Bridging the Finance Gap for Women Entrepreneurs

24. New Zealand: Policy insights on equity finance

Dr. Janine Swail
Queens University Belfast

Professor Anne de Bruin
The University of Auckland

Professor Christine Woods
The University of Auckland

Background

New Zealand1 consistently ranks highly as an excellent location to start and grow a business. In the World Bank’s Ease of Doing Business Index 2020,2 the country held first position in various dimensions of the study, including starting a business, obtaining credit and registering property. According to the index, minority investor rights are also very well protected (ranked third). In addition, New Zealand is an attractive option for start-ups due to clear valuations for early-stage start-ups, good support from government agencies, social and political stability, relatively low taxes and wages, low levels of corruption, a skilled workforce and a high living quality (Editorial Staff, 2023[1]). Furthermore, the country’s culture values inventive and entrepreneurial thinking – often described with the term “Number 8 wire mentality”.3 It is, therefore, unsurprising that entrepreneurial activity has been historically high in New Zealand. Women comprise about 32% of total business ownership and New Zealand is ranked overall second out of 65 economies in the 2021 Mastercard Index Women Entrepreneurs4 in relation to entrepreneurial supporting conditions, women’s advancement outcomes and knowledge assets such as education and access to finance (Mastercard, 2022[2]).

While the availability of external funding has been an issue for New Zealand entrepreneurs, start-up investment has grown substantially over the last 10 years from a total investment value of NZD 53 million in 2013 to NZD 163 million in 2023. On average, the formal New Zealand early-stage venture investment market, comprising largely of angel and venture capital, has backed between 120-140 deals a year and is starting to mature. In the first half of 2023, Deep Tech ventures accounted for 49% of deals, followed by Software as a service (SaaS) ventures at 16%. This inclination toward high-impact, long-term value reflects a broader trend that emerged in 2022. Within the sub-categories in Deep Tech, Health Tech predominates, gaining 46% of all funding, followed by Clean Tech at 22% and Agri Tech at 17% (pwc, Angel Association New Zealand and NZ Growth Capital Partners, 2023[3]). Relative to its size, a high number of angel investors and family offices and a well-developed crowdfunding community exist in New Zealand. More recently, the venture capital industry has had a significant boost with the influx of several new funds, including the launch of the government backed Elevate fund of funds.5 Finally, a range of other governmental initiatives (e.g. the Aspire fund,6 new incubators and accelerators) support entrepreneurial activity, policy seeks to attract overseas funding and governmental-funded venture capital co-invests alongside private investors. In sum, while the amount of accessible investment and the number of investors has been a barrier for New Zealand entrepreneurs, a range of initiatives have alleviated the issue in recent years.

Notwithstanding all these positive aspects, New Zealand’s entrepreneurial environment in terms of the ecosystem lifecycle which moves through four stages, places only Auckland in the second stage, while the rest of economy is still in the first activation stage (Gauthier et al., 2022[4]). However, noteworthy is that the female founder rate had grown significantly to 26% from 16% in 2017 and was among the higher rates globally (Start-up Genome, 2023[5]). Research has shown that New Zealand entrepreneurs often struggle because the local investment community lacks the capabilities and professionalisation that is needed to add (non-financial) value to a venture (Korber, Swail and Krishanasamy, 2022[6]). Furthermore, in 2023, investors showed a very clear preference to support start-ups they have already funded, with only 25% of investments allocated to new start-ups. 75% of investment was “follow-on funding” going to ventures already in their portfolios. The notable shift in support from new deals to existing companies does speak to a change in behaviour from investors and could adversely impact the pipeline of new start-ups if the trend continues in the longer term (pwc, Angel Association New Zealand and NZ Growth Capital Partners, 2023[3]), particularly those founded by under-represented groups such as women entrepreneurs.

Policy issue: Mitigating the gender gap in equity finance

A 2021 report highlighted the challenges women entrepreneurs face in New Zealand due to entrenched stereotypes and both conscious and unconscious gender bias (Swail, 2021[7]). The report emphasised, a key challenge for women starting out on their capital raise journey was finding the “right” people to connect with to help them build their investor networks. Additionally, investor fit and value alignment were of paramount importance to most women founders, followed by a requirement for smart capital and a desire to see increased diversity within the New Zealand investment ecosystem, which was viewed as lacking by women entrepreneurs. Notably, these challenges have been partially addressed in recent years (e.g. through dedicated support for science and women-led ventures). In May 2022, the government appointed a Start-up Advisors Council to provide guidance to the Minister for Economic Development and the Minister of Research, Science, and Innovation, empowering them to foster a national environment where start-ups can flourish. This culminated in the “Upstart Nation Report 2023” detailing several key success indicators to be achieved by 2030 (Ministry of Ministry of Business, 2023[8]). One of those indicators is to:

“Ensure underserved groups are represented at population parity: We are committed to fostering diversity across all stages of the entrepreneurial journey, ensuring inclusivity and equal opportunities for founders, employees, and investors. We aspire to reach representative parity with our population, which means building a start-up and investor cohort that is 17% Māori, 8% Pasifika and 52% women.”

