GUIDE

active investors in nz tech startups

(2020 edition)

are you a kiwi startup looking for funding and support? start here.

This guide is our take on NZ’s tech investor landscape. This is aimed at early-stage startups who are considering getting investment into their company. If you know of some investors we’ve overlooked, please get in touch. The more investors we can find that are interested in NZ tech companies, the better!

(updated 8 May 2020)

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wife

friends and family

who

Often referred to as friends, family, and fools.

when

Usually seed to early stage investors. Can also, unfortunately, end up being the investors of last resort.

pros

Informal investment process. Willing to back an individual with a business plan, before any commercial traction has been achieved. Unlikely to require onerous investment terms.

cons

Often not smart money as they may not be able to contribute to the business strategy and operations. Lack of arms-length negotiation can result in unrealistic valuations, hampering future fund raising efforts. Christmas can be uncomfortable if the venture struggles. It can be hard to fit friends and extended family members within the Financial Markets Conduct Act 2013 private offer exclusions.

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informal angel investors

who

Tend to be semi-retired business people, senior execs and professionals. Kiwi expats wanting to re-connect with the NZ business scene. International business people and professionals in the process of immigrating to NZ.

when

Usually seed and early stage investors, as many wish to get actively involved with companies and projects that will benefit from their experience.

pros

Informal investment process. Less likely to require onerous investment terms than professional seed investors or formal angel investors. Can add their professional credibility to the company’s brand. Can bring business and/or domain experience.

cons

Can be hard to tap into this category of investor, as unlike the formal angel networks, there are no public contact points. Often have limited experience in the early stage and/or tech space, and experience in large corporates etc. does not always translate. Networks may be of limited use to an early stage company.

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angel clubs

who

 

* These angel clubs also have established angel funds.

when

Usually seed and early stage investors.

pros

They continue to be very active in the early stage investment space. Easy to connect with and commonly work together on deals across several clubs. Ability to match companies with investors with domain or other relevant experience. Usually realistic about the risks and challenges inherent in early stage investing.

Ice Angels and Enterprise Angels can draw on their associated funds for further co-investment (or those funds might lead with co-investment from angels).

cons

The number of investors that participate in angel club deals can become unwieldy, with individual investors contributing as little as $10k. Investors writing smaller cheques can be less experienced and more sensitive to the speed bumps that early stage companies usually have to navigate.

Due diligence and investment completion processes can become onerous and disjointed due to the number of cooks in the kitchen. Angel clubs can be conservative about pre-money valuations, i.e. club-led investment deals may attract lower valuations than other sources of capital.

rich

HNW/family office investors

who

  • efu Investment
  • Evander Management (the Holdsworth family)
  • Danny Chan
  • Grok Ventures (Australia)
  • Hoku Group (Emily & Rowan Simpson)
  • Huljich Investments (PushPay founders)
  • Jasmine Investments (Sam Morgan)
  • K1W1 (Stephen Tindall)
  • Lewis Holdings (Sir David Levene)

when

Some HNW investors lean towards expansion stage investments, as the time commitment involved in seed and early stage investment can be unattractive. However, others such as K1W1 are willing to back early stage companies that fit their investment criteria (which in K1W1’s case requires a lead investor to be in place).

pros

Larger cheque books than angel investors mean a smaller number of shareholders. Can add substantial value to the company’s brand, particularly in follow-on fund raising. Can add substantial domain expertise and connections.

cons

NZ HNWs generally don’t have the same level of management resources to draw upon as VC and private equity investors. HNWs are often time poor, so their input may reduce as other projects catch their interest.

A HNW brand on the share register is only helpful in follow-on fund raising if he or she is participating in the round. If they choose not to participate, this will discourage other potential investors. If your relationship has broken down with a HNW investor, this may make it impossible to raise more capital unless you can manage to buy them out.

seed

seed investors

who

when

Usually seed and early stage. Pacific Channel has a bias towards companies commercialising science (i.e. companies with patentable IP). First Cut Ventures is a student run fund (affiliated with Ice Angels) focussed on backing young entrepreneurs. 

pros

Active investors, usually willing to work alongside entrepreneurs in the early stages. Used to operating on a limited budget and will bring their own network of professionals who can assist the company on a cost-effective basis.

cons

Usually have limited capital to deploy, so the company will need to raise further rounds from investors with deeper pockets. There can be an element of sweat equity remuneration for some investors in this space, which does not suit all companies/entrepreneurs.

beaker

incubators and accelerators

what

In New Zealand there are two different types of incubators:

  • founder incubators: designed for validating and taking ideas to market, with no guarantee of investment at the end from the incubator.
  • technology-focused incubators (TFIs): good for deep tech or startups with heavy R&D, intended to help commercialise complex IP from universities and other public research organisations. Callaghan Innovation provides each company a repayable grant of up to $450k over two years, matched by $150k from the incubator.

