The investment landscape 2024: Think global early

Earlier this year, Caffeine canvassed investors to hear their 2024 predictions for the startup ecosystem and, specifically, the availability of capital. The five Caffeine spoke to were upbeat but agreed that challenges remained. 

More than six months on, we sit down with those in the know once more to see how the landscape has shaped up so far and what the rest of the year holds.

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Angus Blair, partner, Outset Ventures

As I reflect on the first half of 2024, the deep tech investment landscape has been marked by caution and selectivity. Investors have largely turned inward, focusing on their existing portfolios and grappling with their own fundraising challenges. This shift has created a more competitive environment for startups seeking capital.

The bright spots globally are clear: AI, defence and climate continue to attract significant interest, particularly from international investors. If you’re operating in these sectors, you’re likely finding more open doors. However, fundraising remains an uphill battle for those outside these hot areas unless you can demonstrate exceptional commercial traction.

This environment underscores a critical lesson for founders: the importance of building robust investor funnels. Don’t rely solely on insiders when the going gets tough. Remember, the best VC vintages often emerge during recessions because savvy investors can secure better entry prices due to reduced competition. Your job as a founder is to create that competition, even in a down market.

Looking ahead to the second half of 2024, we’re seeing a trend that should prompt founders to think globally earlier in their journey. The uncertainty surrounding New Zealand’s venture ecosystem, particularly with no clear sign of a second Elevate Vintage from NZGCP, will likely suppress valuations locally. This dynamic may deter some of our best and brightest from pursuing their big visions, while those who do take the plunge face investors who are less confident about follow-on funding at the Series A stage.

My advice to founders: think bigger and look further. Start building relationships with offshore investors a round earlier than you might have previously planned. The global market may offer the validation and resources needed to realise your vision, even as local conditions remain challenging.

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‍John Kells, partner, GD1

As expected, the New Zealand startup scene, and around the globe, faced tough times in the first half of 2024. This was broadly driven by macro concerns, longer customer sales cycles, and cautious investor sentiment.

But even with these challenges, it’s inspiring to see so many founders adapt and push through with resilience, strong leadership, and ingenuity. Capital-efficient growth is a prevailing theme as founders continue to focus on optimising their resources, trying out new tools, and ensuring every dollar spent drives tangible value. Investors are still funding companies but require a greater commitment to ruthlessly prioritising product differentiation and delivering exceptional customer experiences to win in today’s competitive market.

Looking ahead to the second half of 2024, the uncertainty of government policies and political transitions, both here and abroad, will likely shape the near-term outlook. Still, we’re feeling more and more optimistic about the future. We expect inflation and interest rate pressures to ease up, paving the way for greater institutional and migrant investor interest in the productive economy, especially through the best local venture firms.

We should see a gradual increase in new and follow-on investment activity, with funding rounds and deal volumes picking up from modest levels, with the exception of noticeable positive outliers. The pipeline of emerging winners coming out of New Zealand is growing, and they’re sure to progressively attract firm attention from both local and international investors. Further ahead, we’re looking forward to a bright 2025.

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Anna Guenther, co-founder, PledgeMe

We’re seeing founders coming back and raising (successfully) through their crowds again, as well as new companies raising through both rewards-based campaigns and equity campaigns.

As always, the awesome thing we’re seeing is product and service based companies really nailing this form of capital raising – showing you don’t need to be a tech company to raise funds for your growth.

Examples in the first half of the year that have inspired us are:

• An eco-tourism startup up the Kāpiti Coast is raising $50,000 by pre-selling nights in their Domes to help fund the final set-up (Escarpment Domes)
• A paint social enterprise raising its goal of $300,000 in investment within minutes of going to the public (Natural Paint)

And the thing that’s always close to my heart is women raising funds – again, women are nailing it when it comes to raising funds from the public. Over 65 percent of the funds raised this year have gone to women-led or cofounded ventures. All of these companies have some sort of positive social and/or environmental impact embedded in their business models.

While the signals are showing things improving, companies need to be prepared to do the mahi. They need to pitch their plans well, and activate their communities. 

My prediction for the second half of the year is that we will continue to see growth in women’s and product-based company crowdfunding. The ones that will nail it are the ones with crowds who love what they do and have clear and exciting plans for the future. 

In tough economic times, it’s easy to fall into the trap of thinking small and just trying to survive, but the companies that will soar are the ones that figure out how to keep that excitement and innovation embedded in their business models and plans for the future.

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Kieran Jina, partner, Pacific Channel

The first half of 2024 has undoubtedly remained challenging for New Zealand’s capital markets. The impact of the slow economic environment has been evident, especially for early-stage startups in sectors such as biotech and healthcare. While we’re not expecting to see this change overnight, the recent uplift in global activity means we are cautiously optimistic about conditions improving over the next 12-18 months, which makes now an especially attractive time to invest. 

The US, in particular, is experiencing increased investor confidence. Although primarily driven by large-scale AI investments, this is starting to have a ripple effect as investors increasingly seek opportunities to diversify their portfolios by exploring high-return potential opportunities. 

For New Zealand, this could translate into increased interest and capital from international investors looking for access to untapped opportunities. Our reputation for developing niche technologies and innovative solutions means we are well-positioned to attract this global capital. 

We are seeing more collaboration and syndication within our venture capital community. This trend is a positive development as it not only provides companies access to larger Series A and B rounds but also gives high-growth startups the necessary support to scale globally and create higher-value exits. 

Similar to what is happening offshore, we expect growth in the deep-tech sector driven by advancements in AI applications across specific verticals. 

Looking ahead, while the challenges of the first half of 2024 have been significant, the signs of international activity and local syndication provide an optimistic outlook for the future. 

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Nadine Hill, partner, 2040 Ventures

The first six months of 2024 have been tough for startups to raise capital. The volume of deals closed in Australia and New Zealand was at the lowest level for four years and even lower than in the first half of 2020 – the start of COVID-19. 

However, VCs still hunt and need outliers, so seed rounds are still happening, as are rounds for scaleups exhibiting strong product-market fit and, therefore, growth (100 percent plus), for example, Projectworks and Tracksuit. 

Climate tech is thriving, attracting investment at both the early and later stages: Zincovery, Novolabs, and Vertus Energy.

There is a lot of AI buzz out there, but companies need to make sure that they are building products/features that their end users and customers actually value. Customers are becoming weary of the high volume of ‘AI everything’ being marketed to them. Being AI-enabled is now table stakes.

It has been tough for lower growth companies who have had to cost-cut, obtain sustainability, or accept banking-like terms for their capital rounds. We have seen two to four times the liquidity preferences in term sheets. Those who can narrow their focus and regain product-market fit will bounce back. Those that don’t will close or exit.

[In the next six months], expect a surge in mergers and acquisitions activity as later-stage investors seek deals during the downturn, though it’s not a great time to sell. 

Startups looking for funding rounds must demonstrate that they are building a defensible value proposition for customers and end users in the AI era. 

There will be more bootstrapped companies as the costs/talent to launch and scale a product have reduced materially.

It will be harder for new VCs to raise, and we will see more drop out of the market.

It’s a great time to invest; good valuations, capital efficient companies, and exciting new innovation being developed.