Benjamin Chong at Right Click Capital has penned a piece introducing Venture Debt. As far as we know, there haven’t been any venture debt deals in New Zealand yet, but one of the new Technology Incubators is a major supporter of this funding instrument, so this may change. Sometimes pitched as an alternative to venture capital/equity funding, we view it as being more complementary, especially for start-ups that might find it difficult to raise a bridging round.
Sustainability and ethical practices have become a hot topic over the past few years. With many people jumping on the sustainability bandwagon, the pressure has been on for companies and industries to incorporate better practices into their business.
The early-stage industry is no different; sustainable investments have increased by 40% in New Zealand in the last year alone1. This movement has seen the rise of impact funds, which invest into companies with the intention of providing measurable, positive social or environmental impact as well as financial returns2. This is not a niche market; as of 2018 there were US$502 billion of impact investing assets under management globally3.
Outside of specific impact investing funds, others have been updating their policies to incorporate more sustainable investments as well. People may be familiar with ethical investment policies which exclude things like tobacco, drugs and illegal activities, but more recently these policies have evolved to encompass the environmental effects and long-term sustainability of the companies they invest in.
It’s important to note that not all funds that have taken on board more ethical practices are the same. There are impact funds whose sole focus is to support and invest in projects which will positively benefit the environment, and there are funds that have some form of ethical investment policies which guide their investment decisions. There is also a third category of funds who have no official ethical guidelines in their investment mandate. Whether you’re looking to place your money in a fund that supports ethical and sustainable projects or you’re looking to raise money from such a fund, it’s important to know the differences in order to select what is best for you.
An impact fund is likely to advertise itself as such and there are organisations, such as B Lab, who have created certifications that require an investment fund to ensure that responsible investing is upheld4 all the way down to their legal structure5. These funds often have Ethical, Social, and Governance (ESG) reporting requirements and portfolio selection criteria which they integrate into the management of the fund6.
If a fund is not specifically an impact investment fund, it doesn’t necessarily mean that no attention is paid to the ethical and sustainable practices of the fund and their portfolio companies. Funds can sit along a spectrum of ethical investment activities from no ethical consideration to impact investing. Some of these activities may include screening out companies which have a direct negative impact on the environment, or screening specifically for companies which have more social or environmental benefit than others7. Matū and Punakaiki Fund are two examples of funds which have their ethical investment policies publicly available on the website8,9 and the Impact Enterprise Fund (https://impactenterprisefund.co.nz/) is an example of an impact fund in NZ.
It is important to determine what core values you would like both the fund and the companies they invest in to have, and what you would feel comfortable having your money supporting before deciding on what fund is right for you. For example, if you wouldn’t want to support a company that doesn’t ensure fair wages for all the workers along their supply chain, then you need to make sure you don’t invest in a fund that would support that.
Every fund will have their own individual criteria so make sure you do your research to ensure they are the right fit for you. The presence of an ethical investment policy alone does not guarantee that it will match your preferences either; the content of that policy is just as important. For example, a fund may invest in companies that have a social underpinning, which you might align with, but one of those companies sells cannabis products, which you might not align with. It can be tricky to navigate the details of each fund’s ethical priorities, but asking questions or having a thorough read of their investment mandate should help to determine if a fund’s investment decisions align with your values. Also, just because a fund has “impact” or “responsible” in the name, doesn’t mean that they necessarily actually follow through on that, so asking questions and doing your due diligence is the best way to cut through and get the truth.
There is a variety of information on the returns of funds
which incorporate ESG practices into their businesses. However, the general
consensus seems to be that they return similar returns to the funds which don’t10,11.
If it’s not something you’ve considered before, I would encourage you to do so
and help create a market push so that more funds incorporate varying degrees of
ESG practices. The world is already burning, so do we really want to be funding
new businesses that fuel the fire?
1 NZ Herald, “Ethical Investing Hits New Highs“
2 Responsible Investment Association Australia, “Impact Investor Insights 2019 Aotearoa New Zealand”
3 Global Impact Investing Network, “What You Need to Know about Impact Investing”
4 Greene, “A Short Guide to Impact Investing.”
5 Certified B Corporation, “Certification.”
6 Responsible Investment Association Australia, “Impact Investor Insights 2019 Aotearoa New Zealand”
7 Noted, “Investing Ethically Is Good for Your Wealth”
8 Punakaiki Fund, “Key Documents”
9 Matū Fund, “About the Fund”
10 Global Impact Investing Network, “What You Need to Know about Impact Investing”
11 Icehouse, “Impact Investing”
The Angels Association of New Zealand held its annual summit last week. Matū was well represented with Greg Sitters, Ken Erskine, and Andrew Chen from the staff team attending, as well as Dana McKenzie and Suse Reynolds from our Investment Committee, and Bridget Unsworth from the Commercial Advisory Board.
A big congratulations to our good friend Katherine Sandford for winning the Puawaitanga Award for her leadership and support as the investor-director chair of UBCO, a Tauranga-based company developing and selling electric motor bikes.
