New Zealand lead

Editor’s Note: Here’s a story from our archives we feel is relevant even today and deserves your attention.

It was a sober February morning with shy sunbeams and a refreshing breeze greeting me to the land of mysterious lakes, dramatic mountains, vast plains and glorious coastlines. Kia Ora! New Zealand, a country of open hearts and open minds.

As I drove past the gorgeous city, I was narrated the incredible account of Kiwi ingenuity. “The tyranny of remoteness has always challenged us to think beyond the ordinary. Thus, we are the creators of world-changing ideas,” said the driver-entrepreneur.

As I flipped through the pages of some popular magazines, my preconceptions about this place were shattered and his stories began to take shape. The Otorohanga farmer John Hartstone never thought that his milk meter made out of an old lemonade bottle and some parts from the local plumber could make New Zealand a world leader in dairy. Bill Gallagher, while wiring his car up with an electric current to stop his horse from rubbing against it, never dreamt of inventing the electric fence which transformed farming. I could only remember the words of the Lord Sir Ernest Rutherford, “We haven’t had the money, so we have got to think.”

The country has been increasingly seen as a source of great business ideas. The small population of 4.5 million has a strong culture of innovation and creativity. The country is widely-recognised for its achievements in agri-business, bio-technology, clean tech, food & beverages and health tech with companies like Rex Bionics and Orion Health. But New Zealand is more than pasture and is also home to many engineering, digital games and entertainment, manufacturing and software and IT solutions companies such as Xero, Martin Aircraft, PowerbyProxi and Booktrack among others. Its retail and mobile ePayment solutions in particular are attracting investment from both the private and public sector and creating employment opportunities.

What’s in the country?

The city of sails, Auckland is recognised for its food and beverage sector, high-value manufacturing and as a centre for New Zealand’s developing ICT industry. The city has over a third of the population and contributes to 35 per cent of the New Zealand’s GDP. Many global ICT companies are choosing Auckland to service the Asia-Pacific region.

The coolest little capital Wellington is a hub for post-production and visual effects technology. The region has the highest concentration of web-based and digital technology companies per capita in New Zealand. Investors can take advantage of rental and operational costs, urban compactness, and robust data and telecommunications connections, which create a good environment for web and mobile software development.

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Knowledge-intensive industries, urban regeneration, precision agriculture and expanding irrigation are creating avenues for new investment across Canterbury. Often operating in highly-niche segments, Canterbury-based companies provide solutions for clients across New Zealand and other parts of the world.

Land of jet packs and wireless power

Martin Aircraft

Today, if you buy a TV, there is a 75 per cent chance that it’s made in a factory built from inductive power transfer technology licensed to the University of Auckland.

For most people in the world, the concept of delivering power wirelessly by getting rid of masses of cables is the stuff of science fiction, but PowerbyProxi is focused on providing real world resonant wireless power solutions to the market. It is building products that will enable us to charge any type of device that has a receiver integrated into it by merely placing it within the box in any position or angle.

The country has clear strengths in software development, health technologies, financial services technology and digital media and all of these sectors grew in excess of 20 per cent in the 2012-2013 year.  The ICT sector is New Zealand’s third largest export earner, behind dairy and tourism, and generates more than US$6 billion in annual exports. The success stories include cloud-based accounting software like Xero, 3D geological modelling solutions provider for the mining, hydrogeology & geothermal industries and software solutions for protecting companies and countries from threat, crime and corruption like Wynyard. More than 72 per cent of these ICT companies are investing in innovation.

Helping people to stand and walk independently, Rex Bionics has developed a hands-free, self-supporting, independently controlled robotic walking device. The company has sold its system to hospitals in the US, Europe and Asia.

Breaking free from gravity, Glenn Martin developed the Martin Aircraft, a commercial jetpack with usage spanning across search and rescue, military, recreational and commercial applications, both manned and unmanned.

