New Zealand's technology sector is a powerhouse, with a recent report highlighting the country's impressive venture-backed companies and their combined enterprise value of NZ$133 billion. This achievement is particularly remarkable given New Zealand's relatively modest capital base. However, the question arises: how can New Zealand retain the economic benefits of these successful technology companies? The answer lies in understanding the broader ecosystem and the role of talent, capital, and knowledge transfer.
The Double Loss
The report identifies a "double loss" scenario where Kiwi founders build major companies offshore, missing out on both the original value creation and the subsequent recycling of talent and capital. This highlights the importance of nurturing local capability and ensuring that successful firms continue to build local capacity. By conducting research and development, developing senior technical and managerial talent, and recycling knowledge, networks, and capital, these companies can contribute to the next generation of New Zealand ventures.
The Role of International Capital
While international capital is vital for New Zealand companies seeking global expansion, it's essential to strike a balance. The report notes that domestic investors play a crucial role in the early stages, while international investors provide most of the breakout and late-stage funding. However, the study also reveals that about 6% of venture-backed start-ups relocate internationally, representing 17% of the value created. This relocation is often associated with foreign venture capital, particularly US investment.
Building Local Capability
The key question is whether successful firms continue to build local capability. This includes conducting research and development, developing senior technical and managerial talent, and recycling knowledge, networks, and capital. These mechanisms are essential for increasing the likelihood of producing another successful company. Innovation policy should focus on the productive capability left behind by successful firms, rather than solely on capital invested, company valuations, and unicorn counts.
Conclusion
In conclusion, New Zealand's technology sector has the potential to create remarkable value, but retaining the economic benefits requires a comprehensive approach. By nurturing local capability, balancing international capital, and fostering knowledge transfer, New Zealand can ensure that its technology companies continue to thrive and contribute to the country's long-term prosperity. As Professor Rod McNaughton emphasizes, the greatest value of a successful technology company may be the capability it leaves behind, making the next success more likely.
