The Government’s $15 million investment into initiatives supporting Kiwi start-ups is a step in the right direction but there’s still more to be done, a Massey University economist says.
The Pre-Seed Accelerator fund is aimed at developing “cutting-edge” research into viable start-up businesses.
Science and Innovation Minister Steven Joyce said hundreds of savvy hi-tech Kiwi companies were succeeding on the world stage.
“These programmes are all about filling the pipeline with the next generation of quality Kiwi start-ups.”
Massey University economist Christoph Schumacher said the Government’s measures were on the right track, but he didn’t think it was enough to make a systematic difference for Kiwi entrepreneurs.
“New Zealand is quite innovative. We register a lot of patents compared to other OECD countries, but we’re quite poor at commercialising [our ideas].”
Funding for the Pre-Seed Fund will increase by $12m over four years, taking the Government’s total investment in the scheme to $8.3m per year.
Another $3m over four years will go towards developing new accelerator programmes, following the success of a three-year pilot programme run with Callaghan Innovations.
Schumacher said a “shoe-string” budget for a tech start-up to get past the initial idea stage was about the $1 million to $3m mark.
He estimated the Pre-Seed Fund would be able to fully support less than eight projects a year.
“It’s not enough to allow for the opportunity to fail. Knowing that changes people’s behaviour, it makes them more cautious and less likely to develop a successful idea.”
For every commercially successful start-up project there were 30 which didn’t make it.
New Zealand needs to have the capacity to absorb, and learn from, those and that’s where our start-up sector currently falls down, Schumacher said.
There needed to be more sources of funding and more funds available to start-ups in their initial stages.
Joyce said angel investors were investing record amounts and the 2015 Business Operations Survey showed business research and development spending had increased by 15 per cent to $1.44 billion last year.
“Angel investors had invested a record $61.2m into 94 New Zealand start-ups in 2015 – a 9 per cent increase on the previous record set in 2014.”
Schumacher said generally investors and banks were reluctant to support start-ups until there was a prototype and a few orders lined up.
“People in New Zealand tend to put their houses on the line, [so] they only have one chance [to get past the first stage].”
To really make a difference, the Government needed to support an environment where both investors and innovators feel safe to take considered risks.