Just 7% of tracked capital investment went into physical product companies in NZ in 2023, with researchers pointing to a mismatch between venture capital timelines and the slower returns from manufacturing.
New Zealand's startup manufacturing sector is finding it difficult to attract the venture capital investment it needs to grow, according to a report by crowdfunding platform PledgeMe — and the reason comes down to fundamentally different expectations about returns and timelines.
The report found just 7% of tracked capital investment went into physical product companies in 2023, with government-funded tracking of this type of investment having since stopped. The finding points to a structural gap in how New Zealand funds its next generation of product-based businesses.
The VC timeline problem
PledgeMe co-founder Anna Guenther said venture capital funds typically operate on a 7 to 10 year horizon, with expectations of relatively rapid growth and a clear exit path — usually through an acquisition or IPO. Manufacturing start-ups often do not fit that profile.
"Often VC equity doesn't have the patience for assets that pay back over a decade," Guenther said. "For a country built on the backs of our farmers, we need to ensure the next generation can build not just in the clouds, but on the land as well."
Product manufacturers typically face longer paths to revenue than software businesses. They require physical infrastructure, supply chains, and inventory — capital that takes longer to deploy and slower to generate returns. Growth forecasts for these businesses may not show the "hockey stick" curve that venture funds typically look for.
The result is that founders in the manufacturing space often find themselves needing to self-fund for longer than expected, or to look beyond traditional venture capital.
Crowdfunding as an alternative
One example cited in the report is Ethique, a New Zealand beauty brand that raised early funding through crowdfunding. According to PledgeMe, early investors received a 48-times return on their initial investment when the company was eventually sold.
Guenther said the growth path of product manufacturers suited crowdfunding platforms, which can match founders with investors who understand and accept longer timeframes.
"We're seeing that crowdfunding is becoming a really valuable tool for founders that might not fit the traditional venture capital thesis."
For NZ investors, this raises a practical consideration: crowdfunding platforms offer access to early-stage companies that are not listed on public markets. That access comes with risks that differ from investing in listed equities — including limited liquidity, less regulatory oversight, and fewer disclosure requirements. The FMA provides guidance on investing via crowdfunding platforms and the risks involved.
What the gap means for NZ's economy
The broader economic question is whether New Zealand's start-up ecosystem is too concentrated in software and digital services. The country has strong agricultural and manufacturing traditions, but the report suggests the next generation of product manufacturers may struggle to access the capital they need to scale.
Whether that represents an opportunity for patient investors through crowdfunding, or simply a structural gap that policymakers need to address, is a separate question — but the data suggests the mismatch between VC expectations and manufacturing realities is real.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.