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NZ startups show strong growth despite COVID-19 challenges

New Zealand startup investment has grown and matured despite the challenges of COVID-19, according to a report from PwC and the Angel Association.

The Startup Investment report states that in 2020, investors provided more follow-on capital than before, with 56% ($109m) of all investment being follow-on capital, which indicates a commitment to support startups through to exit.

The same year saw more venture capital funds choosing to invest in startups, which now amounts to 45% of total startup investment. Because of this broadening investment base, more opportunities are offered for investors to syndicate.

According to data supplied by NZ Growth Capital Partners, 85% of investors choose to invest with others in 2020. This is the highest it has ever been, on top of the long term growth in startup investment over the last 15 years, from a total investment value of $20m in 2006 to $157m in 2020.

“This time last year, we were considering what impact COVID-19 might have on the world of startup investment and the importance of backing startups through periods of uncertainty,” says PwC partner, Anand Reddy.

“A year later, and the startup ecosystem has demonstrated not only its resilience but an increase in maturity.

“In March 2021 alone we saw two substantial Kiwi grown technology businesses, Vend and Seequent, sold to offshore buyers. The realisation of value at this scale creates not only an opportunity for founders and investors to reinvest funds and expertise in new startups,” he says.

“It also attracts a wider pool of investors to New Zealand to help get future startups off the ground. We now have an ecosystem that is more self-sufficient and sustainable.

Suse Reynolds, chair of the Angel Association, says that early-stage investment as an asset class is maturing in New Zealand.

“A noticeable trend is that deal sizes are getting larger as early-stage ventures and angel-backed ventures scale and require larger quantum of growth capital. This is a trend we expected, and we are pleased to see.” Reynold says.

Another trend shown in the report is the increasing number of deals being led and supported by funds that draw on capital from offshore investors. Seven deals were led by offshore venture capital firms and 11 deals received investment from offshore venture capital firms in 2020. In all these instances New Zealand angels and venture investors also provided capital.

According to Reddy, Government support for early-stage startups remains crucial.

“When the Government's new Research and Development Tax Incentive was first launched in 2019/20, there were concerns that it was too narrow in scope to have any real impact for startups - with many Callaghan Innovation Growth Grant recipients unable to benefit,” he says.

“I'm pleased that policymakers have taken on board this feedback, confirming that existing Growth Grant recipients should qualify for the new incentive and could potentially receive support at similar investment levels.

“This is great news for those startups who require funding to attract and support highly skilled individuals to carry out R-D.

The investment journeys of three Kiwi startups are profiled in the latest Startup Investment report: Academic review website Publons, flight crew management software Merlot Aero and digital classroom tool Kami.

Each of these startups are at different stages of the investment journey, from completing the full cycle of realising value and reinvestment, to continuing aggressive international growth.

The report looks at the long term journey towards the investment ecosystem in New Zealand becoming self-sustainable, and the growing focus on global first when startups think about their markets and their investors, rather than New Zealand first and then global later.

Investors and founders of Publons, Merlot Aero and Kami, also comment on how the startup investment ecosystem in New Zealand is maturing with an increase of founders and investors investing and then reinvesting in New Zealand startups.

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