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The country also has a solution for millions of commuters around the world who listen to a playlist that’s disconnected from what they’re reading. Booktrack’s patented technology lets anyone add a synchronised movie-style soundtrack to an e-book or other digital text content.

Incorporate a business in just 24 hours!

Startup lead

New Zealand has a healthy environment for startups, and is known for its low-cost barriers, flexibility, resilience and entrepreneurship. It ranks first in the world for protecting investors and starting a business, as per the World Bank Doing Business report 2014. According to Terry ‎Allen, Customer Director at New Zealand Trade and Enterprise (NZTE), New Zealand is a great place for startups because of its safe, stable and secure business environment. It has a strong banking sector that weathered the global economic crisis as well. “Incorporating a business in New Zealand takes just one day, while registering a property takes only two. The country’s taxation system supports research and development,” he added.

New Zealand has a low-compliance tax system. It was surprising to learn that there is no payroll tax, social security tax and most importantly, no capital gains tax. It is third lowest in the OECD countries for time taken for taxpayers to comply with obligations. The country has free trade agreements with China, Australia, Vietnam, Hong Kong, Myanmar, Thailand, Philippines, Singapore, Malaysia, Indonesia and others. As per the NZTE, negotiations are under way with India, Korea, Russia, Belarus and Kazakhstan.

Paul Cameron, CEO & Co-founder of Booktrack feels that New Zealand’s registration and efficient tax code makes it a favourable destination for startups. “There is access to good talent in New Zealand. The government also supports entrepreneurs through Callaghan Innovation and the New Zealand investment fund. The NZTE plays a huge role in helping startups hit offshore and access new markets,” he added.

The Better by Capital Programme of the NZTE is designed to demystify the capital raising process, giving businesses the chance of accessing the right capital, at the right time, to help fund their international growth. It provides businesses with orientation, readiness and connections.

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Throughout New Zealand, a network of regional economic and business development organisations work with NZTE to help businesses reach their potential. Each partner works with local businesses in their region to give advice, support and access to funding to help them grow their business.

On the other hand, the Callaghan Innovation helps businesses build innovation skills and capability, advises on innovation and IP, connects businesses with technical expertise from NZ and globally, and provides a range of research and technical services.

NZTE and Callaghan are supporting incubators around the country. There are founder-focused incubators which typically work with entrepreneurs by providing them with access to support, networks and investments that help them take a business idea, validate it in the market and build a business. These founder-focused incubators, funded by Callaghan Innovation, include Creative HQ in Wellington, Ecentre and The Icehouse in Auckland and Soda Inc in Hamilton.

The technology-focused incubators operate with a market-based, profit-driven focus to establish businesses based particularly on complex technologies, often derived from public research and development. The technology-focused incubators funded by Callaghan Innovation include Powerhouse, Astrolab and WNT Ventures.

Lack of a mature VC community

Funding

Australia leads the stock of total foreign investment in New Zealand followed by the UK, US, Singapore, Japan and Hong Kong. The top countries for export include China, Australia, US, Japan and Korea. The country has an active community of angel investors including Angel HQ, Arc Angels, Flying Kiwi Angels, Ice Angels among others. Many companies in the country are either funded by friends and family or by angel investors.

However, the venture capital market is not mature in the country. Some of the prominent venture capital firms are Sparkbox, Movac, Sino Green and iGlobe. Quentin Quinn, General Manger Capital, NZTE said, “I wouldn’t shy away from saying that we don’t have a venture capital market in New Zealand. Our angel community is growing and maturing faster than the VC market. There is a wide gap between the US$2-10 million space in the country.”

According to Quinn, the New Zealand venture capitalists have a lower risk appetite as compared to the mature VCs in the Silicon Valley. “Being a small nation, wealth protection is important for us. Hence, most often, US based VCs provide the next round of growth with offshore capital and the New Zealand market tends to miss out the opportunity,” he added.  Recently, Xero secured US$141M from Accel Partners and Matrix Capital Management.

