Securing NZ Funding

Micro-Entrepreneurs - NZ's Start-up Profile?

Brian Gaynor wrote an interesting article in yesterday's Weekend Herald.

Essentially, Gaynor was saying that risk and return are two of the biggest issues faced by investors, particularly in relation to IPO's. His article also highlighted the big difference between the individual and the institutional investor approach to this risk / return ratio in NZ.

Few institutional investors participated in the 42 Below IPO. The same applied to Xero Live. Both companies were effectively start-ups and though both had charismatic entrepreneurs leading them, institutional investors were unmoved. It does pose interesting an interesting question. Is there an investment market for start-ups in New Zealand?

For me, the jury is out.

What both 42 Below and Xero Live had in common was a desire to become global businesses. That costs money, particularly if you are looking at global markets such as the UK or the US. To prove yourself at an NZ level means little. The domestic market is so small, yet it still costs resource to penetrate. The return is unlikely to be sufficient to fund global expansion, so recourse to institutional investors, in whatever form that might be, is still probably inevitable. If resources are limited and the focus is truly global, why not bypass the NZ market entry - other than for perhaps testing the business model - and go straight to the chosen global market. And if that becomes the preferred strategy, why engage with NZ investors nervous about global expansion?

There are exceptions to this analysis, but they are few and far between. It is significant that Investment NZ has representatives in key global regions whose task is to attract local investors to invest in NZ businesses. I have personal experience of this. They play a key, if somewhat discreet role, in New Zealand Government's program of attracting inward investment. I believe they frequently offer more potential to truly globally orientated start-ups than the domestic NZ investment community does.

New Zealand companies desire for offshore capital is often criticised as being a negative for the economy. Without it, and with NZ's weak capital market for start-ups, many could not expand at all. For me, offshore investment remains an important and sometimes an essential option for start-ups in NZ to execute their global plans. Brian Gaynor's article reinforced that view.