A decade of Kiwi deep tech innovation

New Zealand's government-funded Deep Tech Incubator Programme has supported nearly half of the country’s deep tech startups since it was founded a decade ago.

Those companies were awarded $44 million in replayable grants, had $81 million in private capital committed to them when they received government funding, and 80% of them went on to raise further capital, a total of $300 million across the cohort of 84 companies. That’s according to Unleashing Innovation A decade of Deep Tech, a new report from Callaghan Innovation, which runs the programme.

A relatively modest $26 million in revenue has been generated by those companies, illustrating the slow path to commercialisation deep tech companies often follow due to the complexity and technical difficulty of their work.

What exactly is deep tech? The NZ Growth Capital Partners, which manage the government’s investments in startups, define it as this:

“When we talk about deep-tech, we are referring to start-ups where their primary objective is developing technology solutions based on substantial mathematical, scientific or engineering challenges (sorry for the engineers out there, we know engineering is a branch of science).

Source: Unleashing Innovation A decade of Deep Tech - Callaghan Innovation 

“These companies and their potential solutions present challenges requiring lengthy research and development and large capital investment before successful commercialisation. Deep-tech companies usually have to develop and scale their technologies long before they can even generate revenue as their users need to see relatively well-formed solutions before they are willing to even trial the solution, let alone buy it.”

New Zealand firms have been using science and engineering to tackle complex problems for decades. But only since the early 2000s has deep tech emerged as a specific sector that venture capital companies have specialised in targeting in New Zealand.

While software as a service stars like Xero and Vend symbolise the strength of New Zealand’s tech sector in developing highly valuable business to business software companies, investors have pivoted more recently to backing deep tech companies to a greater degree. The risk involved is greater, but so too is the potential reward.

The latest PwC Startup investment report found that deep tech was the favourite sector for investors, accounting for 38% of total capital funding in 2023. Software was the second preferred sector, securing 30% of the total investment. Among the deep tech sub-sectors, health tech attracted the lion’s share of the funding (45%), followed by clean tech (23%).

The focus on deep tech in New Zealand aligns with global investment trends. According to Boston Consulting Group, deep tech now accounts for 20% of annual venture capital funding worldwide, double what it was a decade ago. This shift indicates a growing investor appetite for groundbreaking technologies that address complex global challenges.

"This country is home to world-class engineering, scientific expertise and entrepreneurial talent. We are delighted to celebrate the success of the Kiwi deep tech innovators who have participated in our Programme over the last ten years," says Celeste Peh, Deep Tech Incubator Programme Manager. 

The programme offers substantial support to successful applicants, providing a minimum of $1 million in funding, including a $750,000 repayable grant. This financial backing is crucial for deep tech startups, which often require extensive research and development and significant investment to succeed.

Source: Unleashing Innovation A decade of Deep Tech - Callaghan Innovation 

One success story from the programme is Scentian Bio, a Plant & Food Research spin-out developing biosensors for detecting chemical compounds. CEO Jonathan Good emphasises the programme's impact: "Deep tech is hard, and the Deep Tech Incubator Programme repayable grant made a big difference by enabling us to prove a couple of key technology proof points supporting us to then raise subsequent capital".

The Deep Tech Incubator Programme has also made strides in promoting diversity within the sector. 

"We were encouraged to see that 39% of participating startups were women-led or women co-led, which is nearly double the national average of 21%," says Peh.

Looking ahead, the programme aims to continue supporting early-stage deep tech startups in tackling global problems while creating high-wage, high-value jobs and valuable export earnings for New Zealand.

As the deep tech sector continues to evolve, investors are increasingly recognising its potential for both financial returns and societal impact.