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PwC: Investment in NZ startups remains resilient, despite lockdowns

Investment in New Zealand startups has remained relatively stable despite the COVID-19 lockdowns and disruption to business, according to the latest Startup Investment report from PwC and the Angel Association (AANZ). 

According to the report, investors have been primarily focussed on deep tech and SaaS (software as a service), with these sectors attracting more than two thirds of total investment. 

There was $33.6m invested into these sectors through to 30 June 2020, which is only a 5% reduction in investment compared to the same period in 2019, according to Young Company Finance deal data, supplied by NZ Growth Capital Partners.

"The global pandemic is continuing to have a profound impact on businesses by driving the need to embrace technology, innovate and do things differently," PwC partner Anand Reddy says.

"While this has been a real challenge for some industries, it has highlighted the resilience of the New Zealand startup community and its investors - particularly those operating in deep tech and SaaS," he says.

"If we reflect back to the global financial crisis in the first years of the 21st century, it showed that brave, innovative startups are often born out of economic uncertainty.

"I believe that the financial fallout from the global pandemic, along with the brain gain from returning Kiwis, provides a similar opportunity for New Zealand startups, especially those solving global issues."

Suse Reynolds, chair of the Angel Association, says it is critical that startup and early stage investors maintain the momentum of recent years despite challenges and uncertainty of the COVID-19-induced recession. 

"Not only do recessions deliver some of the best returns from startup investment, but equally importantly, the high growth tech companies we are supporting will play a vital role in New Zealands economic revival," Reynolds says.

The latest Startup Investment report focuses on deep tech ventures which are defined by their complexity, both in terms of the science that underpins them and the IP they generate. Often, they have long development lead times before the product is in market and may have significant capital requirements and challenging regulatory barriers to overcome.

These characteristics can be part of their appeal as investment opportunities. They have a highly defensible competitive edge and are going after high-value markets. This means the returns from a financial and socio-economic perspective are meaningful.

Kiwi bio-tech company Aroa Biosurgery works in the area of deep tech. Founded in 2008, Aroa's products made from sheep forestomach improve complex wound healing and help regenerate soft tissues in medical procedures worldwide. 

"Aroa is a great example of deep tech investment - investors provided funding for some years before there were any returns, but the company listed on the ASX in July this year with an initial IPO of $45 million," says Reynolds.

"Deep tech founders are solving the acutely gritty problems the world faces such as those in healthcare, climate change and pollution amelioration.

"We know that the challenges delivered by COVID-19 and the consequent recession are far from over, and there may still be tougher times to come, but startups need investment more than ever so we need New Zealand investors to stay the course."