Bridging Oceania - Our Thesis on the New Zealand Venture Capital Market
Bridgewest is a multi-billion-dollar privately held global investment firm founded in San Diego, California in 1999 and with global headquarters in Miami, Florida. For the past 30 years the founders of Bridgewest have been actively investing in and building businesses in the software, artificial intelligence, semiconductor, and biotechnology industries and continuously recycling capital from successful exits into new ventures.
The firm has built several multi-billion-dollar businesses from the ground up and played an important role in developing and deploying technologies that play vital roles in modern day life.
Before talking about the New Zealand innovation ecosystem, it’s important to highlight the big picture macro thesis that brought Bridgewest to New Zealand in the first place. Five to six years ago, an alarming trend began to take hold in many of the world’s developed countries. The social and economic freedoms and property rights were taken for granted started to become diminished. Bridgewest sought to diversify its exposure to these markets and began to look for alternative markets where they could be assured that their capital would be safe and treated well. Through a methodological multi-factor evaluation of several countries, Bridgewest found exactly what they were looking for in New Zealand. New Zealand was ranked as the least corrupt country in the world and held this distinction for nearly a decade. It was ranked third in the world in terms of strong property rights for business owners and ranked first in the world on the World Bank’s Ease of Doing Business Index. Simply put, Bridgewest viewed New Zealand as a safe and dependable home for investment and a great place to start a new business.
Bridgewest’s first foray in New Zealand was through a real estate. From there they moved into real estate and business backed lending to provide liquidity, helping to build local infrastructure, and support local New Zealand communities. These businesses have been very successful and have enjoyed fantastic returns on a risk adjusted basis. As successful as these businesses were, Bridgewest saw an even bigger opportunity in early-stage venture, and they moved decisively to form a deep-technology incubator program in partnership with the New Zealand government’s Callaghan Innovation Agency in 2020.
As far as venture capital markets go, New Zealand is a hidden gem. From a science and technology perspective New Zealand has strong foundations; all eight of the universities are ranked among amongst the top 3% in world and the New Zealand government is a strong champion of science and technology through the government funded Crown Research Institutes.
New Zealand has a strong culture of innovation, and Bridgewest has found entrepreneurs in Aotearoa New Zealand to be extremely focused on solving the world’s biggest and most pressing challenges. Valuations for early-stage New Zealand based start-ups are significantly undervalued when compared to their counterparts in other developed markets. Finally, start-ups in New Zealand tend to be operationally lean and highly capital efficient. The foundational elements for building great technology companies are robust and have only strengthened since Bridgewest entered the market a few years ago.
For the past several years New Zealand venture capital has grown at a rapid rate, but at just US $258M dollars in total funding in 2021 the market is just a small fraction of its potential size. Other nations with smaller populations like Israel, Singapore, Sweden, and The Netherlands have multi-billion-dollar venture markets. Bridgewest believes that the New Zealand venture market will increase exponentially overtime, and there are signs that that this is already starting to happen. Deal sizes are getting larger; in 2021 the median follow-on deal size increased to $1M, up +30% from $769K in 2020. In 2020 over 25% of deals were greater than $2M versus just 9% of deals in 2017, over half of all deals were over $1M in total deal value. Importantly, international capital is beginning to flow into New Zealand venture. Seven series stage venture deals were led by offshore VC firms in 2020 and Bridgewest expects that number to continue to grow going forward, despite global economic headwinds.
Like any other financial market, the number one driver of growth is success, and in venture capital success means profitable exits. Over the last few years there have been several notable New Zealand venture exits which has kicked off a virtuous cycle of capital recycling. Rocket Lab listed on the NASDAQ in 2021 and currently has a $2B market cap. In 2021, Seequent Technologies was acquired by Bentley Systems for over $1B and fintech company Vend was acquired by Lightspeed E-commerce for $350M. LanzaTech is set to IPO on the NASDAQ with a ~$2B valuation sometime in the third quarter of 2022.
| Country | Total Funding ($B) | Population (M) | Per Capita Funding ($) | GDP Funding ($B) | VC Funding % of GDP |
|---|---|---|---|---|---|
| Israel | $8.44 | 8.8 | $959 | $402.0 | 2.10% |
| Singapore | $8.25 | 5.9 | $1,398 | $340.0 | 2.43% |
| Sweden | $7.15 | 10.2 | $701 | $537.6 | 1.33% |
| Switzerland | $2.75 | 8.7 | $316 | $748.0 | 0.37% |
| Denmark | $1.97 | 5.8 | $340 | $355.2 | 0.55% |
| Finland | $1.70 | 5.6 | $304 | $271.2 | 0.63% |
| Austria | $1.23 | 9.1 | $135 | $429.0 | 0.29% |
| Ireland | $1.12 | 5.0 | $224 | $418.6 | 0.27% |
| Average | $4.08 | 7.4 | $552 | $437.7 | 0.93% |
| New Zealand | $0.26 | 5.1 | $51 | $212.5 | 0.12% |
Source: Crunchbase, PWC, World Bank
There is a common element of success across all these companies, global scale. All these companies, plus many more, have been able to leverage the resources of New Zealand, mainly smart, hardworking, and innovative people and build products and services that serve customers all over the globe. New Zealand is a small nation of just five million people, and no matter how successful a company is in the domestic market, it is difficult to create multi-hundred-million-dollar technology and life science companies without successfully scaling internationally. This presents an opportunity for global venture capital firms like Bridgewest to play an important and value-added role in the companies that they are invested in. Their knowledge, experience, and connections are highly valued by the local entrepreneurs that they work with, and Bridgewest has developed strong and harmonious relationships with founders because of this. 30 years ago, Bridgewest was named and founded on the thesis that they would bridge the technology they were developing in San Diego with the massive market opportunities in the western world. Today they have come full circle, bringing innovative technology developed in New Zealand to markets in the United States and beyond.
In investing the best returns come from being early. Spotting the next new thing before everyone else and riding the wave as the masses discover what you have already invested in. Bridgewest believes New Zealand venture capital is exactly that; a hidden gem that is just beginning to get discovered by the wider global investment community. With the combination of US capital, global connections, and New Zealand based entrepreneurs Bridgewest believe that the value creation opportunity is truly immense.
Do you have the next big idea in deep tech?
We’re searching for meaningful innovations that will impact our world socially, economically, or environmentally. This can come in many forms, from technology advances in AI development and semiconductor engineering to life science breakthroughs or biomedical discovery.
If you’ve got a novel idea, apply to the Bridgewest Ventures Deep Tech Incubator today!