How Big is New Zealand’s Early-Stage Funding Gap?

This is the first article in a series by our Research Intern, Odette Lees.

Investment into early-stage companies1 in New Zealand has been growing rapidly over the last 10 years. This is shown through increases in both Angel and VC funding collectively, as well as through increases in the average deal size year on year. Overall, more companies are needing more capital each year, and the industry has been trying to rise to meet this demand.

Applying an exponential growth curve to the investment data over the last 10 years shows a trend of increased investment in both VC and Angels at a rate of 12.8% and 11.2% respectively. Figures used were obtained from the NZ Private Equity and Venture Capital Monitor, and Young Company Finance reports 2008-2018.

In 2011, NZVIF estimated that $2 billion would need to be invested over the next 10 years to support the next generation of start-ups in NZ2. Almost 90% of that investment has already been made in the last 7-8 years, and with the current annual growth of investments made into early stage companies, an additional $1 billion may be invested by 2021.

So, what does this mean for the early stage industry as a whole? Over the next 5 years, we estimate that a total of $3.15 billion needs to be invested to keep up with the growth of the early stage start-up industry and its investment demands.

Efforts have been made to try and achieve this, with the government unveiling a new $300m early-stage intervention this year, and Simplicity pledging to invest $100m into early stage companies (through Icehouse Ventures) over the next 10 years. When factoring in these interventions and increases in VC capabilities over the next 5 years, there is an estimated $1.7-1.9 billion available from angel groups and venture capital funds to invest into early stage businesses. Family groups and independent angels which are not formally recorded will account for further available money, and if private equity funds are included, that number jumps to $3.2-3.4 billion.

These numbers show that over the next 5 years, the funding gap will shrink significantly. This is dependent on the deployment of all the available capital and cash going to all the right places. It doesn’t mean that the funding problem will be solved in this time frame. However, it does show that the government intervention is well-sized to address the funding issue.

There are several possible situations that could arise which would affect the closure of the gap, despite the favourable position the industry appears to be in at the moment. One is that an injection of more available money will increase the rate of growth of start-ups in New Zealand in which case, the gap would widen again.

Another is that if the assignment of that capital is not balanced to ensure companies are able to be financed across all stages of investment i.e. pre-seed to Series A+, then the Series A gap will remain. Angel investors and early-stage VC funds in New Zealand who focus specifically on pre-seed and seed investments invest heavily in New Zealand, and if money pours in solely at this stage, it will become harder for companies to access money once they progress past it. The government intervention will specifically address this Series A gap, with funding provided if VCs can match that funding and invest 70% of their total capital into Series A and B deals in New Zealand3. Alongside these funds, who will focus on addressing the Series A gap, it will also be important for smaller funds to ensure they can provide sufficient follow-on capital to their portfolio companies.

While the short-term funding landscape is looking relatively bright, there is not much room for industry change before the gap becomes significant again. Sustainable, long-term solutions need to be implemented in the next 5 years, and beyond, to ensure that the industry can keep up with the dynamic start-up landscape. In the next article, we will discuss three possible solutions to help keep the gap closed.

Matū is a venture capital fund that targets very early-stage science and technology projects being commercialised out of research institutes and in the private sector. Following the principle of mohiotanga, we seek to share insights from our research where possible, in order to build on the knowledge already in the community and help enable people to act.


1 Early stage is referred to as investments made into start-up companies by venture capital funds or angel investors from Seed capital up until Series A+.

2 New Zealand Private Equity & Venture Capital Association, “Ensuring Venture Capital Plays Its Part in Growing the NZ Economy,” November 2011.

3 Simmonds Stewart, “Venture Capital Fund Bill,” September 6, 2019, https://simmondsstewart.com/blogs/venture-capital-fund-bill/.

Matū on Governance at Southern SaaS 2019

Our Managing Partner Greg Sitters has just given a presentation to a full house of 400 people on early-stage governance at Callaghan Innovation’s Southern SaaS conference. A hot topic, given that there were two times more questions than any other talk so far!

Alongside Angel Association of New Zealand colleagues Deb Hall and Suse Reynolds, Greg will also be presenting a longer presentation on Governance 101 for early-stage founders as part of the conference.

Engaging with the investment, commercialisation, and start-up community is an important part of values at Matū. Under the principle of mohiotanga, we want to help share our knowledge and grow the talent pool. After all, it will make our jobs easier in the long-run too!

See the Southern SaaS program here: https://www.eiseverywhere.com/website/3805/programme/

Andy West Appointed Chair of SODA Incubator

Congraulations to Dr. Andy West, one of our General Partners, who has been selected to join the Board of the SODA incubator in the Waikato, and has also been elected Chairperson. There is a lot of opportunity for Matū to work with founder incubators like SODA, and to help lend our expertise and connections, so we are excited to form a closer relationship.

