Published on the 20/06/2024 | Written by Heather Wright
Call for Kiwi govt support…
Melbourne and Brisbane have bolstered their global startup standing, but startups, particularly in New Zealand, are feeling the funding crunch.
Alex Dickson, head of research at New Zealand’s TIN (Technology Investment Network), says both New Zealand and Australia are seeing tougher times for tech investment currently, but Australia’s size with greater domestic market opportunities, and more mature and plentiful funding scene, is providing a buffer for the country’s startups.
“It’s just a case of survive until 2025.”
Anecdotally, Dickson says Kiwi startups are experiencing ‘a really challenging time’ with the funding runway shortening for many. He says comment from those in the banking sector around increasing levels of debt financing suggests more startups are starting to borrow from banks.
“New Zealand has a growing venture capital (VC) scene, but companies often need to secure international investment to scale and reach international markets including investment from Australian VC firms, so comparatively, it’s much harder to commercialise your tech solution in New Zealand,” Dickson notes.
Startup Genome’s Global Startup Ecosystem Report 2024 shows a notable decline globally for venture capital funding in 2023. Series A funding was down 46 percent year-on-year, with exit values also showing a sharp decrease and a scarcity of IPOs recorded.
The report shows Sydney retaining the top rank for Oceania, tied at 21 globally with Bengaluru-Karnataka – right behind 20th placed Seattle. Melbourne climbed one spot to number 32.
New Zealand – while no longer covered in detail thanks to a lack of New Zealand partner for the project, and not featuring in the Startup Ecosystem top 40, was ranked in the top 30 Emerging Ecosystems, with Brisbane in the top 40.
In New Zealand, where technology is the second largest export sector, last year’s TIN Report showed investment deals were down in FY23, with total capital raised also dropping form $984 million to $670 million, across 152 early- and later-stage deals, as offshore investors scaled back.
“If you think in terms of the numbers between Australia and New Zealand, the difference is in multiples – Austech captures about 10 times the value of the New Zealand tech sector, has about three times the start-ups, who raise around five times the capital,” Dickson says.
“And in terms of larger firms, New Zealand has about 34 start-ups who have achieved revenues of $100 million or more. In Australia that’s number is well over 100.”
The two countries do share parity when it comes to tech’s contribution to GDP, with New Zealand at eight percent and Australia, 8.5 percent.
Dickson says the quality of the communities and the solutions from both countries is high and comparatively similar, particularly around fintech, medical sciences and gaming.
“But Australia has a much more mature and plentiful funding scene with much better domestic market opportunities. Ultimately there is more government support, incubators and accelerators and larger sums of venture capital.”
The Startup Genome report puts Sydney’s ecosystem value at $72 billion for H2 2021-23. Melbourne’s in comparison is just $26 billion, Brisbane $11b and New Zealand $9 billion. Adelaide, where the Government of South Australia’s Seed-Start grands provide early-stage start-ups with up to $500,000 of matched funding to help them commercialise innovative products and services, rounds out the Oceania five, at $2 billion. The South Australian Government also partnered earlier this year for a new program to support female business founders to access capital and grow their start-ups into global companies.
In Brisbane, meanwhile Minister for Innovation and Science Leanne Linard, says Brisbane’s placement in the top 40 emerging ecosystems for start-ups was ‘great news’.
“It recognises the efforts of many stakeholders who have worked to position Brisbane as a city where innovative sparks ignite and take hold,” she says.
“Our rise in the rankings is also recognition of our cutting-edge research infrastructure, the city’s tech talent, and a strong entrepreneurial culture.”
The report calls out the Queensland Government’s work as an active partner in developing the ecosystem, working closely with industry, other government sectors and universities to build a strong community that will deliver jobs and business opportunities in the future economy.
That strong government support is a focus of other cities too. In Victoria, LaunchVic, the State of Victoria’s start-up agency, recently received AU$40 million over four years from the Victorian Budget. It has supported nine new angel groups, creating 587 new investors and almost $26 million in investment capital for local startups.
Dickson is keen to see more government support for New Zealand’s start-up sector, with. technology largely absent from this year’s Kiwi budget.
“If you were to compare the Australian and New Zealand budgets on quality, you would see there is a greater emphasis in Australia on tech, including cybersecurity and AI, and forward-thinking policy around nurturing the Australian tech ecosystem.”
He says it’s not on the government to fund everything, but it has a key role to play in ‘connecting the dots’, making sure companies have good access to global markets – something he acknowledges is already happening – and coalescing things together in a more coherent manner.
He notes continuing concern from the sector government procurement, which continues to focus on the large international companies such as Microsoft and AWS for solutions, rather than looking at home-grown offerings.
Dickson says the downturn is cyclical.
“In 2021-22 there was an influx in investment. It was very exciting times. Things have fallen back to normal, if not a little below normal,” he says.
“It’s not like New Zealand’s tech ecosystem is unfamiliar with being capital starved. A lot of these companies paddle quite hard and that leads them to be quite robust, which can be attractive to people looking into the Kiwi scene who can see these companies are able to survive in quite difficult environments.”
But without necessary investment, he warns a lot of Kiwi start-up become ‘zombies’, creating a business but unable to commercialise and scale properly and stagnating rather than turning into the next unicorn.
“Things are challenging at the moment, but these things are cyclical and the quality of solutions and the opportunities are huge. It’s just a case of survive until 2025.”
Silicon Valley, London and New York city remain the top three startup ecosystems in the Startup Genome report.
The report also highlights surging investment in generative AI globally, with nearly 20 percent of all venture capital funding in 2023 going to GenAI-focused startups. Funding for the sector increased 3x year on year, with deal counts nearly doubling.
