Published on the 23/05/2023 | Written by Heather Wright

Plenty of ups, a few downs, and room for growth…

A bit like Sir Edmund Hillary, on the 70th anniversary of his conquering of Everest with Tenzing Norgay, the Kiwi tech sector might be something of a quiet achiever in its home country, but it’s gaining overseas recognition, posting a record high in technology investment last year. 

The inaugural Technology Investment Report shows NZ$726 million was invested in New Zealand tech companies in 2022 – up 8.2 percent.  

Much of that investment came in the first half of the year, when the country recorded an 89 percent growth in investment, clocking $470 million. The second half of the year saw a significant drop – down around 40 percent, mirroring the market capitalisation of publicly listed stocks which also declined.

“Uncertainty and change is good for technology.”

But report author Alex Dickson told iStart that investment has swung back up again in 2023, with some significant investments this year. 

Those deals include Halter’s $85 million series C raise in March, $35 million for Hnry, and $13 million for Toku Eyes, which has developed an AI-powered platform, using retinal imaging to measure cardiovascular risk. 

Greg Shanahan, managing director of the Technology Investment Network which produces the report, is optimistic it’s a trend that will continue.  

He points to the ongoing strong revenue and profit performance of tech companies, particularly publicly listed companies with Xero logging FY23 revenue growth of 28 percent to $1.4 billion and Serko’s total income up 154 percent for the year to 31 March 2023, despite the market wobbles. 

“The performance of the companies we see continues to do well both in terms of revenue and profitability,” he told iStart of the upswing. 

The current economic situation is also driving demand for tech solutions that can change the cost structures for businesses, he says, driving new potential. 

“Uncertainty and change is actually good for technology because for most tech businesses the real money is in front of them in terms of new ways of spending or behaving or new models of healthcare, so if those are brought forward, that’s a good thing.” 

The investment in New Zealand companies came in 154 early and later-stage deals, two less deals than seen in 2021. 

New Zealand’s funding growth came as total global venture funding fell 32-35 percent. 

Offshore funding was a big driver for the local market – of the top eight deals by investment amount, seven were led by offshore investors, while overall 26 deals were driven by off-shore lead investment which tipped $400m. 

Deeptech was the big mover for the year, jumping $106 million to garner $162 million – or 22 percent of all tech investment last year – across nine deals, one less deal than last year. That jump saw deeptech take second place for capital raising, behind the catchall ‘software solutions’ category which scooped $255m of investment over 54 deals.  

Much of deeptech’s funding came via Soul Machines US$70m capital raise, led by Japanese multinational SoftBank. It was the top tech deal for 2022. Quantifi Photonics and Altered State Machines also saw notable investments in the deeptech space. 

Healthtech investment was down $15m to $71m, with transport and electronics both up. 

Shanahan says the growth sectors shows the growing maturity of the New Zealand market. 

“There is a growing history of significant transactions. Since 2021 there have been five transactions where the valuations have been over $1b – three acquisitions, one listing and one merger. 

“All of a sudden we are talking in billions of dollars and as the sector becomes more mature, there are more funds that are interested in them because of the scale of investment required.” 

New Zealand’s talent for creating highly sophisticated, nuanced technology solutions is also attracting interest he says. 

One area that Shanahan isn’t quite so positive about, however, is onshore investment, which dropped by around 20 percent last year and which he sites as an area of concern – though one he is ‘reasonably optimistic’ that will see a change of heart soon, driven by the same changes which are driving overall market growth this year. 

Onshore investment accounted for $268 million this year, down from $344 million last year, while offshore and private investment ($58 million up from $39 million) both climbed.  

“For the employees and investors you want to be generating wealth and creating prosperity for all New Zealand, so there needs to be greater participation in the sector,” Shanahan says. “There has probably never been a time in the last 20 years when there has been so many New Zealand funds flush with funds to invest. But there needs to be more. There needs to be a greater volume of investment going into our tech sector.”

A reduction in investment in early-stage companies is also something that ‘needs to be watched closely’ he says.  

“There’s no shortage of highly eligible tech startups in New Zealand, and thanks to a now vibrant domestic funding circuit, many can and do find purchase at the early stages,” Dickson adds. “That said, our investment pool still remains shallow compared to other small, advanced economies – the likes of Finland, Ireland and Estonia.” 

So just how big a deal is New Zealand’s tech investment potential? 

“The quantum of foreign capital are still low by international standards, but a small amount really turns the dial and that’s the litmus test for success as far as how things progress in the future,” Dickson says. 

Adds Shanahan: “We’ve spoken about growth of 40 percent to $400m but really in global terms that’s pretty tiny, so that can potentially only increase as we continue to deliver.” 

Beyond that, he’s effusive about the social impact, noting the growth in jobs and also in diversity, with 27 percent of companies funded last year run or founded by women. While they scored lower deal sizes for the most part, that’s largely tied to being earlier stage companies. 

New Zealand’s TIN200 companies – the top 200 tech companies in New Zealand – have been growing by about $1b a year for the last five years, with nine percent growth last year, and 3,000 new jobs created. 

Dickson says one sector looking particularly robust is gaming. While it’s not specifically called out in the report, he says it’s performing strongly, capitalising on the SaaS model which supports New Zealand’s want for weightless exports that create high value jobs. 

Healthtech and space tech are also markets with potential for strong growth, Shanahan adds. 

He notes a growing cluster of health tech companies leveraging the expertise of current and former Fisher & Paykel Healthcare staff and other larger healthtech companies and a cluster of space tech companies drawing around Dawn Aerospace and Zenno. 

The growth of a growing number of companies with revenues in excess of $200 million, also brings with it the potential to make New Zealand a place where talent wants to live, Shanahan says. 

“The key thing for technology to grow, taking the words of Sir Paul Callaghan, is that New Zealand has got to be a place where talent wants to live. It’s not just around play, it’s around lifestyle and all those things that make New Zealand desirable particularly for talent which is increasingly mobile. 

“And we’re seeing a positive cycle with larger companies that have the resources to invest in recruitment and in particular in staff retention and working in their communities to be seen as good corporate citizens where people want to work. Things like scholarships for Māori and Pasifika, academies for internal training, investment in environmental endeavours – value based activities that make people excited and proud to worth there.” 

But Kiwi tech investment, Shanahan is at pains to point out, certainly isn’t all about altruism and societal gains, with shareholders seeing plenty of good returns, as evidenced by the recent financials of big-name companies like Xero and Serko.  

“It’s a worthy investment that doesn’t need to be high risk and there are plenty of ways to do it, such as Sharesies. It is the future of New Zealand’s economic growth and it’s going to be that way because companies are going to make money for their shareholders.”