Growing Lions in the Sheep Country

I spent the last couple of days in Auckland, New Zealand, exploring the local startup scene. Led by my friends from Finistere ventures and sponsored by the New Zealand government, we had a chance to meet with some of the top startups, investors, research institutions and government agencies in the country. I wanted to share some observations from my travels:

1. Promising startup ecosystem: 

The VC/Startup ecosystem in New Zealand is young, but growing quickly. There is a wide variety of startups and technologies built across all verticals, ranging from the anti-jetlag flight drink 1Above to advanced data sciences built around the ambitious Square Kilometer Array project. Their food and ag technology space is particularly strong, with startups innovating in anything from seed genetics through precision agriculture to livestock breeding optimization. This is directly correlated with the importance of those industries to the local economy and the research that is done at the local academic institutions to serve those industries.

2. Great R&D talent but lack of experienced managers: 

New Zealand has eight universities and seven Crown Research Institutes - an impressive number for a country with only 4.5 million people. The quality of the scientists and engineers I met was on par with the talent of Israel or the Silicon Valley. Clearly, New Zealand has a global advantage in building the next generation technologies for the food and ag space, and the technology developed in those spaces is impressive. With that said, locals have expressed the need for experienced managers who can help lead startups with a global mindset. Unlike Israel or the Silicon Valley, there are not many serial entrepreneurs who can help mentor the young generation of leaders.

3. Growing lions in the sheep country:

New Zealand has the nicest people in the world - by far! The island mentality and the lack of existential problems creates a sense of security that is, arguably, counter to the sense of urgency that catalyzes entrepreneurship. Fantastic IP is generated by local research institutions, but often remains on the shelf or sold cheaply to large corporations as not enough local entrepreneurs are jumping to build companies around it. I’m not sure there are easy solutions here, but infusing the local pool of talent with foreign entrepreneurs is a good start. This approach proved successful for my friend, Nicolas Shea and Startup Chile, who attracted foreign entrepreneurs to spend time in his home country. CropX, an Innovation Endeavors portfolio company, is proof that such models can work. Founded by Israeli serial entrepreneur, Isaac Bentwich, CropX is commercializing IP that was developed in NZ, building an ag analytics company with a global mindset.

4. Small venture capital industry and outdated incubation models: 

Seed funding is available, particularly through active angel networks and government sponsored incubators. Yet there is little VC activity creating a gap in follow-on funding for early stage startups. The locals refer to this shortage as the “valley of death.” The government is investing resources to catalyze the capital flow, offering 3:1 grants for incubators and attracting foreign investors to get involved. Interestingly, the government models are based on Israeli models that accelerated the Israeli startup ecosystem over the past 20 years. Some of those models, particularly the traditional incubator models where startups give 30-50% ownership for ~$500k will not succeed in today’s world. As entrepreneurs use less capital to get started, they soon realize that giving up too much ownership makes it harder to attract good investors and talent in the future. The accelerator model is an evolution of that model, offering much less capital (for a bit) less equity, and is probably more aligned with the local conditions.

5. Hard to understand and serve remote markets: 

NZ has a tiny local market with only 4.5 million people. Local entrepreneurs understand that and aim to serve larger markets, such as the US or China, yet most start by serving the local market with the ambition to expand globally later on. This is not a viable way to build a global company at today’s pace of innovation. By the time startups finish executing on building products for the local market, it is often too late to expand globally. Israeli startups face the same challenges, but most target the US market from day one. I also found it surprising that there are not more local startups targeting Asian markets, especially with the opportunities around ag/food tech that open up with the increasing middle class in China and Southeast Asia.

On a personal note, this is my second visit to New Zealand, and I am leaving the country excited. A lot has changed since I backpacked around the country in 2001. I was impressed not only by the quality and commitment of everyone we met, but also their ambition to become a significant player in the global tech scene. New Zealand has so much to offer, and I plan to follow it closely and find ways to do more business here. 

-Dror

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