New Zealand's technology sector is a powerhouse, no doubt about it. But as the saying goes, 'with great power comes great responsibility'. So, the question arises: is the country doing enough to retain the economic benefits of its successful tech companies? The short answer is no, and here's why.
The recent report by Dealroom and NZ Growth Capital Partners highlights the impressive growth of New Zealand's tech ecosystem, with a combined enterprise value of NZ$133 billion. This is a remarkable achievement, especially for a small country. However, the report also reveals a concerning trend: many of these successful companies are founded by Kiwis but built offshore. This 'double loss' scenario means New Zealand misses out on both the initial value creation and the subsequent recycling of talent and capital.
In my opinion, this is a critical issue that needs addressing. The economic value of a startup extends beyond its valuation; it's about the companies, capabilities, and capital that emerge after its success. Successful firms produce experienced managers, engineers, and investors who have learned how to build at a global scale. These individuals become founders, and their knowledge and networks are recycled, fostering the next generation of companies.
One thing that immediately stands out is the role of international capital. New Zealand companies seeking global operations need access to deeper pools of finance, specialist expertise, customers, and networks. However, as firms expand internationally, the geography of their operations can shift. A 2024 study found that around 6% of venture-backed startups relocated internationally, representing 17% of the value created. This relocation is strongly associated with foreign venture capital, particularly US investment.
What many people don't realize is that this doesn't necessarily mean foreign investment is the problem. It's part of a broader process through which growing companies connect with new investors, directors, managers, customers, and markets. Over time, these relationships can influence where a company's high-value activities are located.
From my perspective, the key question is whether successful firms continue to build local capability. Do they conduct research and development here? Do they develop senior technical and managerial talent? And do founders, employees, and investors recycle their knowledge, networks, and capital into the next generation of New Zealand ventures? These are the mechanisms by which one company's success increases the likelihood of producing another.
Personally, I think the goal should not be to stop New Zealand technology companies from becoming global. Internationalization is often essential for firms originating in a small domestic market. However, the answer is not simply more venture capital. New Zealand's remarkable capital efficiency reflects more than funding alone. Investment also needs to be matched by capability, experience, and global connectedness.
In my view, innovation policy should focus on the productive capability successful firms leave behind, not just capital invested, company valuations, and unicorn counts. The greatest value of a successful technology company may be the capability it leaves behind, which makes the next success more likely. It's a delicate balance between fostering growth and ensuring the country reaps the full benefits of its tech sector.
In conclusion, New Zealand's tech sector is a shining example of what can be achieved, but it's time to address the issue of retaining the economic benefits. By focusing on building local capability and fostering a supportive ecosystem, the country can ensure that its tech success story continues to thrive and benefit its people.
