The government-run Startup Advisors Council has delivered its recommendations to stimulate more activity and value among our early stage companies.
The ideas include tax changes and startup investment incentives, a $500 million boost to the government’s Elevate fund over 10 years, and the creation of a dedicated Māori-led venture fund.
It’s all in aid of building what the council calls our “UpStart Nation”.
It hasn’t been well received by everyone.
“Some of the recommendations make me want to UpThrow,” tech investor Rowan Simpson wrote on LinkedIn.
Elsewhere, the reaction to the report has been mixed. There’s a sense in our tech sector that despite a recent run of great success in our startup sector with the likes of Rocket Lab, Seequent, Vend and others, we lack the ability to scale up activity.
UpStart Nation is a provocative label for sure, a play on Startup Nation, which Israel unofficially branded itself following the 2009 publication of the best-selling business book ‘Start-up Nation: The Story of Israel’s Economic Miracle‘, written by Dan Senor and Saul Singer.
Israel certainly lives up to the title today. It has more than 6,000 startup companies, the highest concentration of startups per capita, including 98 so-called ‘unicorns’ valued at US$1 billion (NZ$1.6b) or more.
Many dismissively put Israel’s success in producing tech companies down to its substantial military-industrial complex, which has indeed fed technology and talent into its startup ecosystem, and investment dollars from the Jewish diaspora.
Our existential crisis
But Josh Brown, founder of the Wellington-based New Zealand Israel Innovation Hub, which seeks to foster collaboration between the two countries, says those factors overlook the key differentiating attribute – Israel’s continuous fight for survival.
Israel is a nation with few natural resources surrounded by hostile neighbours that it has regularly waged war with during its 75-year history.
“NZ is facing an existential crisis of its own,” Brown, a startup founder himself, points out.
“We can no longer rely on agriculture.”
Startups from Silicon Valley to Tel Aviv are working on alternative proteins that are already starting to disrupt markets for dairy and meat products, which we rely on for a huge chunk of our export revenue. Climate change will not only hit our primary production, but it’s already spurring changes in consumer behaviour that favours lower-emitting products.
Brown sees the Startup Council’s recommendations as too inward-looking, too focused on tinkering with the settings that already exist, though he really likes the idea of Accelerate Aotearoa, a national body dedicated to coordinating activity in the startup ecosystem and which could see Callaghan Innovation, NZ Trade and Enterprise, and NZ Growth Capital Partners merged, with a ministerial portfolio giving it prominence in cabinet.
“Culturally, to be an upstart nation, we need to be an innovation nation. I don’t think that message came through in the report. We want it, but we are a little bit afraid, and I’m worried about that,” he says.
Our R&D underinvestment
We can tweak tax incentives and encourage more investment in the startups we are producing. Israel has done all of that, too. But to really be an upstart nation, we need to look beyond the startup ecosystem to the underlying things that are broken. That is something clearly beyond the remit of the Startup Council.
It starts with an education system that equips kids with the critical thinking and technical skills to be innovative from a young age.
It requires us to take the risk as a nation to significantly increase our investment in research and development. Israel outspends the world, devoting 4.1% of gross domestic product (GDP) to research and development, nearly three times as much as NZ.
We’ll be lucky to get to 2% of GDP, the current OECD average, by the end of the decade.
Not only that, but Israel’s research sector is prolific at producing spin-off companies and creating high-value intellectual property that underpins globally competitive companies in everything from cryptography to crop science.
The Startup Council has rightly identified that as a weakness for us. It wants to see 75 startups spun out of public research organisations annually.
The success of Israel’s early-stage companies in attracting significant foreign investment, €7.4 billion (NZ$13.3b) in 2022 alone, has also seen it come to be known as the scale-up nation. Hundreds of multinationals also base R&D operations there, which only strengthens international collaborations and funding links.
The Startup Council’s report doesn’t mention Israel, Singapore, Estonia, Ireland, or any of the small advanced nations we could be collaborating with, learning from, and benchmarking ourselves against.
“The ecosystem needs to align with our values and with tikanga – that is incredibly important,” says Brown.
“But we want NZ, from the bottom up, to be a completely technological country, as those countries have become.”
Yalla. Let’s go!
We are far away from achieving that. Other levers will also need to be pulled to enable the conditions that allow the startup ecosystem to thrive. The government’s recently finalised digital strategy, and an effort underway to revamp the research sector have been similarly plagued with limited scope, vision, and appropriate resourcing.
There isn’t a sense of urgency because we’ve coasted on our primary sector cash cow for so long. But the world is being rapidly reshaped around us.
“There’s an Arabic word ‘yalla’, it means ‘let’s go’,” says Brown.
It’s time to get moving. Brown, for his part, is doing his best to help foster collaboration between Israel and NZ businesses. He sees strong appetite from the Israelis for NZ agritech, food tech, space, and energy partnerships.
He is also helping to organise a business delegation to visit Israel’s startup sector in November, which will be led by Auckland Business Chamber chief executive and former National party leader Simon Bridges.
“NZ can be the startup nation of the South Pacific,” Brown says. “It can be out there with Israel. I’m 100% certain about that.”
Tech Columnist
israeltrade.org.au 