Hunting the elusive Antipodean unicorn

New Zealand is a nation of small businesses. The latest statistics show companies with fewer than 20 employees make up 97 percent of all our firms, accounting for 29.3 percent of employment and contributing over a quarter of New Zealand’s GDP.

And yet, while small businesses are mainstream and the startup ecosystem’s value grew 103 percent in the last year, there’s a distinct lack of unicorns – privately held startups valued at over $1 billion. It begs the question: what will it take to grow more? 

In a recent fireside chat, three panellists associated with deeptech investment firm Pacific Channel attempted to provide an answer, sharing their experiences commercialising benchtop science and advanced engineering from Down Under. 

They concluded that while the nation is filled to the brim with exciting research, it’s not ideas that succeed; it’s businesses. And a scalable business requires having the right people in the right place at the right time. 

The right time

For those interested in growing a unicorn, seizing opportunity is a big part of it, says Cather Simpson, a University of Auckland professor and Pacific Channel partner. 

“You’ve got to be patient, look for the gap, and when it hits, be ready to take it,” she says. But it’s not simply a matter of waiting for something to fall into your lap; a unicorn requires hunting. 

Tapping into the wealth of research and research capabilities in universities is a good place to start, says Simpson. Though she notes that while scientists are “pretty good” at identifying the “next big thing,” there needs to be a commercial element. 

This can be assessed two ways. 

The first, ‘commercial-pull projects’, design research around marketable solutions. Engender Technologies, a sperm-sorting technology for the dairy industry, is one example. Simpson pursued the venture through the University of Auckland’s Photon Factory after Pacific Channel approached her for help resolving “big problems facing the dairy industry” in 2011. 

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Pacific Channel says the CRV International acquisition of Engender for an undisclosed sum in 2018 is its ‘best cash exit’, having received 75 times its initial seed investment. The venture capital led the $700 thousand dollar seed round, which included other investors, in 2015. 

The second way is research-first projects from which businesses organically emerge. The best way to assess this type is by going to universities and seeing the research taking place, says Dr Gary Pace, chairman of Pacific Channel and former independent director of ResMed. 

Using ResMed, the US-based respiratory product company now valued at US$23 billion, as an example, Pace says the founder, Peter Farrell, leapt at the chance to buy out the IP for the sleep apnea technology after seeing it in action during a visit to Sydney University. There, a “400-pound guy” had been “rigged up” to the machine, and Farrell saw for himself that the technology enabled the man to sleep through the night, Pace recalls. 

Knowing the technology was the “real deal” and recognising the gap in the market, Farrell knew he had what it took to create a billion-dollar business, says Pace. 

The right people

The next step in getting an idea from the benchtop to a business is hiring the right people. And, from a capital perspective – whether in the seed stage or later – the individuals driving the project and their ability to execute growth are frequently taken into account, says Kieran Jina, Pacific Channel’s managing partner. 

In Jina’s experience, finding the ‘right person’ is iterative, evolving throughout a business’ life. If the end goal is liquidity, the right person starting out may not have the skills necessary for scaling, he says.

Pace says the ‘iterative process’ also applies to founders. People must understand that they are “smaller parts of bigger pies” and, at times, raising capital and commercialising requires a founder to step down from the business, he says. 

“I always say to somebody: ‘look, I can’t guarantee you a job for life, the world doesn’t work that way. What I can say is that if we hit this milestone, everybody’s going to be rewarded’.”

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The right place

New Zealand has a population of five-and-a-half million people and, as a result, there are knowledge gaps, says Simpson. 

Using Rocket Lab, which moved its headquarters to California in 2013, as an example, she says there’s nothing wrong with going overseas to “bring the best in”, as success abroad can grow the home industry. 

“If you told most of the people in this room 15 years ago that New Zealand would have a growing space industry, you would probably get laughed at,” she says. 

Now, because of founder Peter Beck’s decision, she points out that the space industry is an important part of New Zealand’s high-tech sector, with a total estimated revenue of $1.75 billion according to a 2018-19 Deloitte report. 

To find the right place for a company, Pace recommends plotting out the exit from the beginning. “Ask yourself, ‘what do you want to be when you grow up?’ Then work out the path to get there,” he says – even if it requires adjustments along the way. 

Jina says that the exit plan is also beneficial from an investor perspective as it helps build a funding pathway and determine what’s ‘doable’ in the context of Australasia.  

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