3 November 2020
Investment in New Zealand startups has remained relatively stable despite the COVID-19 lockdowns and disruption to business, according to the latest Startup Investment report from PwC and the Angel Association (AANZ). Investors have been primarily focussed on deep tech1 and SaaS (software as a service), with these sectors attracting more than two thirds of total investment. There was $33.6m invested into these sectors through to 30 June 2020, which is only a 5% reduction in investment compared to the same period in 2019, according to Young Company Finance deal data, supplied by NZ Growth Capital Partners2.
PwC Partner Anand Reddy says he is very pleased with this result.
“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 this has been 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 SaaS,” says Reddy.
“If we reflect back to the global financial crisis in the first years of the 21st century, it showed that brave, innovative startups are often born out of economic uncertainty. I believe that 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.”
Suse Reynolds, Chair of the Angel Association agrees.
“It’s critical that startup and early stage investors maintain the momentum of recent years despite challenges and uncertainty of the COVID-19-induced recession. Not only do recessions deliver some of the best returns from startup investment, but equally importantly, the high growth tech companies we are supporting will play a vital role in New Zealand’s economic revival.”
The latest Startup Investment report focuses on deep tech ventures which are defined by their complexity, both in terms of the science that underpins them and the IP they generate. Often, they have long development lead times before the product is ‘in market’ and may have significant capital requirements and challenging regulatory barriers to overcome.
These characteristics can be part of their appeal as investment opportunities. They have a highly defensible competitive edge and are going after high-value markets. This means the returns from a financial and socio-economic perspective are meaningful.
Kiwi bio-tech company Aroa Biosurgery works in the area of deep tech. Founded in 2008, Aroa’s products made from sheep forestomach improve complex wound healing and help regenerate soft tissues in medical procedures worldwide. Aroa is a great example of deep tech investment - investors provided funding for some years before there were any returns, but the company listed on the ASX in July this year with an initial IPO of $45 million.
“Deep tech founders are solving the acutely gritty problems the world faces such as those in healthcare, climate change and pollution amelioration,” says Reynolds.
“We know that the challenges delivered by COVID-19 and the consequent recession are far from over, and there may still be tougher times to come, but startups need investment more than ever so we need New Zealand investors to stay the course.”
1 For the purposes of this report, deep tech startups include those in pharmaceuticals, biotechnology and life sciences, technology hardware and equipment, aerospace and defence, and industrials.
2 Young Company Finance deal data is released every six months from NZ Growth Capital Partners and PwC.