However, a 2023 snapshot report drew attention to the significant challenges ahead to reach such parity, reporting that for every 100 start-ups that the state organisation, New Zealand Capital Growth Partners (NZCGP),7 invested in six were women founders (22 mixed-gender founders and 72 men founders) (Rudd and Gattung, 2024[9]). A similar picture was reported in the private sector where Enterprise Angels,8 one of the largest angel investment networks in New Zealand, invested in 11 women founders for every 100 start-ups (13 mixed-gender founders and 76 men founders). These statistics highlight there is room for improvement in women’s access to equity finance in New Zealand. A key issue is that New Zealand investors (across angel and VC markets) are predominantly generalists typically offering a broad network and diversified market exposure. The downside is that they often can appear risk-averse and do not have the expertise to support a start-up operating in specialist areas such as Femtech, which often results in founders seeking offshore investors. In addition, almost 50% of women entrepreneurs worldwide are involved in the wholesale/retail sector and around 20% of women entrepreneurs can be found in the health, government, education and social services sectors ((GEM) Global Entrepreneurship Monitor, 2022[10]) often with an emphasis on social and environmental impact, in additional to financial return. Such businesses do not generate the required revenue streams and “hockey stick” profit margins sought after by equity investors and despite sustainable businesses, are often overlooked.

Although New Zealand is making some headway in addressing the issue of women entrepreneurs’ access to equity financing, it is apparent that government has been slow to introduce clear policy initiatives and direction to address the issue head-on. Rather, momentum has been built by influential ecosystem players who have to some extent succeeded in lobbying and applying pressure that have forced some shifts. Thus, most recently, the Government has acknowledged the need to establish data collection requirements for key policy areas including developing measures to report on key demographic details such as gender and ethnicity of investors and founders in the start-up companies that have received government-backed investment (from the Aspire and Elevate funds). This is in line with the OECD call for gender-disaggregated data collection (OECD/European Commission, 2023[11]). Second, a focus on “filling gaps” where under-representation is apparent (i.e. women founders and investors) and in addition, at what stage in the capital raising process is access to capital most critical (e.g. Seed vs Series A, B, C, etc.). While drawing attention to such under-served demographic groups is certainly a starting point, arguably the greater task is in finding such potential investment prospects to build a more diverse pipeline of both entrepreneurs and investors. One step taken by NZGCP was to support and invest into New Zealand’s first accelerator programme for women and non-binary entrepreneurs (Electrify Accelerator9), which launched in 2022, as well as sponsor an annual conference – Electrify Aotearoa for women entrepreneurs and investors. Another government agency, New Zealand Trade and Enterprise (NZTE) has run an annual female founder investment showcase entitled InvestHER since 2019, which aims to provide support and guidance for women entrepreneurs to raise capital. In 2023 the showcase was held overseas for the first time in Singapore, enabling New Zealand women entrepreneurs to make valuable connections with key regional stakeholders. Unfortunately, this showcase did not run in 2024 due to government funding constraints.

On the supply side, women represent 20% of the business angel population in New Zealand, but at VC level, there is a strong need for increased representation of women across the industry. As of April 2023, there were only six women VC partners in New Zealand and underlining that attracting women into the industry had been difficult. Within substantial evidence that diversity is essential for developing robust and innovative entrepreneurial ecosystems globally, addressing the gender gap on the supply-side but particularly within VC markets is imperative.

Conclusions

Despite a number of well-intentioned initiatives, there has been insufficient co-ordinated policy thinking related to women’s equity finance. There has recently been a reliance on the private sector to drive the agenda, but substantial gender gaps remain. Further, there is currently no evaluation mechanisms in place that could ascertain the effectiveness of targeted support and indeed if women entrepreneurs who take part do go on to raise the capital they require.

The OECD, G7 and G20 have all called on governments to work on developing and implementing a range of financial instruments and accompanying support measures for women entrepreneurs and indeed some countries are providing more direct investment to support growth-oriented women entrepreneurs (OECD/European Commission, 2023[11]). There are a number of potential avenues for policy development in this area for New Zealand. They include encouraging diversity mandates or guidelines within venture capital firms and angel investor networks, increasing support for capacity-building programmes that provide women entrepreneurs from diverse backgrounds with the skills and resources needed to navigate the investment landscape, enhancing data collection, monitoring and reporting mechanisms to track investment flows and outcomes by gender, and introducing alternative investment funds that support longer terms investments that help women entrepreneurs achieve sustained (good) growth and potential exits at the right time of their business life cycle (similar to the Business Growth Fund in the United Kingdom, see https://www.bgf.co.uk/about/).

