New Zealand’s startups and their founders are our untapped powerhouse of problem solvers, says Suse Reynolds.
Startups are not SMEs. We are talking about a cohort of super ambitious, high growth, tech-rich businesses with highly driven teams which are generally venture investment-backed.
These businesses are developing solutions to problems with highly valuable, large and sometimes new, markets. They are businesses like Aroa Biotech which is unlocking regenerative healing, PowerbyProxi which developed wireless charging, Xero which has scaled from a startup to an iconic New Zealand software business for accounting. These businesses, by the way, were all started in or around the Global Financial Crisis.
High growth companies generate most of our net new job growth. Despite the larger survival rate of SMEs, these companies generate more job growth both during and out the other side of a recession. Given startups are high tech, the jobs they create are higher paid, more resilient and future-proofed. Finally, given their high growth aspirations and the need to generate exponential value and returns, startups generate more wealth than the equivalent cohort of SMEs. According to Startup Genome research, as a result of all these factors, it therefore costs 40 per cent less to save a startup job than a SME job.
So it is pretty clear why over 50 organisations representing the startup ecosystem collaborated to be part of a submission to government setting out how we can help New Zealand rebound from the impact of Covid-19.
Joining a chorus of others, we have a clear vision of New Zealand as a world leader creating a sustainable economy generating exponential value and impact.
New Zealand’s startup ecosystem is still in its activation phase compared to others around the world. We have only been at this with real focus for a little over a decade. Israel, Silicon Valley, the Nordics, Hong Kong and Singapore all have much more developed and embedded ecosystems.
Our data collection needs work, but using NZ Growth Capital Partner’s data as a proxy, we have recently reached a point where we are investing about $100m per annum in around 100 deals. About 40 of those investments are into new companies and 60 are follow-on investment into existing venture-backed companies. These companies are generating between 3000 and 5000 jobs per annum.
Imagine if we 10x’d these numbers. Imagine if we invested a billion dollars!
The submission outlines 15 recommendations to ensure what we have spent the last 15 years building survives and contributes to our thriving out the other side of the pending recession. We want to massively amplify the impact of startups and their founders, their ambition, their problem solving and their job creation.
Last week we met with Ministers Woods, Nash and Twyford and their officials to ask them to join us in bringing the community together to amp up startup generation and to ask them to help shore up confidence that startups are a rational and worthy investment of time and money. We also wanted to alert them to the fact that some highly valuable pre-revenue and high growth ‘software as a service’ startups were missing out on the wage subsidy. We are grateful that the latter has quickly been addressed and startups who thought they were ineligible should revisit the Work and Income website.
Much as it takes a village to raise a child, it takes a whole country to support and create a super successful startup; universities and research organisations, professional service providers, corporate NZ, wealth managers, investors and government. We all have a very real stake in the creation of a large and vibrant national portfolio of startups. And we all have a very real role to play inspiring, supporting, sharing expertise, investing, making connections, collaborating, buying and using the products and services our startups are creating to help them change the world and make all our lives better.
Check out Evnex, Fuel50, AmbitAI, Chnnl, Koru Diagnostics, Sharesies, Montoux, Formus Labs, Yabble, HumbleBee, Biolumic, Ubco, CoGo, Dexibit and Amy.app; all are changing the world and making our lives better.
Measures needed to support startups
There is a genuine willingness on behalf of ministers and officials to address issues specific to startups. The eligibility of pre-revenue firms and high growth SaaS startups for the wage subsidy now includes specific reference to pre-revenue and high growth businesses on the Work and Income website.
Discussions are ongoing about other measures to support startups and to shore up the appeal of investment in this asset class. For example, to support deep-tech research startups, IP grants have been proposed to cover Patent Cooperation Treaty and National Phase filing. This will ensure the value in these NZ owned assets is not eroded and will free up capital to support market growth and validation.
Equity-based government co-investment is being sought to support more speed and certainty of funding and thereby catalyse confidence and increased private sector investment in startups. Not only will this help preserve startup companies and support new ones, but if these companies are able to raise growth capital they will grow jobs and capability, customers and markets. There are two ways in which matching government equity investment might be facilitated; either via a convertible note initiative along the lines of that instituted in the UK with 1:1 matching funding and/or enhanced flexibility around the deployment of the NZ Growth Capital Partner’s Aspire investment programme for seed and angel deals by for example lifting matching funding from 1:1 to 2: 1.
Suse Reynolds is executive director of Angel Association