AI avatar startup Soul Machines had the single most successful funding round of 2022. The Auckland software firm's Series B round in February, led by Japan's Softbank, raised $104m. Photo / Supplied
AI avatar startup Soul Machines had the single most successful funding round of 2022. The Auckland software firm's Series B round in February, led by Japan's Softbank, raised $104m. Photo / Supplied
A new report released by TIN (the Technology Investment Network) reveals three trends in tech investment.
1 Seed investing tanked, but tech investment grew overall
NZ tech startups got less money from investors in 2022 as “Tech Wreck 2.0″ set in.
But later-stage firms actually bagged more capital last year- a trend that saw total investment in tech firms rise 8.2 per cent to a record $726 million.
That’s according to the Technology Investment Report compiled by TIN.
A rise in investment from overseas helped keep 2022 buoyant overall, TIN managing director Greg Shanahan says. The six largest investment rounds were all led by overseas firms. Around $400m worth of deals were led by overseas investors and $268m by locals (with $58m undisclosed).
2 The second half was not so flash
Another notable trend is that 2022′s record investment was stacked heavily into the first half of the year, particularly the first quarter (see chart below).
The year’s largest deal came in February, as AI avatar company Soul Machines - getting in notably ahead of the current artificial intelligence craze kicked off by ChatGPT’s launch - raised $104m in a Series B round led by Japan’s Softbank.
In the second half, rising rates and falling markets started to bite the sector.
But it did have a spike in its tail as Partly, seed-funded in part by Rocket Lab founder Peter Beck, closed a $37m Series A raise - a New Zealand record - at a $180m valuation.
3 Gender imbalance
A third major trend tracked by TIN’s Technology Investment Report (its first to focus on venture capital) was that 27 per cent of investment went to firms with women founders.
It was the first time the survey had captured the numbers. Shanahan saw it as positive in the context that just 18 of the tech firms in last year’s TIN200 (an annual ranking of NZ’s largest tech exporters by revenue) had female CEOs or founders (when the index started 10 years ago, it was six).
“We’re not there yet but there is strong momentum towards greater gender balance in founder or CEO roles in the tech sector,” - TIN MD Greg Shanahan.
But the survey also found that the average deal value for a female-led tech firm was $3.4m, vs $5.2m for a male-led company.
Budget 2023 included $26.6m to support businesses to upskill to address digital skills gaps, and increase women’s participation in the technology sector from 27 per cent to 50 per cent by 2030.
“We’re not there yet but there is strong momentum towards greater gender balance in founder or CEO roles in the tech sector,” Shanahan said.
One of the newest venture capital firms, the Sarah Park and Anna Stuck-founded Even Capital (which invested in Woolchemy in March), bills itself as the first female-founded and focused venture capital fund.
Anecdotal evidence points to tech investment holding its own this year, however, Shanahan says.
He points to Movac - NZ’s largest venture capital firm - whose Growth Fund 6 closed a $202m raise on May 1. The money will be invested in firms at the Series A stage or later.
That was less than the $250m that Movac raised for Growth Fund 5, general partner Mark Vivian said his VC firm was also raising money for a new Emerge Fund, which was targeting $50m by December (as of May 11, it has raised $15m with “strong indications” for another $15m to $25m). Emerge will target early-stage companies at the pre-Series A or seed funding stage.
While rates remained high and rising, strong results by listed tech firms like Xero, F&P Healthcare and Serko had helped to improve sentiment, Shanahan said.
The TIN MD said New Zealand’s 29 publicly traded tech companies had a “staggering” $25.2 billion shaved off their collective market cap during 2022, despite their total revenue rising 7 per cent - “suggesting company trends remain strong despite sharemarket wobbles.”
Will Budget 2023 help?
A lot of 2022′s overseas investment came from Australian-based venture capital firms, the largest of which was Blackbird Ventures (which also has an NZ office). Crown agency NZ Growth Capital Partners (NZGCP) put $30m from its $300m Elevate Fund into Blackbird’s NZ Fund 2 in May 2022.
Elevate, created in 2020 to gee-up NZ’s venture capital sector, was only ever allocated $259.5m, which is nearly exhausted. NZGCP held talks with Treasury, MBIE and the NZ Super Fund in the build-up to Budget 2023, which say it finally received its final $40.5m - which was regarded as a positive by the industry, if short of hopes that Elevate would get another dollop of $300m.
Although it was another quiet Budget for tech - beyond the headline move for a 20 per cent rebate for the video game sector, in a $160m play - Shanahan saw angles for the tech industry in the $451m earmarked for three new science and research hubs in Wellington.
“The Government is putting nearly half a billion dollars behind grand plans to make Wellington a ‘science city’,” Shanahan said.
Although cloud software remains easily the big dog of venture capital investment (it accounted for $255m across 54 deals in 2022), deep-tech, transport and health tech were all up-and-coming.
‘2021 was an anomaly’
A recent report by NZGCP, the Angel Association and PwC also found a dip in seed or pre-Series A investment during 2022.
It found that early-stage firms pulled in $112m from investors in the second half of last year - a 43 per cent fall over the same period in 2021.
NZGCP chief investment officer James Pinner told the Herald it was a case of the market reverting to the norm.
“This is exactly as we have been expecting given the change in economic conditions and it is becoming increasingly clear that 2021 was a bit of an anomaly globally with the rebound post-Covid and a number of economic conditions supporting plentiful and cheap access to capital,” Pinner said.
“We are starting to see the correction in startup funding trickle down and return to normal conditions – an increased discipline in investment and a focus on the fundamentals of strong, scalable technology businesses that are solving real problems.
“Experienced investors have not been too spooked by the recent downfall and know that this is a long-term play and tougher economic conditions often drive the greatest innovation. Valuations will likely continue to fall from the heady days of 2021 and capital will be harder to get but the key is to keep investing in the most promising companies and reap the rewards - both in terms of financial returns but also impact - that will come over time.”