Read more here: https://www.sodainc.com/single-post/2019/08/20/Soda-Inc-announces-new-Board-Chairperson-and-Independent-Directors

Momentum Student Entrepreneur of the Year Awarded!

The award was given out at the Kiwinet Research Commercialisation Awards last night in Auckland – congratulations to the winner, Cynthia Hunefeld. Completing a Masters degree at Victoria University of Wellington, Cynthia has started HerbScience, a company specialising in evidence-based nutraceuticals. With significant market validation, Cynthia is well placed to take on the big challenge of taking over the world – check out her website at http://herbscience.co.nz/

Congratulations also go to the other finalists, Connor Talbot of ProstheteX and Christopher Walker of Electroclear, both from the University of Auckland. The Matū team had a great time at the awards, and we’re looking forward to continued engagement with the Commercialisation Partner Network.

At the Kiwinet Research Commercialisation Awards on 7 Aug 2019, from left to right, Graham Scown (Return On Science and Momentum Programme Director), Cynthia Hunefeld (HerbScience), Odette Lees (Matū Fund Research Intern), Greg Sitters (Matū Fund Managing Partner), Andrew Chen (Matū Fund Venture Associate), and Ken Erskine (Matū Fund Principal General Partner).

Momentum Student Entrepreneur of the Year Award

Matū is proud to sponsor the Momentum Student Entrepreneur of the Year Award, a new part of the Kiwinet Research Commercialisation Awards. The award recognises a highly motivated New Zealand university student who has made significant progress developing an idea that can change the world. This student is making outstanding contributions to commercialisation and innovation, or has created an innovative businesses in New Zealand through technology licensing, start-up creation or by providing expertise to support innovation.

We are sponsoring the award because we think that it’s crucial that the next generation of young entrepreneurs be recognised for the contributions they are making to the entrepreneurship and investment community. Innovation generally faces a critical human capital shortage, and the more bright young people we can encourage to move in this direction, the stronger the community becomes and the more impact we can have on producing good outcomes for society.

Read more about the award, and apply here: https://www.momentum.ac.nz/. Entries close Wednesday 19 June!

Strong Reliance on Angel Investors in New Zealand

Simmonds Stewart has provided a look into the differences in capital funding between New Zealand and Singapore, directly comparing the number of start-ups funded from various sources. The difference is stark – a much higher reliance on angel investors and groups in NZ, while more VC funds are taking the action in South-east Asia. Read more here: https://idealog.co.nz/tech/2019/02/what-can-we-do-about-new-zealands-lack-vc-funding


Brief Commentary: The effect is that while Angels are providing good early capital in NZ, they don’t usually have the resources available in a VC firm to help support and guide businesses on their growth track towards a successful exit. Start-ups are often left to do their own thing, and investors passively hope that good outcomes arise. More recently, a number of small funds have popped up in New Zealand, often backed by Angels – but very few could be considered big enough to have the types of resources needed to pursue big deals. At Matu, we foresee some aggregation of resources in the future, which is in its early stages being seen as an increasing prevalence of syndication (where multiple funds contribute to a round to decrease the risk for each fund).

University of California Interviews Mekonos

The University of California Office of Innovation and Entrepreneurship has released a really great, accessible article about Mekonos, one of our portfolio companies. It details the journey that the team has taken, and how they plan to take gene therapy using nanobots into the future!

To read more, see https://www.ucop.edu/innovation-entrepreneurship/innovation-resources/collaborative-chip-technology-startup-looks-to-make-gene-therapy-affordable-accessible.html

Novartis focusing on disruptive technologies

The world’s largest pharmaceutical company, Novartis, has signalled their intent to move away from expensive manufacturing and towards new disruptive technologies like Crispr and CAR-T. While this means job losses in some manufacturing plants, jobs will also be created in cell and gene therapy manufacturing. This is great news for Mekonos, who have already been brought into Novartis facilities to develop their nano-robotic solution to cure diseases through cell therapy. Read more here: https://www.chemistryworld.com/news/novartis-to-cut-over-2000-jobs/3009579.article

Angel Association Awards Honour Matū Whānau

The Angel Association of New Zealand (AANZ) gave out two awards in 2018, recognising top founders/investor-directors and those who have given an outstanding contribution to the Angel community. We’re stoked that the Kotahitanga Award was given to Greg Sitters, our Managing Partner. Additionally, the Puawaitanga Award was given to Dana McKenzie, who we are delighted to have on our Investment Committee as well. Read more about the awards here: https://www.angelassociation.co.nz/puawaitanga-kotahitanga-award-winners-2018/