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How can we ensure innovation and entrepreneurship thrive?

Innovation and entrepreneurship have long been a part of New Zealand’s story and we’ve had astonishing success – even amidst some of the more challenging circumstances our generation has seen. However, if we are to grow in a sustainable, equitable way that delivers a more prosperous future for all New Zealanders, we need to address some of the barriers holding us back.

A thriving innovation and entrepreneurial ecosystem requires participation from entrepreneurs, investors, corporates, academia and government, with each playing a critical role. As a small nation, our scale compared to global markets, coordination challenges,  fragmented education sector and rivalry for funding and commercialisation opportunities can be barriers to innovation. Coordination, collaboration and importantly, inclusive participation will be key if we are going to tap into the potential this country has to offer.

Inclusive participation

Looking critically at the status quo will help us to understand what participation barriers are being created for those outside the current ecosystem. This is important, because they are likely to be unseen by existing participants, and will not be removed without awareness and collaboration to proactively do so. The Startup Advisors Council is currently hosting workshops throughout the country to help bring these barriers to light with the aim of enabling government to develop targeted policies to support those excluded, as well as provide guidance to existing ecosystem participants on the part they can play.

One part of the solution is to diversify our investor landscape. New Zealand saw record levels of deal activity in 2021, with over $257.5m invested by early stage investors. But we need our investors to challenge themselves about the diversity of their portfolio. Does any part of their portfolio support a currently under-represented group? What do they need to do to remove perceived risk and get involved? One under-represented sector is Māori business, but with thoughtful investment, that can change. NZTE reports that the pipeline of investment opportunities from Māori entities grew by 130% last year, with an estimated value of more than $500m, led by the technology sector.

Read more: Ten tips for raising capital in a challenging climate

A pipeline of investment, ideas and of future innovators and entrepreneurs starts with our education system. Ensuring that STEAM subjects  – Science, Technology, Engineering, Arts and Mathematics – are available for all to access, in a format that meets students’ learning requirements throughout their education journey will be vital. Role models are also key. You can’t be what you can’t see, which is why our entrepreneurial stories need to be shared and celebrated, enabling our tamariki and rangitahi to have appropriate and relevant examples of what a future could look like for them.

Coordination and collaboration

A thriving ecosystem also requires blue sky research to be undertaken alongside research where application is more immediately apparent. Unfortunately, New Zealand’s current funding model doesn’t enable this to happen to the extent we need it to. Te Ara Paerangi – Future Pathways aims to create a modern, future-focussed research system for New Zealand, helping to remove unproductive competition between institutions and instead build integration and collaboration.

Government support is another critical pillar, and policies need to incentivise businesses to continue to innovate. While the 2021 Business R&D Survey showed an increase in our business R&D expenditure as a proportion of GDP (0.79% in 2019 to 0.87% in 2021) we still lag behind most comparable countries according to the World Bank. The R&D tax incentive came into force in 2019 with many recommendations from businesses not taken on board in its design. This has resulted in only $150m being paid out in the first two years of the scheme, despite $1,020m being allocated over a four year period.

Anand Reddy.

Allocating funds can’t help business, if the operationalisation of policies means it’s too hard for businesses to access those funds. One way the government could really support the innovation framework would be to map global problems to areas we are uniquely placed to solve, helping entrepreneurs to focus their efforts within a clearly defined scope. Canada’s Global Innovation Clusters are an example of this. Areas where we have a track record, such as deep tech, SME SaaS, medtech/biotech and climate tech, already attract foreign investment and, with the right focus, could be developed at scale.

Corporate support of the ecosystem is important too and can happen in many forms, from internal incubators, to funding programmes to help kiwi start ups, or being the warm introduction they need to a global contact. Corporates that are telling our start-ups to come back “when they have some other customers” or “you’re just too small at the moment” are missing the point. We need business to get involved.

Finally, we need to acknowledge that luck and timing also come into play for our entrepreneurs. Not all will succeed and not all will stay in New Zealand. Neither of these should be viewed as negative, and media comments about “wasted tax-payer money” when a business fails, or worse when a business is thriving with overseas investment or is purchased by an overseas entity, is ill informed.

There is no one right way to get to success and we need to ensure our solutions are diverse. Innovation is about doing things in new and ultimately better ways, and to that end we all need to get comfortable with being uncomfortable. If we get it right, innovation and entrepreneurship will thrive, helping to build greater prosperity for all New Zealanders. 

Read more about how we can enable greater prosperity in PwC’s latest report: Building prosperity, a pathway to wellbeing for all Aotearoa.

Anand Reddy is a partner at PwC New Zealand, where he is Private Business Leader. With broad international experience, Anand has worked with people of different cultures and businesses around the world. He has an industry focus on tech businesses and loves working with people with the Kiwi entrepreneurial spirit looking to make it big on the international stage.

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