City of deals: Auckland companies grab early cash

A record $160 million was invested by angel and venture capital investors in early stage New Zealand technology companies in 2020.

Of this, $119m, or 75%, was raised for 60 investment deals in Auckland. This compares with 14 in Wellington/Manawatu, 10 in Canterbury/Upper South Island, nine in Otago/Southland, and two in Waikato.

The figures are part of The Investor Network (TIN) Investor’s Guide, a report released today in partnership with the Ministry of Bfusiness, Innovation and Employment (MBIE), Australian Securities Exchange (ASX), Auckland Unlimited, and NZ Growth Capital Partners (NZGCP).

Despite the uncertainty brought on by covid-19, the overall number of venture capital deals in 2020 was 92, double the 46 in 2019.

Overall capital investment in NZ tech companies rose 111% in 2020 to $2.4 billion.

TIN managing director and founder Greg Shanahan called the results “surprising” but was excited to see the numbers rise.

One of the advantages NZ has as a "pretty small pond" is it "doesn't take a very large rock to make a big splash,” he told BusinessDesk.

“If you look at the money coming in, it's been transformative in terms of the tech sector.”

The report draws data from November 2020’s TIN top 200, a report listing the country’s 200 top companies that are; NZ-founded, have a presence in NZ, are in manufacturing, IT or biotech, have developed their own tech-based intellectual property, and generate at least 10% of their revenue offshore.

It found NZ’s tech sector was worth $12.7 billion, with $9.7bn in offshore revenue generated in 2020 by the 200 companies, up 10.6% on 2019.

The top five NZ tech companies by 2020 revenue were Datacom, Fisher & Paykel Healthcare, Fisher & Paykel Appliances, Xero, and Gallagher Group.

Offshore interest

North American companies are still interested in NZ tech. Eight of the 11 TIN 200 companies acquired in 2020 were by North American companies, and in 2021 Seequent and Vend were both snapped up by US organisations for $1.46b and $455m respectively.

The report put the interest down to “a combination of pent-up demand from covid-19 and the many promising technology companies based in New Zealand”.

“On the investment side you’ve got a lot of cash rich pools of venture capital money,” Shanahan said.

“I can’t recall a time in the 20 years that TIN’s been going that there have been so many successful raises by various parties with so much money to spend within New Zealand.”

Shanahan also pointed to the recent mergers of Auckland-based Transaction Services Group with the US company Clearent, and Rocket Lab’s impending merger with special purpose acquisition company Vector Acquisitions.

“Now there's a range of companies with billion dollar valuations … the whole scale of investment seems to have taken a stepwise advancement.”

While not a TIN-tracked company, Dunedin booking software company Timely was acquired last week by US-based EverCommerce for a sum believed to be over $100m.

Bright future

MBIE chief executive Carolyn Tremain said the Investor’s Guide “demonstrates the continued interest in our tech sector, and provides vital insights into how we can work together to further grow the sector’s contribution to New Zealand’s economy”.

Digital economy and communications minister David Clark said NZ’s tech sector is “creating high value jobs and generating sustainable, weightless exports to the world”.

“It shows there are plenty of reasons to invest in NZ’s tech companies, which will be a key contributor to the future economy.”

“There is a longer-term trend in terms of the growth of investment in tech companies, but I think covid has had an accelerating effect,” Shanahan said.

“If you take the investment opportunities in terms of the companies themselves in times of disruption, you get an acceleration in innovation.”

He said companies in areas such as collaborative software, video conferencing, e-health, healthcare, and online gaming have all been impacted by covid, but they have still grown as people put more money into them.

“There are large pools of money floating around the world and looking to find a good home and so I think NZ's performance during covid-19 is an economy and a country is having an economic benefit. People have, relatively speaking, greater confidence in NZ as a business ecosystem.”