Venture capital funding drops for Kiwi startups
New Zealand startups pulled in $163 million for early stage investors last year, down 12 per cent from 2022. Photo / 123rf
New Zealand startups pulled in less funding from early stage investors last year amid challenging economic conditions, according to a new report.
Data from Young Company Finance found investors backed local startups to the tune of $163 million in 2023, down 12 per cent from $186m in 2022.
But despite the decline in dollar terms, the number of deals completed last year was 144, up from 142 in 2022.
The figures were issued in the latest Startup Investment report, published by PwC New Zealand, Angel Association New Zealand and NZ Growth Capital Partners (NZGCP).
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The report said Kiwi founders faced global competition, along with challenges such as high inflation, skills shortages, and reduced corporate and government procurement spending.
DeepTech was the most popular sector with investors, accounting for 38 per cent of total capital funding last year, according to the report.
This was followed by the software sector, accounting for 30 per cent of total investment.
Meanwhile, the number of new deals – as distinct from follow-on funding rounds – decreased from 46 in 2022 to 40 last year, the report said.
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New deals made up 31 per cent of the total funding, down from 40 per cent in 2022.
The average amount raised for new startups declined by 22 per cent, from $1.6m in 2022 to $1.2m in 2023.
The report noted that data from the first half of 2023 showed “Kiwi investors were bucking international trends”, with investment levels remaining relatively stable compared to the same period in 2022.
But “investment activity for the remainder of 2023 did not demonstrate the same resilience,” it said.
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Jacques Richer, associate investment director at NZGCP, said the defensive posture of investors was understandable, given the current economic conditions.
“However, this environment could jeopardise the future pipeline of new companies and hinder their growth opportunities,” Richer said.
“We need to do a lot more to build a healthy pipeline of new innovative companies that are well resourced, to maximise their chances of making an outsized positive impact.”
Angel Association New Zealand chair emeritus Suse Reynolds said startups played a pivotal role in the country’s economy.
“We have been diligently building a startup ecosystem for 15 years, but it will take 20 to 30 years to fully realise substantial returns, both financially and more broadly for society. It is critical that we do not lose momentum and take our pedal off the metal,” Reynolds said.
Venture capital (VC) has gone through somewhat of a feast-to-famine phase lately.
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In 2021, New Zealand startups pulled in $257.5m in funding, according to the report. However, the post-pandemic bounce has been described by NZGCP chief investment officer James Pinner as an anomaly.
Last year’s collapse of online grocery firm Supie highlighted the difficulty facing some businesses securing more funding.
Key investor Kirsty Reynolds explained her decision to pull her support for the venture that began in 2021 because its financial issues could not be solved by the level of investment being contemplated by investors.
Reynolds and other investors had already tipped in around $8.5m.
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
