Kiwis are inherently innovative and resourceful, but talent shortage still hinders New Zealand’s startup ecosystem

- July 1, 2015 8 MIN READ

It’s difficult to quantify how much and how quickly the New Zealand startup ecosystem has grown in recent years, but by all accounts it’s “heaps” and “very quickly”.

Andy Hamilton, CEO of Auckland based incubator The Icehouse, said there’s more support for startups in New Zealand than ever before: incubators, accelerator programmes, shared working spaces, and fundraising sources included.

“Startups and the role that they play in regional and national economies has really lifted its profile over the last two [to] 12 years. There is a lot of activity. There’s a lot more inputs now than what there was,” said Hamilton.

While Hamilton is right in the thick of the startup scene in Auckland, Dave Moskovitz is one of the godfathers of the Wellington ecosystem. The self-branded “professional geek” is an Angel Investor, Startup Weekend organiser, and InternetNZ councillor. He’s really good at the trumpet too.

In 2011, there were only two Startup Weekends held in New Zealand: both in Auckland. Last year there were 10 nationwide, with the total tally now topping 30.

“The amount of money invested in Wellington startups has increased year on year and the variety of different startups has also increased,” said Moskovitz.

Shared working spaces in Wellington are also on the rise.

Allen Huang, who co-owns New Zealand’s largest shared space listing website sharedspace.co.nz, said the same is true in Auckland.

“When we first started out it might have been two or three co-working spaces in Britomart and now I think there’s about 30 or 40 all within the downtown area. At least 50 percent of the spaces are occupied by startups or developing startups or people wanting to jump into a startup,” he said.

Huang also pointed out that there’s lot of buzz around startups with many people choosing the entrepreneurial life after being inspired by founders of mega-success stories like Facebook and Instagram.

“I kinda feel like they’re the new rockstars of this generation,” he said.

But if starting a company is now cooler than starting a band, what is the biggest challenge in growing that company locally into the next big act? The almost unanimous answer is the small talent pool of technical people in the New Zealand ecosystem.

Huang said New Zealand’s tech talent get picked up by established tech companies, making it even more difficult for startups.

“I think they have a bit of a stranglehold on most of the developers looking for a good work environment, a steady paycheque, and good career prospects,” he said.

Hamilton said the talent shortage is significant. “I think in New Zealand there’s probably 10,000 unfilled jobs in the tech space. That’s a big number.”

Minister for Science and Innovation Steven Joyce believes a lack of highly skilled staff is “the biggest bottleneck right now”, but says the government is working on fixing the shortage through promoting technical education at tertiary institutions.

Like in any business, it’s not what you know but who you know that often ends up being the biggest asset. With only 4.5 million inhabitants, New Zealand is an easy place to build contacts.

Tom Harding, founder of Mish Guru, a Snapchat marketing startup born out of a three-month Lightning Lab accelerator in Wellington last year, said accelerators are great places to build key business connections.

“Looking at where we are now versus if we had started from scratch not having done Lightning Lab, there’s no way we’d be as far along as we are,” he added.

Number Eight Wire

There’s a cliché in New Zealand as old and tired as the sheep shagging jokes the country’s Australian neighbours so dearly love. The phrase “number eight wire” stands as shorthand for an innovative spirit which is supposedly inherent to all Kiwis.

The number eight wire mentality comes from the country’s farming heritage and the revered mythical Kiwi bloke who can fix everything with a piece of wire. It’s an ethos many in the startup community identify with.

“I definitely think the number eight wire plays a huge role. I think New Zealanders by nature are very hands on, they like to give things a go if they have a bit of an idea,” said Huang.

But it appears it can also be a double-edged sword.

A.J. Bertenshaw is a man who’s been through the startup process and come out the other side as the CEO of Auckland-based Serato, makers of the industry-standard DJ software.

He says New Zealanders are not alone in thinking they’re innovative and startup founders who think that way can get stung.

“All countries think of themselves that way. Everyone thinks they’ve got that ingenious spirit. It can actually work to our detriment here in New Zealand. US companies are probably more likely to bring in an expert or figure out the right way of doing something. Often Kiwis will try and do something themselves that they probably should bring an expert in on.”

Harding agreed with this sentiment. “I think Kiwis find it a lot harder to ask for help,” the straight-talking Mish Guru CEO said from his current home of New York City.

“There is some really fucking awesome people in the New Zealand ecosystem who have done cool shit and have just learnt all of this stuff. You talk to them about your problems and they’re like ‘yeah, cool, been there done that, here’s the solution’. You’re fucking stupid not to make the most of it.”

Money, Money, Money

As any new startup learns quickly, you need money to make money. Often a lot more money than you had expected to make a lot less money than you’d hoped.

A law change last year made equity crowdfunding a new capital-raising option for entrepreneurs looking to raise up to NZ$2 million. Platforms like Snowball Effect and PledgeMe have been used to raise millions from eager investors hoping to strike gold by picking the next TradeMe, Xero or Vend, but Hamilton said equity crowdfunding is still relatively minor in the overall capital market.

“The angel investment startup market is about $100 million and about 70-90 deals a year. In year one, the equity crowdfunding market’s going to end up being about $10 million and about 12-15 deals. So it’s new and emergent,” said Hamilton.

