April 2023 - Bay of Plenty Business News
From mid-2016 Bay of Plenty businesses have a new voice, Bay of Plenty Business News. This new publication reflects the region’s growth and importance as part of the wider central North Island economy.
From mid-2016 Bay of Plenty businesses have a new voice, Bay of Plenty Business News. This new publication reflects the region’s growth and importance as part of the wider central North Island economy.
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12 BAY OF PLENTY BUSINESS NEWS <strong>April</strong> <strong>2023</strong><br />
Growing unicorns – NZ’s changing<br />
start-up and VC landscape<br />
By PHIL TAYLOR –<br />
PARTNER, TOMPKINS WAKE<br />
Entrepreneurs may be the<br />
commercial heart <strong>of</strong> New<br />
Zealand, with the start-up<br />
sector poised for hockey stick<br />
growth, but by international<br />
comparison, we still have a<br />
long way to go.<br />
Thanks to our ability to<br />
bootstrap ideas and disrupt<br />
stagnant industries, New<br />
Zealand has witnessed some<br />
remarkable success stories in<br />
the last five years.<br />
Some starts-up have gained<br />
unicorn status by surpassing<br />
the market capitalisation mark<br />
<strong>of</strong> $1 billion dollars with a<br />
few possibly reaching dragon<br />
status – surpassing $1B in a<br />
single raise. These include<br />
Predict HQ, Timely, Archi-<br />
Pro, AllBirds, Harmoney, Red<br />
Shield, Petlife, Soul Machines,<br />
Hnry, Crimson Education,<br />
Vend, Vital, Xero, Unleashed<br />
and Rocket Lab.<br />
But compared to other<br />
countries, such as the US,<br />
Germany, the UK, Australia,<br />
Israel, and India, NZ is still<br />
in an emergent phase when<br />
it comes to how we support,<br />
fund, and develop new commercial<br />
ventures.<br />
New Zealand hasn’t seen<br />
the enormous wealth from successful<br />
start-ups that many <strong>of</strong><br />
those countries have enjoyed<br />
over the last 20 years.<br />
So how can New Zealand<br />
foster new commercial<br />
ventures better and create<br />
more unicorns?<br />
What’s holding us back?<br />
• The Downturn – The current<br />
economic downturn is driving<br />
venture capitalists to cautiousness<br />
and conservatism. We<br />
have seen an end to the ‘easy<br />
money’ and the seemingly<br />
limitless supply <strong>of</strong> readily<br />
available capital <strong>of</strong> the last few<br />
years.<br />
The New Zealand start-up<br />
sector is well-positioned for<br />
significant growth, but there<br />
are now likely to be more<br />
checks and balances before an<br />
investment is made.<br />
The onus is on start-ups to<br />
get their house in order and<br />
demonstrate why they stand<br />
out from the crowd. People<br />
and emotions will play key<br />
roles in investors’ decision<br />
making, so getting the right<br />
advice is crucial. Fortunately,<br />
there is a wealth <strong>of</strong> accessible<br />
and affordable help now<br />
available.<br />
• Experience and awareness –<br />
Many early-stage companies<br />
don’t have a firm grasp on how<br />
the VC process works or how<br />
to attract the right investors,<br />
particularly during seed, series<br />
A, series B, and series C funding<br />
rounds.<br />
We have an opportunity<br />
to grow founders’ awareness<br />
<strong>of</strong> venture capital and private<br />
equity by making it easy and<br />
affordable for them to access<br />
information, support, and<br />
advice.<br />
• Misconception – We also<br />
need to challenge some <strong>of</strong><br />
the preconceptions and stereotypes<br />
people hold about<br />
venture capitalists and demonstrate<br />
the valuable role investors<br />
play in helping entrepreneurs<br />
and our economy.<br />
Gone are the days when<br />
investors were out to beat<br />
founders down, and exercise<br />
control as quickly as possible.<br />
To be successful in venture<br />
capital today, investors understand<br />
the need to be a founder-friendly<br />
partner who can<br />
invest, incubate, and incentivise<br />
their entrepreneurial<br />
partner.<br />
However, more recently,<br />
we have seen the balance<br />
swing back slightly towards<br />
investors. Venture capitalists<br />
recognise that terms need to<br />
be favourable for all parties.<br />
They understand the need to<br />
preserve incentives for founders,<br />
typically through a healthy<br />
