Why our Startup Culture is Good for NZ’s Economy

Innovation requires support from the industry, and New Zealand is fortunate to have produced several companies dedicated to supporting innovative companies regularly. Today, Equitise examines the positive impact of companies like the New Zealand Venture Investment Fund and Icehouse NZ on our startup economy. Conventional wisdom dictates that New Zealand has long been a country ‘punching above its weight’, this remains true in its continued commitment to supporting startups that proceed to have an international impact.

How Does The Present Environment Support Startups?

NZVIF manages a $300 million fund uniting Venture Capital and Angel partners to support NZ tech and innovative companies. Last year, the government extended its underwrite to NZVIF until 2018, although the NZVIF has not yet had to rely upon this 4100 million underwrite. The NZVIF has also voiced its desire to shift away from governmental support as it continues to function as a cornerstone investor in the early stage market, which has invested $147 million in early stage investment since 2002, breaking even or profiting from 21 percent of investments (standard for early-stage investment expectations). The NZVIF is also predominantly geared towards developing market activity, meeting international best practice in this regard and earning praise for doing so. Its support of the entrepreneurial ecosystem focuses not only in Auckland, but across the country, with the goal of establishing a healthy early-stage investment market after 25 years (it’s been 14 since its inception).  Companies like NZVIF, dedicated to healthy entrepreneurship and supporting young companies, are vital.

Why Are Startups Important For The New Zealand Economy?

New Zealand has a positive image internationally as a vibrant startup scene, with many factors in place, like its status as the least corrupt country and advanced regulation.  For these reasons we’ve witnessed recent injections from the big leagues of Silicon Valley royalty into our startup economy. Recently, Sequoia Capital held a $10 million funding round for 90 seconds, the video ad agency. Likewise Pay-Pal co-founder Peter Thiel, who has described the country as a utopia, placed major investments in Xero, which currently has a valuation of $2.1 billion. But how have startups been shown to assist economies?  The University of Maryland in conjunction with the Federal Reserve and US Census Bureau performed a study that found “a small share of fast growing young firms disproportionately accounting for job creation and productivity growth”. Similarly, the Global Entrepreneurship Monitor found that startups contribute to the promotion of the research and innovation system and introduce values of proactivity into the society. Undoubtedly, it’s the quality of startups that is important, but innovation-driven enterprises exert significant economic benefits through job creation. In the US, MIT surveyed the geography of startups’ potential and how they impacted cities’ growth, finding that “a doubling of entrepreneurial quality predicts an increase of 6.8% in GDP 11 years in the future.” It’s possible startups are a symptom of a city’s growth, rather than a cause, nonetheless, the correlation is striking.

Going Forward

It’s not all about chasing startup unicorns – the elusive startups that obtain $1 billion valuation.  Cultivating a healthy startup sector allows the founding of companies like Xero that transform our reputation and entail further investment from renowned entrepreneurs with large followings.  As our entrepreneurs are able to catch the eyes of international investors, as well as support from local bodies like NZVIF and the IceHouse, we’ll maintain our healthy startup economy.

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