New Zealand's technology sector has received some unusually good news.
Author
- Rod McNaughton
Professor of Entrepreneurship, University of Auckland, Waipapa Taumata Rau
A new report by global data platform Dealroom and NZ Growth Capital Partners estimates the combined enterprise value of New Zealand's venture-backed companies at NZ$133 billion.
It identifies more than 400 firms, including eight " unicorns " that have reached a valuation or exit of more than US$1 billion. Two of these are " decacorns " valued at more than US$10 billion - aerospace firm Rocket Lab and global financial services provider FNZ .
More striking still is how much enterprise value has been created from a comparatively modest capital base. Relative to peer innovation economies, New Zealand generates unusually high enterprise value relative to the venture capital invested.
That's an impressive result for a country of New Zealand's size. But it also prompts a question many local observers will be asking.
Is New Zealand as good at retaining the wider economic benefits of successful technology companies as it is at creating them?
A $133 billion success story - with a catch
Enterprise value tells us how valuable New Zealand's venture-backed ecosystem has become. It tells us much less about how much capability their success has built in New Zealand.
Dealroom's definition includes companies founded here that subsequently moved overseas. The report also identifies more than ten billion-dollar businesses created by Kiwi founders but built offshore, across software, fintech , artificial intelligence and consumer technology.
The economic value of a successful start-up lies not only in the company it becomes, but also in the companies, capabilities and capital that come after it.
Successful firms produce experienced managers, engineers and investors who have learned how to build at a global scale. Employees become founders. Investors recycle returns. Founders, employees and investors acquire knowledge about markets, technologies and how to scale.
The report shows this process already occurring around New Zealand companies such as Xero , Trade Me , Pushpay and Rocket Lab.
That is why the report describes Kiwi founders building major companies offshore as a "double loss". New Zealand can miss both some of the original value creation and the subsequent recycling of talent and capital that helps produce the next generation of companies.
A country's economic return from entrepreneurship, therefore, cannot be judged solely by the valuation of the companies it produces.
Growth can shift where value is created
Does New Zealand simply need more venture capital? The report certainly identifies room for growth.
Despite its high capital efficiency, New Zealand has less venture capital-backed enterprise value per person than several comparable innovation economies.
It also shows that domestic investors remain important in the early stages, while international investors provide most of the breakout and late-stage funding.
That international capital is vital. New Zealand companies seeking to operate globally need access to deeper pools of finance, specialist expertise, customers and networks.
But scaling can also change the geography of a company. As firms expand internationally, decisions about where to locate management, research, investment and other high-value activities can change as well.
A 2024 study , based on around 11,000 venture-backed start-ups across 17 countries, found that about 6% relocated internationally. Those firms represented 17% of the value created, and foreign venture capital, particularly US investment, was strongly associated with relocation.
This does not mean foreign investment is the problem. Finance is one part of a wider process through which growing companies connect with new investors, directors, managers, customers and markets.
Over time, those relationships can influence where important parts of a company are located.
Success doesn't have to leave NZ entirely
Dealroom itself recognises this by distinguishing globally successful companies with a strong New Zealand presence from those with only a partial one. Some have received relatively little local investment or now retain only a limited presence here.
A company can remain headquartered in New Zealand while its economic centre of gravity progressively moves elsewhere. Equally, a company can establish its headquarters offshore while retaining substantial research, engineering and other high-value activities in New Zealand.
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.
That is why the goal should not be to stop New Zealand technology companies from becoming global. For firms originating in a small domestic market, internationalisation is often essential.
Nor is the answer simply more venture capital. As Dealroom notes, New Zealand's remarkable capital efficiency reflects more than funding alone. Investment also needs to be matched by capability, experience and global connectedness.
Innovation policy should therefore pay as much attention to the productive capability successful firms leave behind as it does to capital invested, company valuations and unicorn counts.
Ultimately, the greatest value of a successful technology company may be the capability it leaves behind. That is what makes the next success more likely.
Rod McNaughton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
