BNZ: Key Trends from 2023

Key Trends from 2023

2023 has been another fascinating year for New Zealand’s technology industries.

With many New Zealand tech businesses earning much or all of their income from overseas, the uncertainties in the current macroeconomic and geopolitical environment present challenges that have not been faced for quite some time. In particular, the sharp rise in interest rates and fall in equity valuations has made investment funds harder to come by. This is of significance, and investment funds are a key source of financing for scaling tech businesses, particularly early-stage and cash-burning firms.

The macroeconomic environment has created a number of effects, including those highlighted below:

• Growth has been harder and slower (but there has been growth all the same).
• There is a stronger focus on key performance indicators for sales staff and whether, in particular, global sales staff have been performing.
• There are more discussions around pathways to profitability, not relying on future capital rounds.
• Boards and founders are being more circumspect and thinking longer term around their capital strategies. There is still a big opportunity for increased financial knowledge and acumen across boards and founders.
• Leadership teams are exploring a wider varied range of capital options that are available to tech businesses. For example, global and local options, debt and equity options and more non-dilutive sources of funding such as revenue sources, grants and debt style offerings.

Despite the dynamic and challenging environment, it is encouraging to see the evidence of continued growth in New Zealand’s tech industry in the 2023 TIN Report: its TIN200 is up over 11% year-on-year.

At BNZ, we remain very positive in our outlook for New Zealand’s technology industries. We have continued to grow our leadership group in response to and in support of the growth of the industry, including appointments of leaders in fintech, paytech and emerging payments, climate and cleantech, emerging tech and creative tech (so far).

The BNZ team at the 2023 TIN Report Launch and Awards.

 

Scaling Up

One particularly encouraging statistic in the latest TIN Report was the increase in companies with over $100m in revenue: 34 in 2023 versus 15 in 2013. According to the New Zealand Tech Alliance and Technology Investment Network, there are over 20,000 tech businesses in New Zealand. If even a small fraction of those 20,000 could scale into $100m firms, the New Zealand economy would look very different.

On the whole, the New Zealand start-up ecosystem continues to thrive. Not a week passes in which we come across a start-up for the first time and are not amazed by their idea and ambition. The ecosystem is full of investors, incubators, accelerators, dilutive and non-dilutive capital options, advisors and more. This is a significant improvement from 10 years ago.

One development, though, that we would love to see in 2024 and beyond, is more start-ups becoming successful scale-up businesses (i.e. go from $0–$5m to $5m–$100m+ in revenue) from New Zealand.

In this scale-up phase, founders, executive teams and boards have different risks and opportunities to consider than they did in their start-up stage. These include structures, systems and processes, more capital alternatives (a big opportunity), new markets, new products, security, culture at larger scale, attracting and retaining talent and so on. As such, being willing to seek advice from those with experience in New Zealand (and if possible, globally), is more important at this stage of growth than any other.

From our vantage point, the quality of a business’ advisors correlates relatively strongly with scale-up success.

With that being said, one big challenge facing New Zealand tech businesses is “moving on” or “evolving” fast enough from start-up advisors to scale-up advisors – whether they’re professional advisors, mentors, board members or others that have helped with the first phase of growth. This is not an easy thing to do. Good advisors should recognise when they have reached their limits, while founders should also regularly reassess whether the team they have in place are right for this the stage of growth.  A long-term outlook is key.

There is a lot of local and international talent and experience in and around New Zealand. BNZ would love to see tech businesses maximise their approach to advisors. If so, it might take just a few years – rather than a decade – to add another 19 tech businesses to that $100m turnover top tier!