References

[10] (GEM) Global Entrepreneurship Monitor (2022), Global Entrepreneurship Monitor 2021/22 Women’s Entrepreneurship Report: From Crisis to Opportunity.

[1] Editorial Staff (2023), Why NZ Always Topped World Bank’s Ease of Doing Business Rankings, Startupanz, https://startupanz.com/why-nz-always-topped-the-ease-of-doing-business-index-rankings/ (accessed on 25 September 2024).

[4] Gauthier, J. et al. (2022), Assessing New Zealand’s Startup Ecosystem, Start-up Genome, https://www.mbie.govt.nz/dmsdocument/26386-assessing-new-zealands-startup-ecosystem (accessed on 25 September 2024).

[6] Korber, S., J. Swail and R. Krishanasamy (2022), “Endure, escape or engage: how and when misaligned institutional logics and entrepreneurial agency contribute to the maturing of entrepreneurial ecosystems”, Entrepreneurship and Regional Development, Vol. 34/1-2, https://doi.org/10.1080/08985626.2022.2045633.

[2] Mastercard (2022), The Mastercard Index of Women Entrepreneurs 2022, https://www.mastercard.com/news/media/phwevxcc/the-mastercard-index-of-women-entrepreneurs.pdf (accessed on 25 September 2024).

[8] Ministry of Ministry of Business, I. (2023), Upstart Nation, https://www.mbie.govt.nz/assets/upstart-nation.pdf (accessed on 25 September 2024).

[11] OECD/European Commission (2023), The Missing Entrepreneurs 2023: Policies for Inclusive Entrepreneurship and Self-Employment, OECD Publishing, Paris, https://doi.org/10.1787/230efc78-en.

[3] pwc, Angel Association New Zealand and NZ Growth Capital Partners (2023), Startup Investment, https://www.pwc.co.nz/assets/2023-assets/startup-spring-2023/nz-startup-magazine-spring-2023.pdf (accessed on 25 September 2024).

[9] Rudd, J. and T. Gattung (2024), The Gender Investment Gap report, http://www.thegenderinvestmentgap.co.nz (accessed on 25 September 2024).

[5] Start-up Genome (2023), Global Startup Ecosystem Report 2023, Start-up Genome, https://startupgenome.com/reports/gser2023 (accessed on 25 September 2024).

[7] Swail, J. (2021), Raising Capital in Aotearoa New Zealand: Insights from Women, The University of Auckland Business School, Auckland, https://cdn.auckland.ac.nz/assets/auckland/business/our-research/insights-women-entrepreneurs.pdf (accessed on 25 September 2024).

Notes

← 1.  Aotearoa is the is the Māori name for New Zealand. Māori are the Indigenous people of Aotearoa New Zealand.

← 2.  More recent, post 2020 global comparative statistics are currently unavailable since the World Bank survey ceased. The bank is aiming to bring out a new ranking system by 2025. Further, New Zealand does not participate in the Global Entrepreneurship Monitor (GEM) study.

← 3.  “Number 8 steel wire” is ubiquitously used on New Zealand’s remote farms to solve mechanical problems. Accordingly, the term "number 8 wire mentality" came to represent the ingenuity and resourcefulness of New Zealanders in solving issues they face.

← 4.  The 2021 Mastercard Index Women Entrepreneurs (MIWE) ranked 65 economies on the basis of three overall components: women’s advancement outcomes, knowledge assets and financial access and entrepreneurial supporting conditions.

← 5.  Elevate is a NZD 300 million government-funded fund of funds that invests into venture capital funds; aimed at filling the Series A and B capital gap for high-growth New Zealand tech companies.

← 6.  Aspire is a generalist seed fund, managed directly by New Zealand Growth Capital Partners (NZCGP) that invests into high-growth technology-based Kiwi (at initial investment) start-ups.

← 7.  New Zealand Growth Capital Partners (NZGCP) is a Crown entity established by the New Zealand Government in 2002 to build a vibrant early-stage technology investment market in New Zealand. A Crown entity is established under the Crown Entities Act 2004, a unique umbrella governance and accountability statute which is based on the corporate model where the governance of the organisation is split from the management of the organisation.

← 8.  Enterprise Angels is a membership-based investment network and a wider community of nationwide wholesale investors. Established in 2008, Enterprise Angels has evolved into one of the largest, most active and best resourced Angel groups in NZ with over 200 members.

← 9.  Electrify Accelerator is a dynamic 12-week programme designed to empower women and gender non-binary founders of high-growth start-ups, focusing on customer development, traction, and investment readiness.