He added that money raised through equity crowdfunding is “not smart capital”. He believes angel investors like his own incubator’s Ice Angels provide much more than just money: they have expertise to offer too.

“You’re getting people who are aligned and who care and want you to be successful because they’ve got it on the line too,” Hamilton said.

But equity crowdfunding does have a role to play in New Zealand. According to Hamilton, “If they can grow to $50 million, I just look at that as that’s another 40 entrepreneurs getting a chance to do something and learn. And that’s a good thing.”

PledgeMe co-founder Anna Guenther said equity crowdfunding is a better option than venture capital or angel investors for some startups.

“Companies are still getting their head around what it means. It’s going to be really important for bridging that early stage capital chasm where maybe they’re not the right fit for angels or VCs,” she said.

Guenther pointed out that VCs and angels tend to target certain startup sectors more than others and are more likely to invest in entrepreneurs they’ve built relationships with.

“That often leaves out a lot of companies that potentially would be a really great fit for equity crowdfunding because they’ve got really loyal customers. It might not be the same sort of growth that an angel or VC would expect but still potentially could give a good return at some point,” said Guenther.

“It’s activating a much larger network because it’s activating every single New Zealand resident and potentially overseas investors as well.”

The Flying Kiwi

You don’t need a doctorate in geography to realise New Zealand is isolated from the rest of world and that’s a realisation startup founders generally have to tackle early on in their growth.

Moskovitz put it bluntly: “Every week you spend in the New Zealand market is a week that you’re wasting not exploring the rest of the world which is 99.99 percent of it.”

He said New Zealand entrepreneurs need to be outwardly focused from the get-go, but many have too small an appetite for the risk involved in leaping overseas.

“One of the first things you should do if you have those aspirations is hop on a plane and start forming those relationships which are going to help you to global success because you can’t really do it from New Zealand,” Moskovitz added.

Harding, who has been based in New York for about a month, prescribes to that philosophy. Mish Guru was only founded last year and has two people in the U.S and two in Europe. The rest of the team – five of them – are based in Auckland.

It was 11:15pm in New York when I spoke with Harding. He’d just gotten home from the first NYC Snapchat Marketing Meetup, which he organised. Mish Guru picked up the tab for everyone: an expense Harding said was worthwhile because of the benefits of face-to-face networking.

“The closer you can get to the people in real life, the closer you can get in timezone, I think the easier it is day to day. If you’re serious about pursuing these opportunities just get on the plane,” Harding said.

Serato is proof that the assumption you have to go overseas to make it globally is not always true. The company employs almost 100 people at its Auckland HQ despite the New Zealand market accounting for less than one percent of the its revenue.

“It certainly has its challenges. Our timezone doesn’t match any of our markets,” says Bertenshaw who co-founded the DJ software company with developer Steve West in the late nineties.

“The disadvantages are the shallower talent pool. You have to work a lot harder to get that really top one percent of best developers. If we were to double in size, we’d definitely have to consider drawing on other talent pools and it’s pretty hard to bring people to New Zealand from overseas.”

But Bertenshaw said Serato is proud of its Kiwi origins and would open offices in Wellington and Christchurch sooner than Los Angeles.

Beehive Buzz 

In a natural ecosystem, bees play a crucial role in cross-pollination. So what role does New Zealand’s parliament, nicknamed “The Beehive”, play in the startup ecosystem?

Minister for Science and Innovation Steven Joyce said the current government has put more into growing the startup ecosystem than any other government before it.

Within the last month, he’s opened an innovation hub to support startups in Christchurch and announced the first seven recipients of a $450,000 loan as part of a new scheme the government set aside more than $30 million for last year.

“It’s all part of the diversification. I’m not one of those ones that plays down the importance of our food industry and so on but we’re very keen to see the tech industries develop. We need more of those companies and they’ll create a more balanced economy paying the sort of high level wages that we want to see over the years ahead,” said Minister Joyce.

“With all these startups it’s still going to be a fairly high attrition rate so we can’t get too worried about that but I’d say we’re probably three or four years away from really seeing the benefits. I’m pretty confident from what I’ve seen so far.”

The general feeling in the startup ecosystem is that setting up and doing business in New Zealand is easy and government support is strong. But it’s not perfect.

“Our tax laws are probably some of the most complicated in the world and we’ve actually got one of the highest levels of accountants per head of population,” said Bertenshaw.

His advice for startups is keep your books in order right from the start.

Silicon Welly?

New Zealand’s capital has a knack for attracting American-inspired nicknames like ‘Wellywood’, which refers to its film industry, and ‘Silicon Welly’, which refers to its startup scene. The former caused outrage when plans were revealed to put it on a giant Hollywood-inspired sign, and the latter annoys Moskovitz.

He says people regularly ask him: ‘how do we make Wellington the next Silicon Valley?’

“I don’t want to be the next Silicon Valley,” he replied. “I use to live there, we don’t want Wellington to be the next Silicon Valley. We want Wellington to be the next Wellington and New Zealand to be the next New Zealand.”

So I asked him what the future New Zealand startup ecosystem looks like in his mind. What is our brand and what are our strengths?

“[T]hat’s still a work in progress.”

Although the future of Kiwi innovation is yet to be determined, one thing’s for certain: a thriving ecosystem of startups is working hard to replace the number eight wire as its symbol.