Ingenuity and innovation are qualities that Kiwis are renowned for. If it wasn’t for our friends over the ditch we wouldn’t have the Zorb, that giant orb made of plastic that spins its occupants downhill, nor would we have bungy jumping or the jet pack. But in the 120 years since the eggbeater was invented in New Zealand, our neighbours have shown they can compete in technology on a global level with its burgeoning start-up economy.
It was Christchurch, New Zealand that last week played host to leaders from the international VC community who gathered for the annual Venture Downunder conference, an event organised by Australian-based community group, Innovation Bay, in partnership with New Zealand Trade and Enterprise (NZTE), the country’s economic development and trade promotion agency.
Innovation Bay co-founder Ian Gardiner credits the success of the New Zealand tech start-up scene with New Zealand’s small market size, which forces founders to think big, right from the beginning. This focus on expansion, scalability and a global mindset is indeed very appealing to investors and Australia is the largest source of inward investment to New Zealand start-ups. Like other Australian VC funds, we have made significant investments in early-stage Kiwi businesses.
Venture Downunder brought more than 60 VCs together to talk shop – to connect, share ideas and learn from each other. During the conference, a number of insights were shared that shed light on the health of VC investment in Australia and New Zealand.
1. Deals are being done and deal size is increasing
We heard from attendees that the past 12 months have been busy with deal flow for Australian VC firms. Of those who attended the conference, almost half (46 per cent) signed deals with more than six startups over the last year and over a third (37 per cent) invested in 10 or more early-stage businesses. If this is indicative of the broader VC industry, we can estimate that around 250 investments were made by VCs in Australian start-ups since September 2018, including investments made in existing portfolio companies. During the conference six Kiwi technology start-ups presented to the VC audience in a bid to secure funding.
On the whole, the size of investments is also increasing. Two-thirds of VC attendees reported that their average deal size has increased over the last year and the remaining third said there had been no change. Half of the VCs present said their average deal size was between $1 million and $5 million with the remaining half split either side of this $1 million and $5 million range.
2. VCs are helping founders to exit at the right time
Relative to other investment classes the VC industry is still maturing. Indeed the Australian VC industry didn’t take off until the 1980s when the MIC program was introduced and a number of smaller secondary stock markets opened in Australia. The tech boom of the late 1990s saw a number of new managers emerge with new funds but they were shortly confronted with a major correction in the form of the dotcom bust that hurt investment performance.
We are now in the third wave of the Australian VC industry and while we haven’t had long to develop our track record of delivering cash back to investors, the industry is maturing and there have been an increasing number of exits as investors work with founders to identify the optimum time to exit. With VCs now writing cheques back to investors, things will likely heat up even more. The numbers reported at the conference back this up – 58 per cent of VCs had one or more exits in the last year.
3. VC are becoming specialists
It was evident at the conference that more VCs are specialising as they develop deeper expertise and experience. These fund managers are able to diversify and spread risk in across funding stage, geography or by the sector in which capital is deployed. This is highly significant and important for VC investors such as the superannuation funds as they can ensure that the VC is complementary to the other asset allocations and their risk exposure is appropriately managed.
As the curtains fell on Venture Downunder, there was an air of optimism. Founders are being matched with VC firms who can turn their ideas into real and thriving businesses, deals are being done and the entire industry is focused on the common goal of fostering an environment that supports and enables start-ups to thrive. Importantly we are seeing actual cash returns which I believe will further entice investment into this essential part of both the Australian and New Zealand future economies.
Benjamin Chong, partner, Right Click Capital
