Inside Wellington's thriving startup scene

While many complain about the weather in Wellington, New Zealand, Xero CEO Rod Drury says it’s been a driving force that’s helped the small capital establish a bubbling tech scene.

The land drives development

Wellington is surrounded by hills which limit urban sprawl and is built around a bay which is too cold to swim in most of the year. Rather than brave the icy wind which lashes the region, entrepreneurs instead prefer to build software indoors.

It’s a geography which Drury says smashes everyone together into a small area, creating a “petri dish” of talent and creativity.

Throw in a significant amount of buy-in from all levels of government and you’ve got yourself a tech community which can hold its own against some of the best in the world.

There are talent issues

However, it’s still a small city so recruiting talent, with the likes of Trade Me and Xero hoovering up all the bodies they can get their hands on, means the country is “shamelessly” recruiting Aussies to jump across the ditch and get involved, Wellington Councillor Jo Coughlin says.

“We’re over in Australia recruiting for more talent,” she told Business Insider. “We’re very keen to encourage migrants to come to Wellington.”

If you look at the figures, it could be working.

In April, for the first time in 24 years, long-term and permanent migration from Australia to New Zealand outnumbered those heading in the opposite direction.

There’s no capital gains tax

The Kiwis have a few theories about why this is happening — none of which have to do with the weather, sheep or rugby for that matter.

There’s no capital gains tax, no pay roll tax and company tax is 28%. The median house price in Wellington is about $AU415,000 and the World Bank has ranked it number one for ease of starting a business. The local council has also set aside $AU3 million to establish a tech hub. So there’s a few things going for this little city.

It also has New Zealand’s greatest concentration of digital companies, meaning there’s a bunch of like-minded people hanging out in the city’s cafes, establishing startups or working with some of the bigger tech companies with digs in the capital.

Couglin says it’s a market which also provides a decent opportunity to test out new products and companies like NEC have cottoned on, establishing test labs in the city.

Government steps in to support tech and startups

After the Dot Com crash, the New Zealand government decided the startup ecosystem needed to be stimulated. Born out of that was startup incubator Creative HQ, which was launched by a former mayor of Wellington and has been around for 12 years.

“If you want your economy to grow you need to invest in your startup ecosystem,” CreativeHQ CEO Stefan Korn said. “For the last 12 years central government and local government have supported incubators in all these cities in New Zealand.”

Over that time the incubator has grown to hold 112 companies in its portfolio. 67 are still operating and collectively they contribute about $AU20 million in annual revenues to the local economy and employ about 55 people.

“If you look at government support and government intervention and the outcome, we’re generating roughly 15 times the amount of investment that the government has invested,” Korn said.

It’s got some big runs on the board

Korn said having companies like Xero and Trade Me based in Wellington has been a big driver for the city’s tech scene.

“After the Trade Me exit there was an absolute flood of startups. Everyone was like ‘I can do that, I can put together a site and sell it for $600 million a few years later’,” he said.

“The problem is, most people are quite naive. They only see the success that’s happened with Trade Me. When you look at startup life, it’s hard. There’s a lot of risk, you need to have a lot of competencies on all fronts.”

Early stage funding is improving

Looking back 10 years there were virtually no angel networks and raising capital in New Zealand was difficult. But Korn says establishing incubators has driven deal flow and lured angel investors.

A trained software engineer who crossed over to management because he was bored by corporate life, Korn decided to cash out a bunch of Oracle stock options and became an investor.

“There was a lot of knowledge I could bring to the startup world from the corporate world just in terms of a structured way of doing things,” he said.

Spending a bunch of time in Perth, Korn pointed out that while there was an immense amount of capital trickling through the mining town, the startup scene has — up until recently — been virtually non existent.

“There’s nowhere for it [capital] to go other than to traditional investments so there was no growth in the early stage, risky investment portfolio asset class,” he said, adding he was one of the guys who launched Startup Weekend in WA.

“I was surprised, given the amount of talent and arguably latent talent that was in Perth,” Korn said.

“The scene in Western Australia was very immature. The east coast is much better.”

While Australia was benefiting from the resources boom, Korn explained politicians in New Zealand would point to the burgeoning economy over the ditch and proclaiming Kiwis needed to pay attention and be more like that. But it was something Korn said was never going to transpire in New Zealand because it doesn’t have the same resources sector.

The similarities between Wellington and San Francisco can’t be ignored. While Wellington is a much smaller place, both cities are built on major fault lines and know what an earthquake or two feels like. Both cities are completely walkable, both have freezing cold winds, even in the middle of summer, and both have some significant tech talent pouring out of them.

It’s definitely one region to watch.

NOW READ: Some of Xero’s first employees have left to create the country’s next big tech export

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