This is the third article in a series by our Research Intern, Odette Lees. The second article, “Increasing the Available Capital in New Zealand”, is available here: https://matu.co.nz/2019/09/increasing-the-available-capital-in-new-zealand/

New Zealand is a small nation with a burgeoning and growing start-up industry¹. Despite steady growth, the early-stage ecosystem in NZ is still young and is in what can be described as the ‘Activation’ phase². This is the earliest of the four phases of maturity described by the Start-up Genome reports, with the other phases being globalisation, expansion, and integration. The key characteristics of an ecosystem in the activation phase are having fewer than 1000 start-ups, resource gaps, and limited local experience.

New Zealand’s early-stage ecosystem has all three of these characteristics; we have an estimated 400-600 start-ups³, a gap in Series A funding has been well-acknowledged^4,5, and our young industry means that interconnectedness and knowledge sharing between the stakeholders in the early-stage community is still developing. Closing funding gaps and encouraging knowledge-sharing are crucial factors to further the ecosystem and allow it to mature into a more productive industry. Addressing these problems encourages growth ofthe number of start-ups in New Zealand. Connectedness, experience and adequate funding contribute to the success of companies, which in turn can allow for more exits to occur. The key stakeholders from these exits can return back to the ecosystem⁶, build up new companies and share their learnings, thus increasing the experience of the overall industry and the number of start-ups in it.  

Our blog posts have previously identified ways to address funding gaps in the early-stage ecosystem⁷, and this provides ways to address one of the key hurdles to ecosystem growth. Increasing the interconnectedness of the early-stage ecosystem is the other critical hurdle to address, as over 55% of start-up founders have no prior experience before launching their business⁸. There are three aspects of ‘connectedness’ that can be targeted. These are:

• networks between founders and entrepreneurs
• relationships between key stakeholders in the early stage space e.g. investors, advisors, entrepreneurs, customers etc.
• a general sense of community between all the players in the industry which facilitates overall transfer of knowledge⁹.

Solutions to address all of these aspects of connectedness already exist in New Zealand. The question is whether they are sufficiently addressing this issue and if we can do more to encourage it. A visible lack of diversity in the early-stage investment space is a clear sign that this community is not open enough to include and represent all New Zealanders. Basic research on ‘start-up help’ or ‘support’ yields many government funding resources but very little coverage of any non-monetary support or networks. Co-working spaces, incubators, and technical hubs provide a physical space for people to collaborate, share ideas and build support networks between entrepreneurs at those locations as well as access to key stakeholders. These exist across the country and are known to people who are well-ingrained in this industry. Part of the problem is that new founders with no prior experience are often not aware of these resources or perceive a high cost barrier.

A more accessible alternative to physical spaces is virtual networks and guidance. Websites like Scale Up NZ (https://www.scaleup.nz/) are a good start to fill this space by acting as a way of linking up companies to investors and physical resources. Building and broadening these virtual resources to encourage the sharing of knowledge and build an ecosystem-wide community is the next step. Virtual resources provide the lowest barrier to entry for new entrants into the early-stage industry and their potential utility is large.

Rather than expecting people to independently navigate this secretive and sometimes closed off world, efforts at both the organisational and individual level need to be made to open up the industry. Physical hubs, incubators, and accelerators can make themselves more accessible to the public with open days and information evenings, while individuals can contribute by taking the time to inform those around us about this industry. Virtual meetups and forums would allow for a diverse array of people to learn from each other and share ideas. In addition, organisations can actively educate people through workshops and seminars. This allows for people to receive necessary and targeted training for them to manoeuvre through the different parts of this ecosystem. The incentive to focus on building a community is that with an increase in efforts, New Zealand has the potential to become an ecosystem that fosters and attracts the best talent, both nationally and globally, thus encouraging the formation and success of more start-ups.

Efforts towards growing the early-stage industry in recent years have generated success and, while this shouldn’t be discounted, we can always strive to do better. We have the available resources, but we must ensure that they are being utilised to their full extent to address the key limitations of the industry. It is when we focus on addressing these systemic issues that we will be able to maximise the output of the early-stage industry in New Zealand.

¹ Matū’s own research acquired from Young Company Finance and New Zealand Private Equity and Venture Capital Monitor Reports 2008-2018
² Startup Genome, “Global Startup Ecosystem Report 2019.”
³ Startup Genome, “New Zealand Startup Ecosystem Analysis.”
⁴ Lees, “How Big Is New Zealand’s Early-Stage Funding Gap?”
⁵ Ruth, “Venture Capital Funding Gap Is Real – David Parker.”
⁶ Callaghan Innovation, “Growing the Pie: How Entrepreneurs Are Creating a Better NZ.”
⁷ Lees, “Increasing the Available Capital in New Zealand.“
⁸ MYOB, “State of Startups Report.”
⁹ Startup Genome, “New Zealand Startup Ecosystem Analysis.”

The information contained in this blog post is published for educational purposes only and is only intended to provide general information or opinions. It does not constitute financial advice or a recommendation of any financial product and should not be relied upon as such. You should not use any information in this blog to make financial decisions and we highly recommended you seek professional advice from someone who is authorised to provide investment advice. While all reasonable care has been taken in the preparation of this blog post, no member of the Matū Group accepts any liability for any errors it may contain.