There are also accelerators, a time-bound programme for early-stage companies for a period of typically 3-6 months that culminates in a ‘demo day’ to potential investors and may or may not include investment from the accelerator.

who (incubators)

Here are the founder-focused incubators:
Here are the technology-focused incubators who can provide capital to startups. 
 

The TFI scheme is intended to put the incubator in the role of founder entrepreneur, taking the risk and reward that goes with picking new technologies to commercialise. The intention is that TFIs will form companies to commercialise publicly funded intellectual property, building a management team around the IP rather than building around a group of founders.

who (accelerators)

Here is a list of current accelerators in New Zealand:

when

Early stage (usually around seed stage).

pros

The repayable grant with technology incubators reduces the amount of equity that companies need to give up to investors at the seed stage (when valuations are at their lowest). Accelerators like Flux can invest from $50,000 through to $150,000 per company.

cons

Although the Callaghan grant is on favourable terms, the investment terms offered by the technology incubators are tougher. This is probably a reflection of the cost of incubating/supporting very early stage companies – the technology incubators need to recover these costs from their investment portfolio one way or another.

team

equity crowdfunding

who

when

Unlike in the US or (more recently) Australia, there are no per-investor limits on NZ equity crowdfunding campaigns, just a global limit of $2m per company per 12 months. So, crowdfunding is likely to appeal to companies from seed-stage through to small established companies.

pros

  • Equity crowdfunding is the only low-cost way for a company to raise funds from the general public in NZ. It allows a company to market the offer directly to its customers, users and business networks and to the general public with limited formal disclosure requirements.
  • Equity crowdfunding can be used to top-up existing sources like angel groups and professional seed investors, and will enable the company to generate publicity during and after the funding process through its shareholders.
  • NZ crowd funding platforms are coming up with innovative ways to extend their offerings to tech companies raising capital. These include developing wholesale investor networks to enable the platforms to raise more than the $2m limit, managing out standalone offers to wholesale investors and using crowd funding to provide additional spread to support small cap IPOs.

cons

  • An unsuccessful crowdfunding campaign is a public affair.
  • Companies with a lot of unsophisticated shareholders are harder to run, and having large shareholder numbers is likely to be a turn off for professional investors. Plus having more than 50 voting shareholders means you could be a Takeovers Code company (unless you fall under the new exception), which is likely to make future capital raisings more difficult.
investment

VCs (venture capital)

who

  • Blackbird Ventures
    Opened up a NZ office in 2019. Early-stage with an average check size of $1-3m.
  • Eden Ventures
    A part of Icehouse Ventures and backed by professional Chinese venture investors. Current fund of $17m. 
  • GD1 Fund 2
    GD1 Fund 2 invests in early-stage software, internet and lean hardware startups at a pre-Series A and Series A stage, typically with revenues of $1-2 million. Invests in New Zealand and Southeast Asia.
  • Impact Enterprise Fund
    The Impact Enterprise Fund invests in NZ businesses that have meaningful and measurable impact. This impact can be social or environmental and can be NZ focussed but is typically global. Previous investments include health, agtech, packaging and e-motors. Seed cheques range from $150k – $500k.
  • Movac Fund 4
    Movac’s Fund 4 is targeting tech companies with demonstrable revenue traction. 
  • Nuance Capital
    Invests in seed, Series A, and Series B. Average check size $2-6m.
  • Punakaiki Fund
    Punakaiki Fund invests in early-stage companies that have some revenue traction. 
  • Tuhua Fund
    Tuhua Fund has raised $37m and is also a part of Icehouse Ventures. Invests in seed and angel stage deals. 
  • Zino Ventures
    Zino Ventures invests in early stage startups looking to enter the China market.

when

Each specific VC will have their preferred stage to invest, from seed stage onwards.