shareholding.<br />
• Attitude – A lack <strong>of</strong> ambitious<br />
aspiration also hamstrings<br />
many Kiwi entrepreneurs.<br />
Many are quite happy<br />
to sell out for $20-30 million,<br />
buy their bach, boat and Ford<br />
Ranger ute and retire early.<br />
You must be pretty extraordinary<br />
to be the leader <strong>of</strong> a billion-dollar<br />
unicorn.<br />
But the reality is many<br />
institutional VC investors<br />
aren’t looking for a start-up<br />
that will just do well. They<br />
want unicorns.<br />
Market growth & maturity<br />
Despite all the challenges, now<br />
is the perfect time to establish<br />
Phil Taylor<br />
a start-up. The venture capital<br />
landscape has changed over<br />
the last four to five years,<br />
influenced by growth in the<br />
number <strong>of</strong> venture capital<br />
funds and increasing maturity<br />
in the market. And it’s been<br />
good news for start-ups.<br />
In 2002, the New Zealand<br />
Government issued funds<br />
through New Zealand Growth<br />
Capital Partners NZGCP, making<br />
$300 million available to<br />
the start-up market. This was<br />
a real tonic for the sector and<br />
made it easier for start-ups to<br />
find investor money in New<br />
Zealand, rather than looking<br />
<strong>of</strong>fshore. Today, we have more<br />
than 65 active funds, which has<br />
seen investment in the start-up<br />
market grow by more than five<br />
You must<br />
be pretty<br />
extraordinary<br />
to be the<br />
leader <strong>of</strong> a<br />
billion-dollar<br />
unicorn.”<br />
times over the last 20 years.<br />
NZGCP’s funds gave the<br />
market time to grow and<br />
mature to the point where it<br />
is now self-supporting. The<br />
influx <strong>of</strong> international funds<br />
that have come into New Zealand<br />
combined with investment<br />
by homegrown funds<br />
demonstrates the durability <strong>of</strong><br />
our start-up ecosystem. Our<br />
talent and innovation will<br />
continue to be drawcards for<br />
foreign VCs, as will our high<br />
education standards and ‘no<br />
corruption’ status.<br />
We have seen several large<br />
venture capital funds mature<br />
from a typical initial size <strong>of</strong><br />
say $10 million fund size<br />
to up to $250 million. They<br />
now have cash to reinvest and<br />
appreciate the benefits <strong>of</strong> their<br />
previous experiences, particularly<br />
during tough times.<br />
The need for ‘Smart<br />
Money’<br />
While venture capitalists are<br />
looking for the right start-up,<br />
entrepreneurs also need to<br />
make sure they’re partnering<br />
with the right VC. We call it<br />
‘smart money’, and it is largely<br />
about being satisfied with the<br />
following three things:<br />
• Knowledge & connections:<br />
VCs with a deep knowledge<br />
<strong>of</strong> their particular sector.<br />
Think <strong>of</strong> someone who can<br />
facilitate connections with<br />
suppliers, help recruit the talent<br />
the business needs, and<br />
<strong>of</strong>fer structured training and<br />
support.<br />
• Deep pockets: VCs with<br />
deep pockets and the ability to<br />
help with follow-on funding.<br />
This could be through their<br />
own fund or other funds they<br />
can tap into. As we head further<br />
into an economic downturn,<br />
start-ups will need larger<br />
cheques at later stages, and<br />
funds to tide them over to the<br />
next round.<br />
• People first approach: VCs<br />
who know how to put people<br />
first and can help avoid<br />
founder burnout. Successful<br />
VCs understand the importance<br />
<strong>of</strong> putting people first.<br />
Forget the accounting and<br />
finance metrics. It’s all about<br />
the people – looking after them<br />
is not just the right thing to do,<br />
it’s good business.<br />
At <strong>Bay</strong>leys, we believe relationships are what businesses are built on and how they<br />
succeed. We understand that to maximise the return on your property you need:<br />
Pr<strong>of</strong>essional property management<br />
A business partner that understands your views and goals<br />
Contact the <strong>Bay</strong>leys Tauranga Commercial Property Management team today.<br />
<strong>Bay</strong>leys Tauranga<br />
Commercial Property Management<br />
07 579 0609<br />
jan.cooney@bayleystauranga.co.nz<br />
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