Startup funding plunges, tech exporters boost earnings

New Zealand’s tech sector has reconfirmed its spot as the second-largest source of offshore earnings behind dairy for the third consecutive year, having doubled in size in the past decade.

The latest TIN Report shows Kiwi tech firms had 11.8 percent year-on-year revenue growth to $17.1 billion, compared to $1.53 billion the prior year. There are now 65 companies with revenue of over $50 million compared to just 33 in 2013.

Report author and TIN head of research Alex Dickson says this year’s growth was really laudable when considered against a backdrop of economic and geopolitical flux.

However, New Zealand startups saw a near one-third reduction in total deal value for capital raising in the year ending June 2023 following a record-breaking 2022. There was a global contraction in venture capital funding as investors took a more cautious approach and founders were forced to conserve cash.

Worst hit were the later-stage deals, including Series A with only 42 completed this year compared to 65 the previous year. The average raise was $12.1 million, with offshore venture capitalists largely absent. Foreign-led investment in this space fell to $403 million from $564 million in 2022.

Ones to watch

There are always exceptions. Agritech firm Halter netted $85 million as part of its Series C funding led by Bessemer, while e-waste miner Mint Innovation raised $60 million in its Series C round led by Liverpool Partners. Wellington fintech Hnry also secured $38 million in a raise led by Airtree Ventures.

Pre-seed investment deal volume was up slightly to 110, though amounts were down; the average raise fell to $1.5 million from $2.1 million the prior year. Tracksuit, Kitea Health and Kiki saw the largest deals, while in terms of sectors, software remained the most funded attracting 20 percent of the money raised at this level, while cleantech and agritech investment also rose.

The report included 10 profiles this year on early-stage startups it considers likely to become TIN200 companies of the future. The selections were based on the amount of capital raised, any funding received for collaboration on major projects, number of sales or revenue gained through non-traditional means, and any industry awards.

The 10 include Atomic.io, Black Salt Games, Fabrum, First Table, Renti, ScentianBio, Tracksuit, Toku, Vortex and Writer’s Toolbox.  

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Offshore earnings

Fisher & Paykel Appliances took the top spot on the TIN100 this year, with revenue of $1.7 billion, while Fisher & Paykel Healthcare slipped into second place with revenue of $1.5 billion and Datacom was third on $1.49 billion.

Xero was the fastest-growing tech firm by revenue dollars, up $303 million, followed by Fisher& Paykel Appliances with growth of $220 million and Rocket Lab up $104 million.

High-tech manufacturing accounted for just under half of the total TIN200 revenue at $8.2 billion, up 9.2 percent, while ICT rose 15 percent to $7.8 billion and biotech rose 10 percent to just over $1 billion.

Some 70 percent, or $13.2 billion of revenue, came from offshore, with strong sales growth across the traditional markets of North America (up 19.4 percent), Europe (up 11.6 percent) and Australia (up 10 percent).  

Fintech was the fastest-growing and highest-grossing subsector this year, with total revenue of $2.8 billion, up 22.8 percent on 2022. It now accounts for one in every six dollars earned among the top 200 tech firms.

One of the less impressive figures from the data is that only 13 firms are led by women, down three from last year.

On a more positive note, R&D spend was up a healthy 9.8 percent for the third consecutive year, hitting $1.72 billion.

One of the key figures in the data collected is a rise in productivity, as slower employment combined with rising export earnings boosted returns. Tech workers delivered more bang for buck, contributing $268,170 in value per employee – up 8.5 percent on the previous year.

Job growth for the top 200 tech firms dropped 3.1 percent, while surveyed firms hiring offshore outpaced onshore, rising by 2,127 staff to 31,145. The average salary per employee rose 8.5 percent during the year to $99,740. In the past decade the average staff count has risen from 199 to 319.

A comparison of figures collected 10 years ago shows a big shift in firm ownership; in 2013, 137 of the 200 firms were privately owned, versus 78 today. There are now 45 companies backed by private investment, 44 by foreign owners, and 33 have gone public.

The report is based on responses from the 1,200 companies approached. Where any surveys were not returned or were incomplete, the report authors used publicly available figures, estimates based on comparable companies or data supplied in previous years.