Solutions Insights - October - Deep-tech
Deep-tech’s rise to prominence in New Zealand
The NZTE Investment team is observing growing interest in the Deep-tech sector, aligning with the following data releases:
Tech exports increased by 8.7% annually to $10.7 billion in 2023, up from $9.8 billion in 2022 (source: Stats NZ). This growth positions technology as the country's third-largest export sector, following dairy and tourism.
Broad increase in Deep-tech private transaction activity and larger investment cheques, see Charts 2 and 3 (source: Pitchbook).
Deep-tech accounts for the highest share of New Zealand’s total capital funding at 38% in 2023, followed by software at 30% (source: NZGCP).
The strength in Deep-tech is driven by its potential to deliver outsized returns for investors as well as capitalise on themes that address some of the world’s most pressing challenges.
Deep-tech as a sector
Deep-tech is unique in its approach. Unlike traditional tech firms that prioritise quick paths to profitability, Deep-tech companies are focused on achieving scientific and engineering breakthroughs over longer timeframes, often requiring extended research and development before commercialisation. This long-term commitment to innovation allows Deep-tech to tackle complex, high-risk, high-reward problems, supporting its rise to prominence both locally and globally.
Supporting Deep-tech from a risk perspective
Supporting Deep-tech companies requires an understanding of their unique risks and the critical milestones necessary for commercialisation. These include extended development phases, high capex needs, and the technological advancements essential for success. The Technology Readiness Level serves as a useful marker for assessing the maturity and commercial readiness of technology, helping to evaluate these key risks. In contrast, competition and market risks are typically less of a concern due to Deep-tech’s strong technological edge, provided that market adoption uncertainty remains low.
See Chart 1. Deep-tech vs. Regular Tech Risk Profiles illustrating the trade-off in risk between Deep-tech and Regular Tech companies.
Footnote 1. Regular tech definition: Includes companies with less defensive products which typically rely on network effects and market dominance. An example of these company offerings include SaaS, Apps or Other Consumer Products reliant on widely available technologies. Note, Deep-tech today can be regular tech tomorrow once the technology is no longer novel.
The role of private capital and early-stage support
Successfully navigating the risks inherent to deep tech requires collaboration between public and private sectors, contributing through both funding and non-funding support pathways.
From a funding standpoint, deep and patient capital pools are essential. Private capital is typically called upon when non-dilutive funding sources (such as grants) are either exhausted, unsuitable, or bypassed for strategic reasons. Charts 2 and 3 illustrate the growing interest and need for private capital in New Zealand's deep tech sector, evidenced by a general upward trend in activity (excluding the pandemic’s capital surge) and sustained growth in median cheque sizes over the last decade.
The trend shows increasing participation in later-stage VC deals, especially post-pandemic, indicating that investors are focusing on follow-on capital. However, earlier-stage funding remains volatile, reflecting fluctuations in the broader macro-environment and shifts in risk sentiment. This highlights the need for more support at earlier stages to ensure a steady pipeline of successful deep-tech companies.
Levers for Deep-tech success
To ensure a steady pipeline of successful deep-tech companies, it is crucial for ventures to leverage both public and private sector resources. Below is a non-exhaustive list of levers that deep-tech companies should consider when seeking funding and support:
Public Sector levers:
NZTE: Investment facilitation, global investor networking, and supports capital raising ventures
KiwiNet: Early-stage funding provider and supporter of publicly funded scientific research
Callaghan Innovation: R&D grants for research efforts
NZGCP: Aspire Seed Fund & Elevate Fund support early-stage, high-growth companies
MBIE: Endeavour Fund for high-risk, pioneering innovations
Private Sector levers:
Movac, GD1, WNT, Pacific Channel, Nuance invest in deep tech, providing capital and guidance
Outset Ventures: New Zealand’s leading deep-tech hub offering funding, mentorship, infrastructure and community
Other Support Levers: Corporate VCs, incubators, accelerators, universities, R&D facilities, IP firms, and consultants
Footnote 2. Deep-tech investment data is sourced from Pitchbook and follows McKinsey & Co's definition, which includes the following verticals: ClimateTech, Robotics, SpaceTech, CleanTech, Industrial Chemicals, AgTech, AI & ML, MedTech, Advanced Manufacturing, and FoodTech. Deal types include Pre/Accelerator/Incubator, Angel, Grants, Seed, Early- and Late-stage VC
We are committed to understand how NZTE can add value to this exciting sector, along with supporting the ecosystem around investment attraction.
See below if you are wanting to understand more about how Invest New Zealand can support you, be it on investing in a New Zealand business, our Active Investor Plus visa programme or our sectors of strength below.
More from Invest New Zealand
New Zealand sectors of strength
New Zealand's diverse, modern economy features a wide range of business sectors – many with strengths and advantages found nowhere else in the world. Explore some of New Zealand's top sectors below, including key opportunities for forward-looking investors and entrepreneurs.
Invest in a New Zealand Business
NZTE's Investment team connects local businesses with the capital needed to fund their growth. We work with companies across different sectors and regions, to create productive, sustainable and inclusive deals that deliver opportunities for investors and for New Zealand – so the decision to invest is one you'll be proud of.
Investor Migrants
New Zealand welcomes experienced, high-value investors to help build globally successful Kiwi businesses. You can settle, or spend considerable time here, enjoying all our beautiful country has to offer. It's all part of our commitment to welcoming overseas investors who contribute to our sustainable prosperity and growth.
Hamish McCarroll - Senior Investment Analyst
Hamish supports the Investment team with value-add research, modelling and analysis. He is responsible for assisting the Greenfield, Companies and Māori teams.
Prior to joining NZTE, Hamish provided Corporate Treasury and Finance services at PwC, with a focus on delivering economic and financial market insights for risk management purposes.
Hamish graduated from Victoria University of Wellington with a Bachelor of Commerce (Economics, Finance) with first class Honours in Finance and has passed the Level II examination of the CFA programme.
