New Zealand's technology sector is a shining example of innovation and growth, with a recent report highlighting the country's impressive venture-backed companies. The combined enterprise value of these firms is a staggering NZ$133 billion, with eight unicorns and two decacorns among them. This is a remarkable achievement for a nation of New Zealand's size, but it raises an important question: how can the country retain the economic benefits of these successful technology companies?
The report, conducted by Dealroom and NZ Growth Capital Partners, reveals that New Zealand's venture-backed ecosystem has become incredibly valuable. However, it also highlights a potential issue. The definition of enterprise value includes companies founded in New Zealand that have since moved overseas, and over ten billion-dollar businesses created by Kiwi founders but built offshore. This means that while New Zealand is excellent at creating valuable tech firms, it may not be as effective at retaining the wider economic benefits.
The success of these companies lies not only in the final product but also in the talent and capital that come after. Experienced managers, engineers, and investors are produced, and these individuals often become founders themselves. They bring knowledge of markets, technologies, and scaling, which can be recycled into the next generation of companies. This process is already evident in New Zealand's thriving tech scene, with companies like Xero, Trade Me, Pushpay, and Rocket Lab.
However, the report warns that the relocation of Kiwi founders and the offshore building of major companies is a 'double loss' for New Zealand. The country misses out on both the initial value creation and the subsequent talent and capital recycling. This highlights the importance of not solely judging a country's economic return from entrepreneurship by the valuation of its companies.
So, what can be done to keep the benefits of these successful technology companies in New Zealand? The report suggests that while more venture capital is beneficial, it is not the sole solution. New Zealand's capital efficiency is impressive, but it reflects more than just funding. The country needs to focus on building capability, experience, and global connections.
Innovation policy should prioritize the productive capability that successful firms leave behind, just as much as the capital invested and company valuations. The ultimate value of a successful technology company may be the capability it leaves behind, which increases the likelihood of the next success. This is a crucial aspect that New Zealand must consider as it continues to foster its thriving tech sector.