Scott Gilmour was recognised as Arch Angel for 2019, having been a critical and foundational part of the ICE Angels and broader NZ angel community. Suse Reynolds was surprised with the Kotahitanga Award for building unity and developing a shared sense of working together, building and strengthening the angel community into something much bigger. She has been a leader in the early-stage angel investment and start-up ecosystem for over a decade, and we are very happy that her efforts have been recognised.
Read more here: https://www.angelassociation.co.nz/angel-awards-announced-suse-reynolds-katherine-sandford-and-tim-allan-recognised/ and https://www.angelassociation.co.nz/scott-gilmour-named-new-zealand-arch-angel-2019/
The Spinoff has covered Nate Davis’s laboratory and the solar concentrators they are developing, which may revolutionise solar electricity generation by diffusing light sideways efficiently. This would allow for photovoltaic panels to be embedded in all sorts of places, like in the sides of windows with the light being distributed to the sides of the pane of glass. By significantly reducing the land cost of solar electricity generation, and also supporting distributed generation, this technology could significantly disrupt the way renewable energy is generated in the future.
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-acknowledged4,5, 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.”
Congratulations to the five winning teams from the Velocity $100k challenge – Greenshell Spat Co, SpinPoi, Pacific Med Tech, Luxor Astronautics, and RAVE. Matū staff have seen most of these projects through Return On Science and Momentum, so we know first-hand just how passionate and capable these young founders are. We wish them all the best as they enter the VentureLab incubator at the University of Auckland in 2020!
Read more here: https://www.cie.auckland.ac.nz/newsroom/2019challenge/
Blackbird Ventures, a venture capital fund based primarily in Australia, has just opened their Auckland offices last week. This was alongside a successful Sunrise event that attracted hundreds of founders, investors, and other stakeholders in the early-stage investment space.
With their founder-focused investment strategy and community approach, Blackbird brings a new voice and style to the NZ market. Their strong values statements make it clear that they put people first, think in the long-term, and comfortable with high-risk: all values that we at Matū support as well. We think it will be really helpful to add a strong voice in the ecosystem around actively guiding, mentoring, and supporting founders.
The Sunrise summit itself on Oct 25th was a clear representation of those values. The team from Blackbird didn’t spend much time talking about their fund or making big announcements – they mostly got out of the way and let a group of founders tell their stories and share their lessons. The program was very well structured, showcasing a variety of founders and experiences.
The morning started with Melanie Perkins from $3.2 billion unicorn Canva, talking about the rollercoaster journey from working out of her mum’s lounge to a company with 700 employees. She conveyed two key messages – fight through the rejection that will inevitably come along the way, and dream big and far so that you have something to strive towards.
Other speakers included Brianne West from environmentally-conscious and socially sustainable personal care company Ethique, Shama Lee from alternative meat company Sunfed Foods, and Tama Toki from Great Barrier Island-based cosmetics company Aotea Made.
The formal part of the program closed with a gripping story from Jodie Fox, co-founder of personalised/customised fashion company Shoes of Prey, which went into liquidation last year after nine years of operation and at one point reaching a valuation >$100mil. For an industry that suffers from strong survivor bias (i.e. we only hear the good stories about entrepreneurship), it was a tough story to share but incredibly valuable for everyone to hear that these things happen and how it happens. Huge kudos to Jodie for bravely sharing her journey publicly – she has written a book to tell the story. My main takeaway was that there is a right way to close down a company, which starts from building a really strong culture of respect years beforehand. Without that sense of community and loyalty, the process of closing down a big company would have been much, much harder.
Apart from the speakers, the other really valuable part of the day was structured networking. People were able to make bookings beforehand based on short bios that attendees provided online, which meant that we didn’t have to just go up to someone and try to strike up a conversation. We met a bunch of founders throughout the day who were interested in Matū’s offering, and we will be keeping track of these various projects and giving our support where we can.
We often think of the New Zealand early-stage investment community as being “small”, but events like Sunrise remind me that “tightknit” and “connected” are perhaps better descriptors. There are thousands of people involves in this space, which may be small in comparison to some places overseas, but it affords us a sense of collegiality that helps us work together and build towards collective success. We at Matū are always happy to help wherever we can within our means, so get in touch!
Simon Yarrow has written an opinion article at the New Zealand Herald highlighting the opportunity to target the UK and Ireland with our unique agritech capabilities. Read more here: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12278350
An interesting article on Entrepreneur magazine about the rise of revenue-based VCs, who are making a larger number of smaller bets based on the current revenue of the companies. They’re mostly targeting SaaS or similar industries with well-understood business models, where gaining a decent amount of revenue derisks most of the business and the rest is about having lots of capital to fund marketing as the company enters the growth phase. We’re starting to see a little bit of this thinking appear in New Zealand, which will mean more companies getting funding once they have shown that their business model is viable at a small scale.
Read more here: https://www.entrepreneur.com/article/340384
Congratulations to the winners of the University of Canterbury Entré challenge, with $85k worth of prizes awarded to a range of students and companies. Really interestingly, there are three joint grand prize winners, with some very cool ideas in the mix.