pros

  • All of these investors have (by New Zealand standard) significant funds to invest. They all have substantial investment and tech sector experience.
  • Punakaiki Fund offers founder friendly investment terms, and is quick to make investment decisions.
  • Movac has the largest fund and the largest team amongst NZ VCs.

cons

  • None of the large VC funds are investing in blue skies, pre-revenue startups.  Tuhua and Zino are investing in early stage companies, but the deal size is more akin to an angel investment.
  • All of these funds are relatively small by international standards, so companies looking to compete internationally against tech companies backed by international VCs need to develop sources of funding above and beyond these NZ VCs.
travel

offshore VCs

who

There are a number of offshore VCs interested in NZ tech companies. VCs that have invested in NZ companies, or that are actively looking in this market, include:

when

Not surprisingly, overseas VCs are interested in companies that address substantial markets – generally meaning markets in the US, Asia and/or Europe. Some VCs are willing to make substantial Series-A investments in startups (e.g. Horizon’s investment in Soul Machines), but companies that can demonstrate revenue traction on the open market (i.e. not just to beta customers) are likely to find capital raising easier.

pros

Write larger cheques than NZ investors. Usually have better networks than NZ investors – including in some cases, to the biggest companies, investors and founders in Silicon Valley. Generally, grant much better access to later-stage investors for subsequent larger investment rounds.

cons

International VCs are usually pretty hard-nosed, and many are quick to change management of an investee company if things aren’t going to plan (i.e. founders are often less secure in their roles than in NZ). May be a requirement of investment to flip the country to another jurisdiction, and for the founders to move with their company.

bank

corporate investors (CVCs)

who

Most of these entities have been active in the past although we haven’t seen much activity lately.

when

Spark Ventures has to date invested in early stage ventures with a strong NZ market focus. The focus of other corporates will obviously vary, but relevance to their customer base will virtually always be important.

pros

Deep pockets. May bring strong domain expertise and offer strong sales/distribution channels. Spark Ventures has a relatively founder friendly investment stance.

cons

The objectives of corporate investors are not always aligned with those of tech company founders. Corporates often invest to obtain early and ideally preferential access to new technologies, markets or channels, and it will often not be in the interests of a corporate investor to see those opportunities offered to its competitors. On the other hand, an early-stage company is likely to want to market its technologies to as many customers of possible, irrespective of the competitive sensitivities of its corporate investor.

This misalignment can be particularly apparent when founders want to exit the company. The founders and other shareholders are likely to want to sell to the highest bidder, whereas if the technology has become strategic to the corporate investor, it is not in the interests of that investor to allow the sale price to be pushed up in that manner.

Big corporates often struggle to work well with small companies. Corporates tend to have a lot of reporting and compliance requirements which can overwhelm small companies. Corporate decision-making also tends to be bureaucratic and political, which can feel like slow death for a tech company operating in a fast-paced market.

bank

private equity / fund managers

who

when

Expansion stage and pre-IPO investors.

NZSF and ACC are major investors in other NZ private equity funds and as a consequence don’t make many direct investments outside pre-IPO placements.

However, NZSF’s substantial investment in LanzaTech in 2014 and purchase of a cornerstone shareholding in Datacom in 2013 indicate they will occasionally invest in businesses with significant scale or potential.

pros

All have significant funds to invest. Pioneer has lots of experience investing in the NZ tech sector, and has taken several companies through to a successful listing. All are able to offer corporate level governance, finance and similar types of support to companies.

Having a major fund manager on the register is likely to help with a subsequent IPO, as it makes the company more attractive to other fund managers (particularly investment from NZSF and/or ACC who tend to lead the fund manager pack).

cons

Usually only invest in well established companies, although most have made exceptions for companies with significant growth potential.

the takeaway

Although the investment scene in New Zealand is smaller than other established tech communities, it is diverse.  We especially look forward what new VCs emerge with the implementation of the Venture Capital Fund (read our predictions here).

quick tips for the approach

  • Do your research: VCs have an investment thesis, angels might be interested in a particular sector – see which one fits best, rather than approaching everyone.
  • A warm intro from a company from a portfolio company of an investor is the best ticket in. Success breeds success.
  •  The relationship you have with your investor will be a long one. Pick a partner who you can trust, and who you can be real with – they’ll want to know both the ups and the downs.

got questions? book a consultation with one of our lawyers

get in touch with our team

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