Innovation: Some lessons from the Valley

Andy Hamilton, chief executive of The Icehouse.

Silicon Valley investors Sam Altman and Scott Nolan had Auckland's start-up community abuzz when they joined Kiwi innovators at Auckland's Spark City to talk about innovation and its importance to the global economy.

"The Valley" has long been the world's number one hub of high-tech innovation. It's littered with venture capital firms and business accelerators, whose mandate is to seek out promising young tech start-ups, seed them money and help them grow.

Altman, president of Y Combinator, and, Nolan, partner at Founders Fund had plenty of lessons to impart to the Kiwi startups including Logicore, which is also featured in this report.

Said Altman: "Execute early. Winning teams keep winning, and losing teams keep losing. Execute early." Nolan added "California and New Zealand - they're not so different. Don't look up to California: think of them as your peer."

The pair pointed to NZ's unique value to innovators across the globe. One example was commercial drones. "We're waiting too long for the Federal Aviation Authority to adjust their laws and make their legal status certain - where do these firms go?," said Nolan. "These firms go to smaller countries, like New Zealand, with less regulatory overhead." Altman said it wasn't a question of if Auckland was getting a start-up ecosystem, but when.

In the wake of the Spark City event, Herald Business Reports put some questions to The Icehouse chief executive Andy Hamilton about the local startup ecosystem.

Where does Auckland sit as a centre for innovation and tech start-ups, and how do you see this changing?

Start-up ecosystems are all the rage around the world just as they are in Auckland and wider New Zealand. They are important, but they are only one part of the story that New Zealand needs to focus on. The single biggest influencer on the health of our start-up system will be the successes that come out from it. Think Wynyard Group, Orion Health, Xero and Vend - these organisations are creating inspiration for the next generation of Kiwi entrepreneurs who believe it can be done.

It is early days for Auckland, and it is also something that you can never "stop" doing; you just need to keep pushing the boundaries and opportunities as we live in a pretty competitive world. Changes in the future will come from a freer market for capital and an increasing interest from hot-spots of capital like the US and Hong Kong to look for the next big thing.

What are the biggest challenges that a New Zealander with an innovative business idea faces in trying to develop and bring the idea to market?

The biggest challenge is that most entrepreneurs are doing something they have never done before, so they are learning on the go and normally hiring people who are also learning.

The second is that most of our markets are offshore, which is a great opportunity but also a big learning challenge as you have to cope with different cultures, exchange rates and ways of doing business.

The third is having the ambition to build something big and also the guile to raise the funding that you need to give you time to get the cashflow positive, the combination of these two things is pretty immense. The way to short-circuit all of this is to build teams and advisers who have been there before and done it - so you can short-circuit the journey.

What is it about New Zealand that makes it such fertile ground for a start-up community compared with larger nations?

We are not any different to most countries albeit we are a long way from most and maybe we have more doses of creativity than most - when you look at the statistics, we have relatively the same number of small firms than other "small economy countries".

One difference in the stats is that from our large firms which employ more than 100 people (this number is about 2500), these firms are actually much smaller than comparison countries, not the relative number just the actual size of them - our big firms are not big enough which is suggestive that we have been slow on the uptake of building truly global enterprises that own the path to market, globally. We have very similar startup and SME rates to other countries. We just need to grow some bigger and more successful firms that operate in global markets.

What is the Government's role in developing New Zealand's start-up ecosystem and how much of the burden falls on it compared to the private sector?

It is a partnership. Government's role is to enable the most optimum conditions for our people to grow, succeed and contribute back to the country and their communities.

The Government needs to manage on a "system" basis and look to address and focus on the really big blockages and issues that exist. For example, with SMEs that is compliance and red-tape while for start-ups as I have said the single biggest issue is "capability", not access to funding - if you have great people, everything else is not a problem.

A good example where the Government could do better is around our University and Crown Research Institutes and commercialising that IP that exists. There is a significant shortage of supply of startup founder entrepreneurs who can take a bit of IP off the bench, validate the market, build a team and raise funding to get the innovation to market.

We don't need more consultants and maybe an idea for the Government would be to conduct a job search in Israel or Silicon Valley for 50 "tech capable start-up entrepreneurs" to move to New Zealand with a visa, some matched funding and 18 months to found a start-up. It would be cool to see this happen.

What can a thriving start-up community do for wider New Zealand? Why is it important to nurture this community?

It creates jobs, it creates wealth which is often recycled and it creates hope and inspiration for others to follow in the footsteps of Vaughan Rowsell, Rod Drury, Ian MacCrae and Peter Beck.

What trends have you seen in your visit to the United States?

A continuation of a massive shift to mobile, big data is everywhere and now everyone has a fancy algorithm while there is also some uneasiness about the state of the markets, particularly with the start-up world being over-hyped and hints of a correction coming.

The other thing I have observed is that there is a big movement emerging called "Scale Up" which is focused on growing firms that already exist, not just singularly focusing on start-ups. I totally endorse this, our Kiwi economy will be badly balanced if we chased the nirvana on start-ups - we should do both.

What will be most useful for New Zealand in building an innovated pipeline to the US?

Keep doing what we are doing; build relationships with key connectors and funders out of the US, showing them the cool Kiwi businesses coming out. At the end of the day, however, the US is a true capitalist society so if they can make a bucket load of money out of Kiwi firms they will not only love the country, they will also respect and admire us for making them money.