The Truth About New Zealand’s Startup Scene

Auckland Skyline

[credit provider=”Nicholas Carlson”]

I just got back from five days in Auckland, New Zealand.I was there to visit entrepreneurs and attend a conference put on by an incubator called Ice House.*

So what do I think of the Kiwi startup scene?

I think Auckland, New Zealand could easily become a robust, second-tier startup hub on par with entrepreneurial clusters like Boulder, Colorado, and Jerusalem.

That is wonderful news, if only because it will make an already amazing place to live that much better.

But before that happens, we’ll have to see a few changes in New Zealand:

The country needs better access to the Internet. Right now, broadband access is limited in New Zealand.  One reason is that the country’s physical connection to the Internet, the actual pipe, isn’t up to snuff.

Fortunately, Kiwi serial entrepreneur Rod Drury and Silicon Valley money-man Peter Thiel are putting up big bucks to lay a new fibre optic cable between New Zealand, Australia, and the United States.

Kiwi entrepreneurs need to build more consumer Web products. New Zealand’s tech scene already has several success stories. A company called RocketLab has a juicy contract with the US department of defence. Another, called Xero, makes popular accounting software for small businesses. LanzaTech, which we profiled yesterday, turns steel mill exhaust into ethanol, and has a toehold into the huge Chinese market. What New Zealand doesn’t have is big hits in the consumer Web space – the ones that can be worth not just billions, but tens of billions of dollars.

Auckland entrepreneurs need to build for Auckland users. One reason New Zealand doesn’t have any big consumer Web hits is that the locals are (mostly) afraid to use the people around them as a trial market.

So they try to build things for American consumers or for larger institutions, like governments or businesses.

The reason Kiwis do this, it seems, is that they look at the size of their market and see limited room for growth. There are 4.5 million people in the country and 1.5 million in Auckland. They also think any products built for Kiwis won’t make sense to Americans.

This is a mistake. Groupon started with a group of core users in Chicago. Facebook started with a smaller group at Harvard. Dennis Crowley got all his friends in New York to join Dodgeball and then Foursquare. Twitter was a San Francisco phenomenon long before it creeped into any other markets.

Kiwis over-estimate their own foreignness. Auckland is no different from middle America than Cambridge is.

New Zealand’s rich farmers and pensions have to become more savvy about risk. One local VC told me it took him 18 months to raise $30 million, and that New Zealand’s one big pension fund did not invest. He raised zero money from the country’s other big institutions. That’s a shame.

The theory is that Kiwis avoid risk because they are used to making all their money from farming, which is not a very speculative investment.  For now, the best hope to change this is an influx of American capital, lead by people like Peter Thiel.

Entrepreneurs have to start giving their employees equity – whether they ask for it or not. It’s not in the culture for Kiwis to ask their employers for company stock. So, happy to save on costs, many startup entrepreneurs keep all their equity. That has to change for a virtuous cycle of entrepreneurship to really get going in Auckland.

Think about all the companies started in New York and Silicon Valley by mid-level veterans of DoubleClick, Google, Facebook, and PayPal.

This change isn’t all about altruism, by the way. Making some employees rich is a good way to attract talent to the sector. It’s also a good way to get invited to invest into your best employee’s next big idea.

*I was there on the New Zealand government’s dime, by the way. And while I don’t think that coloured my perception of the plate, it’s probably something you should know.