to Vend, PushPay and Timely.
These companies have nurtured talented alumni who have gone on to found their own ambitious companies, such as Mint Innovation, Halter, Partly and Seachange.
A thriving investment ecosystem has developed to support these founders. According to PwC, in the first half of 2021, 66 New Zealand technology companies received nearly $60 million in funding: a 60% increase in deal volume and a 78% increase in dollars invested compared to the same period in 2020.
Most of the funds raised by these startups will be spent on hiring: it is no longer necessary to leave the shores of New Zealand to acquire first-class technological experience.
As a result, more of our talented New Zealanders are working in startups than ever before, with the number of employees in the digital sector nearly doubling between 2010 and 2020. New jobs in this sector pay on average double the minimum. salary.
Research by economist Enrico Moretti found that every new tech job unlocks five other jobs. Tech workers spend more on products and services than average, their companies also spend more, and both groups attract even more tech workers and companies to congregate in any given location.
Reports reveal that our technology sector could increase New Zealand’s GDP by $46 billion (14%) by 2030. Aotearoa’s future economy rests in the hands of our startups.
The best is yet to come
What stands out is the wide variety of world-class businesses being created in New Zealand.
London has FinTech, Tel Aviv does cybersecurity, Boston excels in biotechnology. Aotearoa? Well, we have a bit of everything. It may be our No. 8 wire mentality. New Zealanders see fit to reinvent everything from rockets to classroom management, from carbon recycling to digital collectibles.
Then there is SaaS (Software as a Service). When he wrote about “an idea factory [whose] production lines are invisible,” Arthur C Clarke might have written about Aotearoa’s cloud-provided SaaS companies: the most globally-facing chapter of our innovation love letter to the world.
These are products built by Xero and Partly, Auror and CarePatron, serving global customers in industries as diverse as accounting, auto parts, theft detection and healthcare. They happen to have been built in Aotearoa, and they’re essential to weaning our economy off “grass.”
According to the MBIE, software represents “a multibillion-dollar industry built around a collection of creators with a keyboard and an Internet connection, rather than an industry with physical production (e.g. powder milk, wood) or which generates significant economic activity (e.g. tourism)”.
In this zoomed and pandemic era, customers around the world are increasingly willing to purchase products and services from anywhere.
Our companies can attract international talent to work remotely. They can attract global investors who, in turn, provide useful global connections.
In short, the tech innovation landscape in New Zealand has never been better.
Chris McKeen / Stuff
Genecrypt is a technology startup from Unitec, founded by Kris Vette, which aims to protect the abuse of genetic data.
There is still work to do
Some things prevent our innovation ecosystem from reaching its full potential:
- Much of our university research in areas such as biotechnology does not reach its full commercial potential due to technology transfer agreements that leave their researcher-founders without enough equity to build long-term, sustained businesses. by venture capital. We believe the best companies in the world are run by founders, and those founders must be meaningful owners of their company for 10+ years and (often) multiple fundraising rounds necessary to realize their full potential.
- About 75c of every dollar a tech startup raises is spent on salaries. But New Zealand-based talent is scarce and fiercely contested in everything from sales to software engineering. Reopening our borders to skilled migrant workers will help, but we need more pathways to our industry. Initiatives like the Startmate Women’s Scholarship and Manaaki’ Digital actors program are a start.
- Improving our immigration relationship with the United States (for example, access to E-3 visas) would massively increase the ability of New Zealanders to gain work experience with innovative American companies, while reciprocally attracting more large number of talented Americans on our shores.
- Access public funds for research and development by application to Callaghan Innovation takes time and is unpredictable for startups. New Zealand is expected to adopt a regime like Australia’s, where support takes the form of tax credits that apply by default to qualifying activities.
- Our startup ecosystem does not reflect New Zealand society. Only 27% of the tech workforce is female, and only about 20% of start-ups have a female founder. Only 4% of the tech workforce is Maori, but Maori make up 14.2% of the total workforce. For Pacific people, it’s 2.8% compared to 6.6% for the entire workforce. These gaps are a huge missed opportunity.
We need to:
- Reduce digital exclusion and regain community trust in technology.
- Make startups safe spaces for all.
- Inspire others to build their careers in the technology sector by celebrating our diverse founders, operators and investors.
These are not easy or quick problems to solve. But we couldn’t be more excited to stick around.