New Zealand has a vibrant startup sector, particularly considering the country’s size, but local corporates have been slow to take advantage, Franceska Banga, chief executive of New Zealand state-backed fund manager New Zealand Venture Investment Fund (NZVIF), told Global Corporate Venturing.
Despite its four million-strong population, New Zealand-based startup companies managed to pull in NZ$50m ($38.3m) of funding over the past year. NZVIF, which was incorporated in 2002,provides funding for local startups through a NZ$160m ($122m) venture capital fund of funds and a NZ$40m ($30.5m) seed-stage co-investment fund, through which it tends to partner with local angel investors.
“We have a decent-sized group of super angels who are quite active in the New Zealand market, and quite vocal about supporting it as well,” Banga said.
“For the Angel Investor Programme we partner with qualified angel groups and can invest up to NZ$500,000, usually in two tranches. That has been a very successful programme. To date we have invested in 115 companies, and we do follow-on investments. That is a seed and startup programme, and we match at least 50/50 with angel investors.
“[Through] our VC programme, we can invest up to NZ$25m into VC funds. We can go up to 50/50 in that programme, but typically [make up] about one-third of a fund, so these funds would be NZ$60m and upwards. That is more focused on early expansion and some growth [funding].”
Prior to NZVIF’s formation, there were some local angel groups but no particular structure to New Zealand’s startup sector, and Banga stated its presence and participation has lent some respectability to the country’s startup sector, also helping to also spur foreign investment.
“We are attracting more offshore investment,” Banga said. “One of the things that has changed over the last few years is that American VCs are willing to look outside Silicon Valley for investment opportunities, and certainly we have observed more interest looking for opportunities.
“About 60% of the capital that gets raised for New Zealand companies comes from offshore, but with a vibrant early end of the market.”
New Zealand corporates have also been slow to directly take part in the country’s startup scene, though Banga did state that the focus of some of its largest companies, such as dairy company Fonterra or medical device maker Fisher & Paykel Healthcare, have swayed the technological direction of startups toward their respective sectors of the market.
Foreign corporates have served to fill in the gaps to some extent, with software company Microsoft and telecommunications company Vodafone both providing funding at accelerator stage this year. However, in practice many will invest at a later stage as New Zealand companies often end up seeking funding from overseas once they grow to a size where international expansion becomes imperative.
“Often, companies that have been backed by New Zealand VCs are looking for the next VC round, which typically comes from offshore, so it is a different dynamic,” Banga explained. “We are not seeing the corporates engage in those, but New Zealand companies are not looking to corporates for support at that stage [anyway], unless it is a very obvious match.
“We have had some VC-backed companies that raised money from corporates as part of their progression but typically, it is more likely that company, if they are looking – let’s say they have raised NZ$2m to NZ$5m in New Zealand and need to raise another NZ$15m – they are more likely to look for like-minded offshore VCs that will come alongside at that stage.”
Securing funding from overseas can also result in those businesses shiftng their base of operations from New Zealand to a more central geography, a move Banga said was often a requirement for US-based investors, though in the long run the decision can end up being a plus point for the local startup sector.
“The way we tend to think about it is that if those founders and entrepreneurs are successful, often when they make their money the first thing they want to do is come back to New Zealand and either do another venture or get engaged in the entrepreneurial community inside New Zealand,” she said.
“We have seen that a number of times, where successful entrepreneurs come back and are investing quite actively and get involved with the ecosystem. That is a slow build but those people coming back is part of how you build an ecosystem.”
– Photo of Franceska Banga courtesy of New Zealand Venture Investment Fund