The magazine for angel investors
Welcome to the April 2021 edition of Startup Investment magazine.
Welcome to the April 2021 edition of Startup Investment magazine.
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. A year later, and the 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, 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.
In this edition of Startup Investment we look at how the New Zealand investment scene has matured. We hear from the early stage investors and founders of Publons, Merlot.aero and Kami about their investment journeys so far, and their views of the future.
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. I’m pleased that policy makers 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.
Change is coming and the future looks bright...
We hope you enjoy this edition of Startup Investment.
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 New Zealand Growth Capital Partners. 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.
Publons started with a problem that founder Andrew Preston wanted to solve - how to get credit for the academic reviews he and other academics did. In 2012 he founded Publons, a commercial website that provides a free service for academics to track, verify and showcase their peer review and editorial contributions. Traditionally, reviewers are not paid and receive little recognition for their work but Publons helps researchers to advance their careers by building up a visible review portfolio.
Investor Dave Moskovitz came on board in 2013 and helped get an initial funding round then a more substantial capital raise. The business grew both in New Zealand and overseas with many major publishers joining Publons, and Andrew moved to London, the centre of the academic publishing world, to further expand the business.
In 2017 Publons was acquired by global analytics and intellectual property giant Clarivate Analytics with Andrew joining the senior leadership team in the line of business that acquired Publons. Today more than 2 million researchers use Publons, and Andrew has exited the business to move onto his next venture.
Dave says that the most rewarding part of being the investor director for Publons was watching Andrew and co-founder Daniel Johnston going from being highly competent academically focused technicians to becoming really experienced business leaders.
“It was around 4-5 years for Andrew from startup to running a multi-hundred-million dollar part of the leading global enterprise in this field. There is a real shift of focus from ‘how do we build this thing’ to ‘how do we enable our team to achieve greatness for themselves and the business.’ One of their key secrets to success was to always hold true to their vison of making science work better and faster.. Andrew now splits his time between New Zealand and the UK, and has already invested in some New Zealand startups, demonstrating that virtuous cycle of investment, that today’s founders become tomorrow’s investors.
“We need more of this recycled capital in New Zealand, it plays a significant part in the startup ecosystem - not just for cash, but also for talent and connections,” says Dave.
Andrew Preston, Founder, Publons
Dave Moskovitz, Investor, Publons
Flight crew management software company Merlot.aero was founded by Mark McCaughan in 2008. Merlot.aero pioneered the world’s first fully cloud-based system airline operations management system, optimising the scheduling and rostering of flight crew. The software offers a 5-15% cost saving on crew, translating to millions of dollars annually.
Investor Marcel van den Assum got involved after a couple of years when the Board was formed and external capital was brought in from Angel HQ, Enterprise Angels, K1W1, and subsequently the Zino Fund. Early users included Regional Express (Australia), WestJet Encore (Canada) and Hong Kong Express (Hong Kong).
The customer base has now grown to more than 30 international airlines, with operations and customers in more than 20 countries. Merlot.aero was acquired by Canada-based CAE in December 2020 and Mark remains as CEO to steer the company through its next growth phase.
Marcel says that airlines tend to be very procurement orientated to try and drive down costs constantly.
“This is why Merlot.aero has been so successful, despite COVID pressures. It is offering a transformational solution to airlines, to bust out of legacy technology and process which was holding them back. It’s a good example of Kiwi ingenuity, a New Zealand software company that has built a successful business with global customers.
Marcel says that the recent acquisition by CAE is a fantastic result for Mark, his family and his team, and that much hard work and commitment has gone into getting this outcome.
“It has really built confidence in a bunch of angel investors seeing a result like this on a high risk endeavour. The money from that deal goes straight into the next lot of companies so it’s a virtuous cycle.
“Some might ask, why exit? Why not grow it further into a substantial New Zealand company? But the airline industry is somewhat niche and still a bit outside the comfort zone for many New Zealand investors, so this constrains the path you take. It shows that for every Kiwi startup there are different growth and investment strategies. New Zealand investors need to become more open to a wider profile of startups. Things might look a bit more risky, but on the other hand there is the opportunity to be successful in a challenging market.”
Mark McCaughan, Founder and CEO, Merlot.aero
Marcel van den Assum, Investor, Merlot.aero
Taking and sharing university notes in different formats was the problem that the Kami founders Hengjie Wang, Jordan Thoms, Alliv Samson, and Bob Drummond set out to solve in 2013. Kami is now the world’s number one digital classroom tool creating flexible learning environments with real-time collaboration, and also integrates with Google Classroom, Schoology and Canvas.
Chintaka Ranatunga was the original seed investor alongside San Francisco based ex Google executive David Russel who remains on the Board. They later helped bring in Flying Kiwi Angels, then SCIF (now NZGCP via their Aspire Fund) and Right Click Capital, and Kami now has investment from a range of New Zealand, Australian investors, and Silicon Valley investors .
Today Kami has 25 million users in 180 countries, and CEO Hengjie Wang says it has been a wild ride.
“We didn’t have any experience in the education sector, but we wanted to help in the transformation to digital classrooms. We have always listened to our users and customers, taking a naive approach, asking lots of questions, and understanding what they want to achieve.”
Hengjie says that of the 1.5 billion students affected by COVID19 around the world, Kami is now helping and supporting 25 million of them.
“A good thing that has come out of the pandemic is that students can do classroom or learning at any time of the day. With digital tools they have learnt to unbind themselves from a teacher/classroom situation.”
Chintaka says that while COVID19 caused a huge uplift in growth for Kami, the reason the company has been so successful is that the founders and investors have been customer obsessed, ambitious and globally focussed from the beginning. This is alongside having the perseverance to keep going in tough times to get to significant scale.
“We’re constantly questioning: how can Kami be bigger and have more impact? We’re challenging ourselves to increase the growth given the size of the market. Startups used to focus on New Zealand customers first then global later, but now startups need to think global first.”
Hengjie says he’s loving it. “I could do this for decades, it’s a huge passion to improve our student learning. We’re actively looking for more people to join Kami, to help us take it to the next level and grow to 100 million users. Anyone who wants to be part of that journey should get in touch!”
Hengjie Wang, Founder and CEO, Kami
Chintaka Ranatunga, Investor, Kami