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Startup Investment New Zealand
The magazine for angel investors
Welcome to the November 2020 edition of Startup Investment magazine.
Diving into deep tech
Welcome to the November 2020 edition of Startup Investment Magazine.
The global pandemic is continuing to have a profound impact on businesses by driving the need to embrace technology, innovate and do things differently. While we’ve seen this be a real challenge for some industries, it has highlighted the resilience of the New Zealand startup community and its investors - particularly those operating in deep tech and Software as a Service (‘SaaS’).
Young Company Finance deal data, supplied by NZ Growth Capital Partners (NZGCP), for the first half of 2020 indicates that total investment in deep tech and SaaS has remained relatively stable, with $33.6m invested through to 30 June 2020. This is only a c.5% reduction compared to the same period in 2019. And, deep tech received c.25% of total startup investment during the first half of this year.
In this edition of Startup Investment Magazine, we take a closer look at deep tech. It’s a game changing sector that is solving some of our most important problems. We outline some emerging global trends, and discuss what makes our approach in New Zealand unique. We also speak to early stage investors of Aroa Biosurgery, along with the company’s founder and CEO Brian Ward, to find out more about the company’s journey to listing on the ASX in July this year to raise $45 million at an indicative market cap of $225 million.
Our experience of the global financial crisis earlier in the century shows us that brave, innovative startups are often born out of economic uncertainty. The financial fallout from the global pandemic, along with the brain gain from returning Kiwis, provides a similar opportunity for New Zealand startups, especially those solving global issues.
We are seeing support for these opportunities play out in both the public and private sectors. In the lead up to the 2020 general election, the tech sector was identified as a key driver of our country’s future economic growth by several political parties. At the same time, Icehouse Ventures and LevelTwo have announced they will be joining forces to cultivate and invest in Kiwi deep tech startups over the next three years.
We hope you enjoy this edition of Startup Investment.
Anand Reddy
Partner, PwC
About Startup Investment magazine
This biannual publication is put together by PwC New Zealand and the Angel Association of New Zealand, using data supplied by NZGCP. The purpose of this magazine is to provide insight and commentary on the startup sector in New Zealand. We welcome your feedback on our content and suggestions for future editions.
Feature article: Patience pays off for deep tech investors
The success of Kiwi bio-tech company Aroa Biosurgery is the upshot of bold decisions, passion, and a shedload of resilience. Back in 2008, angel investors recognised the value of Aroa’s homegrown deep tech to the world’s medical sector and reached into deep pockets.
Now benefiting millions of people’s lives with healing technology made from sheep forestomach, Aroa’s products improve complex wound healing and help regenerate soft tissue in medical procedures worldwide. An upcoming range of new products, including soft tissue bioscaffolds to support breast implants after mastectomy, and reconstructive devices for trauma and major tissue loss, is set to add an estimated US$1 billion to that potential market once commercialised.
While it might sound like the final frontier, deep tech can emerge out of an idea much closer to home. Deep tech companies take a scientific discovery, innovation or solution and commercialise it to make the world a better place. A case in point, Auckland-based Aroa - whose Māori name means understanding - relies heavily on a unique solution sourced from an abundant New Zealand resource - sheep.
CEO and founder Brian Ward says his company got off the starter blocks thanks to the substantial support of early angel investors, including K1W1, Sparkbox, NZGCP, Cure Kids Ventures, Movac and MIG.
“Without venture funding it’s almost impossible to build this type of company from scratch,” he says. “The barriers to entry are high and there is significant cost and time required to develop new products and commercialise them in a highly regulated life sciences industry.”
Ward says Aroa leaned heavily on investors to get them over the initial hurdles.
“They provided funding for the first five or six years before we had any significant revenue and allowed the company to overcome inevitable set-backs and challenges,” says Ward. “Plus, they made a substantial contribution at the Board level, offering much-needed support to the management team during critical periods.”
Phil McCaw, founding Partner of Movac, says deep tech investment is challenging but gratifying.
“Deep tech is hard, it can be an absolute rollercoaster,” he says. “You get a sniff of success and then it gets taken away and you have to dig deeper and invest again. You need patience, resilience, and tolerance for missed deadlines. But the rewards are worth it.”
He says Aroa showed promise because it had a novel core IP position, a compelling founder, and wanted to make a difference.
“Deep tech opportunities typically result in deep IP positions that are usually harder to commercialise. However, when you get through all the barriers the shouts have higher certainty of returns because their market positions are more defendable. Deep tech startups also typically go after hard problems that drive societal benefits. Aroa Biosurgery is unlocking regenerative healing for everyone - making the technology affordable for all.”
The global health impact was a key driver for Cure Kids Ventures investing in Aroa. Chief Investment Officer Caroline Quay agrees that deep tech investment requires grit.
“You need investors who understand the complexity of the sector and the long investment horizon,” she says. “Deep tech requires patient investors who will keep believing and, more crucially, keep following on through a company’s milestones. They need to be aware of the need for constant innovation and adaptation over longer timeframes, even with less certain timing over market acceptance. The rewards are high multiples for the ones who make it.”
Anchored in New Zealand but serving a world market, Aroa’s success could be said to come down to the convergence of a combination of uniquely Kiwi factors; New Zealand’s special animal health status, our perfect raw material source, and Brian Ward’s understanding of veterinary science and human health.
After listing on the ASX in July this year with an initial IPO of $45 million, Aroa Biosurgery continues to get solid support and Ward is keen to convince more angel investors to take the leap into deep tech.
“We need to create sufficient success from the companies that do get funded to show that these types of investments exist in New Zealand, can offer good returns and benefit society, here and around the globe.”
"Deep tech is hard, it can be an absolute rollercoaster..... But the rewards are worth it."
PwC is dedicated to helping startups with great ideas make their way in the world. We provide support through tailored financial reporting, tax advisory and compliance, structuring, strategic advisory services as well as networking opportunities. We collaborate with others in the local ecosystem including Callaghan Innovation, NZTE, the Angel Association of NZ, KiwiNet, and other New Zealand VC funds. Alongside publishing StartUp Investment NZ, we are sponsors of Southern SaaS, KiwiNet Awards and the NZ Hi Tech Awards.
Please get in contact using the details below if you'd like to know more.
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