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.
Matching investments
Elevate has invested in Movac Fund 5, Pacific Channel, Global From Day 1 (GD1), Finistere Aotearoa Fund, Blackbird Ventures NZ and Nuance Connected Capital Fund.
The first three are more established, longstanding Kiwi funds, but the last three funds come from foreign VCs that came to open funds in New Zealand, in large part attracted by Elevate.
Blackbird, Australia’s largest VC, was the first to receive Elevate funding — a total of $22 million — into its newly formed $60 million New Zealand fund. The matching capital came from a combination of family offices, successful tech founders and institutions like Cendana out of Malaysia, according to Phoebe Harrop, who manages Blackbird’s New Zealand fund.
Finistere Ventures is a Silicon Valley VC that created its own New Zealand-based agritech-focused fund in 2019 and has received $14 million from Elevate so far, allowing it to expand. It’s aiming to collect a total of $42 million for the fund, and if it does, Elevate’s injection will increase to $21 million. The VC would not share details about where its matching funding is coming from, but in a previous statement, Arama Kukutai, co-founder and partner, said the fund’s goal is “to anchor more investment from our global network of partners like Rabobank, [a bank in New Zealand that’s a subsidiary of a larger Dutch bank], RIV Capital Inc., [a Canadian cannabis investment and acquisitions company], and Yamaha, [a Japanese motorcycle manufacturer with a VC arm in the Valley] to support New Zealand’s best startups alongside us.”
In September, Elevate invested $17 million to Nuance’s new deep tech-focused New Zealand fund that has to date raised a total of $55 million but is aiming for around $80 million before it closes in March 2022, according to Adrien Gheur, one of the fund’s general partners who came over recently from a thriving startup community in Singapore.
“There has been a need for more sophisticated VC capital in New Zealand,” Gheur told TechCrunch. “There were a few legacy funds, but until maybe two years ago, there was a big capital gap here for early-stage funding, and that was what attracted me to come here and set this up, and why Elevate was created — to entice people like myself to come here and set up funds and get matching capital.”
Nuance brings with it some seriously deep international connections through its LPs, which are large family offices that own big businesses and industry channels around the world, said Gheur. One of Nuance New Zealand’s cornerstone investors, for example, is Alvarium-Tiedemann, a now-merged global wealth management platform with upward of $60 billion to play around with.
Now that fresh capital has come onto the scene, Gheur said investing is becoming more strategic, allowing funds to write bigger checks for new startups to have more runway and a chance to scale that much better. But it’s not just the funds that have attracted diverse capital; it’s the relationships more refined VCs bring directly to talented Kiwi startup funding rounds.
Bringing in foreign investors to co-invest
“One of our mantras is to bring Kiwi ingenuity to the world, and so with having our LPs who are large family offices globally and in New Zealand, it makes us a quasi-strategic investor to the portfolio companies because we have all these networks behind us,” said Gheur. “It also means all our LPs have co-investment rights in our deals, so when we invest, it’s just the tip of the iceberg. Behind it, we have all our LPs who have much deeper pockets, and they can come in over and above the fund to invest in this startup and help them scale into their home market.”
For example, Nuance led the Series A into Easy Crypto, a cryptocurrency trading platform. Originally, the startup was only raising $10 million, but it ended up with an oversubscribed round of $17 million, in large part because Nuance brought in international investors from the U.S. and Asia, such as GDP Ventures, which is backed by one of the wealthiest families in Indonesia. That not only unlocked funds, but also opened the Indonesian market to the startup, allowing it to scale internationally.
Nuance also brought in strong international co-investors into recent investments like Ubco, EnergyBank and Quantify Photonics.
The halo over New Zealand
Historically, angel communities have been incredibly dominant in New Zealand compared to other ecosystems like Silicon Valley or Southeast Asia, where there was plenty of VC activity even at the very early stages. High-net-worth natives like Sir Stephen Tindall and Sir David Levene have set up family offices and funds, like K1W1 and Lewis Holdings, respectively, to fuel the investment arena, but a lot of it has been a grassroots effort.
“Until recently, for new founders starting new businesses, the only checks they could get were from angel communities here,” said Gheur. “And these are not necessarily angels who are ex-entrepreneurs who have lots of money or big family offices. These are retired farmers and lawyers and dentists who joined an investment club and put small checks in. I think that’s one of the reasons Elevate was created because although they’re well-intentioned to help the local startups, the fact that they weren’t necessarily sophisticated capital and they wrote small checks kind of stifled the early-stage ecosystem a bit.”
While the funding landscape has undoubtedly shifted in recent years, angels still form the backbone of New Zealand startup funding. In 2020, 46% of lead startup investors came from angel groups, networks and private investors, according to PwC. Venture capital made up about 30% of the landscape, with family offices taking the next largest slice at around 17%.
New Zealand’s more institutional VCs, like Movac, certainly still rely more on local funding, even for its most recent Movac Fund 5, which is a $250 million multistage generalist fund. Because the fund’s minimum commitment was $100,000, it attracted a broad base of over 400 individual investors, 98% of whom were locals, according to Lovina McMurchy, a general partner at Movac.
Movac received $30 million from Elevate, $75 million from New Zealand’s superannuation fund, $54 million from Kiwiwealth, an New Zealand private pension fund, and the rest came from smaller regional organizations, private individuals and Maori iwi (Maori are the indigenous peoples of New Zealand, and iwi are akin to tribes.)
GD1 saw a similarly New Zealand-focused funding base for its Fund 3, which closed at $130 million and is now targeting a cap of $160 million. Elevate contributed $45 million, its largest allocation, and the rest came from local wealth managers and institutional investors. John Kells, co-managing partner of GD1 Fund 3, said in fact that more institutional investors participated in this fund than in GD1’s last one, which was largely made up of high-net-worth individuals and family offices.
“We’re seeing some family offices come in from Australia, Asia and a little bit from the U.S., but mainly from New Zealand,” Kells told TechCrunch. “I understand the desire to get offshore LPs to invest in New Zealand. We are speaking to a fairly big outfit in Hong Kong who has a lot of connections. I would say overall the way things stack up is we’re about 80% New Zealand and 20% offshore, but if we get this big allocator from Hong Kong come through, that proportion is going to change a lot.”
Icehouse Ventures, a VC that just closed its $110 million IVX fund, similarly found mainly local resources. Its cornerstone investor is Simplicity, a nonprofit KiwiSaver retirement plan, as well as other wealth management groups like Hobson Wealth and Harbour Asset Management — yet another sign that more institutional investors are dipping their toes into venture. That said, Icehouse has been actively trying to get more foreign LPs into the country. Its $20 million Sustainable Tech Fund launched in June 2021 in partnership with SDG Impact Japan, which anchored the fund with $10 million. In addition, Icehouse’s $12 million fund with Outset Ventures’ Deep Tech Fund came from a mix of investors, with cornerstone investors from Europe with strong ties to the biotech industry joining in, according to Robbie Paul, Icehouse CEO.
Growth to support more growth
Investors today hope to see not only more foreign investments but also larger pools of capital coming out of New Zealand institutions like KiwiSaver. That’s one of the main objectives of Elevate, according to Elevate’s acting CEO, James Pinner, who wants to demonstrate to institutions that there are returns to be had.
“We’re going to have to grow the number of startups substantially to support the growth in investment, as well,” said Pinner. “We need to focus on making sure we’ve got better quality startups and get more expertise into scaling some of the businesses that are already being developed now. 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.”