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The tech companies are particularly attracted by Asian investors from Hong Kong, Singapore and Japan. PowerbyProxi attracted investment from Korean telecommunications giant Samsung. Greg Cross, Executive Director and CEO Powerbyproxi said, “It is difficult to attract investments from Asia because the investors are very mature and they have a lot of innovation in their own country. Hence, in order to attract investment from Asia into New Zealand, the idea has to be exceptional.”

The government supports companies with the New Zealand Venture Investment Fund which is a crown-owned company that invests into venture capital funds and partners with angel investor groups to drive investment into the companies with high growth potential.

How can these New Zealand startups go global?

Singapore

The emerging markets in Asia provide a huge growth potential for Kiwi tech companies because of the growing middle-class, increasing penetration of internet and developing infrastructure, health and education. Countries like Indonesia, Myanmar, Vietnam, Philippines, Hong Kong, Singapore, India and China have immense importance for companies in New Zealand.

Indonesia, Vietnam and Philippines also provide huge opportunity in the health tech sector. Already, New Zealand health IT solutions are helping medical professionals in Malaysia, Singapore and Thailand address their clinical issues. Orion Health has presence in Thailand, Philippines and Vietnam and has plans to expand into other countries in Asia.

India will be a big market for Martin Aircraft and the company is considering India as its first market outside New Zealand for setting up an assembly plant. Thailand is important for the company because the jetpacks can be used in natural disaster recovery. They are also looking at the Malaysian and Chinese market.

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Booktrack wants to target the Indian market because of the large base of English-speaking population with reading being very highly valued in the country. The startup believes that Booktrack will resonate well with the audiences of both India and China because music is also a big part of the culture. The cricket-crazy nation is also the biggest growth market for CricHQ, which provides live scoring and competition management solutions via cloud and mobile technology.

Wynyard has presence in Thailand, Vietnam, Philippines, Cambodia, Indonesia and Malaysia. It has started discussions to expand in Singapore and Hong Kong. “Asia is an important market for us because it is a developing economy and with the growth of any economy comes the growth in organised crime. It is no secret that some parts of Southeast Asia have huge problems of human and drug trafficking. Asia presents a huge opportunity,” Craig Richardson, CEO and Managing Director of Wynyard Group.

Kiwis need to Re-Wire

Entrepreneurs believe that despite business-friendly laws, it is difficult to scale operations due to a small customer base. Hence most of the businesses are designed for export. The geographical proximity of the country is also a limiting factor to growth. The time zone is not favourable for many tech companies. Many places in New Zealand do not have good Internet penetration hence reducing the opportunities for Internet-based companies.

According to many founders, the capital market is small and it is difficult to raise investment in New Zealand because the risk appetite is low. There is lack of proper mentorship by investors in the country.

“It is difficult to access quality labour in New Zealand as compared to Southeast Asia. The cost of labour in the country is high as San Francisco,” explained Gareth Berry, CEO of Unleashed Software.

Experts believe that the geographical remoteness has certainly made the Kiwis inventive and independent however, the tradition of Kiwi ingenuity in finding a solution with limited resources also known as the ‘no. 8 wire’ attitude (a reference to a gauge of fencing wire that has been adapted for many other uses) will not be able to sustain them in future. Most companies fail because they are not open enough to bring and share external resources.

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John Bridges and David Downs in his book No.8 Re-wired writes that the complexity of the new world, ‘Everything easy has been done’ and the interconnectedness of everything; the ubiquity of information since the Internet revolution; the rise in importance of non-nation states in the world; the exponentially increasing sophistication of consumers and markets. All this means is collaboration, learning from others , sharing information, embracing specialists and being prepared to fail fast are essential attributes for the current global reality. These are all things that are almost against our nature. Kiwis need to get re-wired.

But to the world, which believes that New Zealand is the country of sheep, there exists some free-spirited entrepreneurs who disrespect the status quo and love doing what others believe can’t be done.

Image Credits: Shay Yacobinski/ Shutterstock

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