Kiwi cleantech startups get government support to take on the world

Tuesday, 20 July 2021

Callaghan Innovation cleantech spokesman James Muir says new technologies will help the country reach its carbon targets .

New Zealand’s clean tech innovators are struggling to compete with their foreign counterparts because they are not able to attract the same level of investment, report from Callaghan Innovation says.

As a result, many do not survive long enough to attract crucial late-stage funding to take their products to market.

The Callaghan Innovation report, New Zealand Climate Tech for the World, says research shows companies working at solving pressing environmental problems are under-financed compared to other small advanced economies.

This translated to six times less investment than Finland, 55 times less than Sweden, 22 times less than Israel, 18 times less than Denmark and 12 times less than Ireland.

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Kiwi clean tech businesses were also not surviving long enough to access the late stage financing necessary to grow, or were not perceived by investors to have sufficient potential to grow.

A cross-government partnership has been formed to turn that around and make New Zealand into a centre of global clean tech excellence.

Callaghan Innovation cleantech spokesman James Muir says commercial opportunities for New Zealand are specifically in the agriculture and energy sectors because of the strong foundations that already exists.

A key recommendation of the report was to increase collaboration among government organisations to increase investment in clean tech. Another working with multinational corporations to help grow businesses.

New Zealand’s lack of multinationals contributed to a fewer funding opportunities.

Callaghan Innovation clean tech spokesman James Muir said new technologies would help the country reach its carbon targets and would help to build a high value export sector, while also creating jobs.

Ross Milne, General Manager of Leaft Foods says it takes significant capital investment to realise opportunities and there is a need for strategic partnerships along with venture capital and impact funds to push them through.

To do this, more investment was needed to commercialise some of the technology coming through. The partnership would develop a five-year roadmap to attract investment, strengthen local and global networks, scoping new initiatives and develop clusters of clean tech businesses.

Turning innovative technologies into a commercial proposition was not easy, Muir said.

“The report reveals that innovators are raising 95 per cent less investment than other comparable small advanced economies.”

Leaft Foods’ innovation is low-emission animal feed, optimised for ruminant nutrition that could significantly reduce farm nitrogen losses.

This despite a recent review of the country’s clean tech businesses showing there were up to 300 businesses working on technologies, applications, alternatives to plastic, new energy sources and industrial waste processing.

In the 2020 financial year, 98 clean tech businesses that had been funded by Callaghan Innovation, generated $334 million in revenue, supported nearly 2000 jobs and invested in $95m worth of research and development. There were about 680 high value research and development jobs.

Callaghan Innovation, New Zealand Growth Capital Partners, the Science for Technological Innovation National Science Challenge, Auckland Unlimited and UniServices have established the NZ CleanTech Mission partnership to convert local clean tech into profitable businesses.

Muir said commercial opportunities for New Zealand were specifically in the agriculture and energy sectors because of the strong foundations that already existed.

“The focus from here is to leverage our strengths, existing resources, and growing appetite to explore new energy sources,” Muir said.

Leaft Foods general manager Ross Milne said it was partway through its startup phase.

The fledgling food tech company was granted seed funding from Callaghan two years ago to develop its concept to create highly nutritional food with a lower environmental footprint.

In March, Leaft announced a $20m five-year research programme to develop its concept further, including on-farm trials.

Leaft extracts edible protein from green leafy crops to produce high quality protein ingredients for use in plant based foods. It also co-produces low emission animal feed which has been optimised for ruminant nutrition, with the aim of significantly reducing farm nitrogen loss.

The Ministry for Primary Industries contributed $8m through the sustainable food and fibre futures fund and Leaft invested $12m of private equity.

Gaetano Dedual, chief technology of Futurity Bioventures says its technology takes wood and extracts its core components which are then used as replacements for petrochemicals in a range of applications.

Milne said Leaft was carrying out research and development to prove the concept.

“The next step is to try and commercialise this.

“We didn’t have trouble getting those rounds of funding. It was a privilege to have what is taxpayers money and therefore we had to make sure that we had a robust business case but it is high risk,” Milne said.

It took significant capital investment to realise opportunities such as this and there was need for strategic partnerships along with venture capital and impact funds to push them through, he said.

Futurity takes low-value forestry offcuts and turns them into high-value replacements for petrochemicals that are used in everyday products, such as polyurethane.

The startup was planning its next capital raising and Milne said it would look at all those options.

Futurity Bioventures chief technology officer, Gaetano Dedual said the company was founded three years ago with seed capital from Callahan and Trust Tairāwhiti.

“That has got us to the point now where we have a strong proposition,” Dedual said.

The startup was in the middle of a second capital raising to fund an 18-month large-scale market validation project, with the hope of de-risking the technology enough to attract finance for full commercialisation.

The company takes low-value forestry offcuts and turns them into high-value replacements for petrochemicals that are used in everyday products, such as polyurethane.

“We recognised that there was a huge opportunity in New Zealand to add value to our forestry resource through the production of bio-based chemicals and materials from pine wood.

“That really came from a realisation that the world is transitioning away from oil to lower impact sources of chemicals. The wood feedstock is a great way to unlock these chemicals and they don’t get a lot of recognition,” he said.

While Futurity had been well-supported to date, it lacked thefunding to scale up the technology.

Eventually, the plan was to build a $150m biorefinery in Gisborne. Futurity was looking for investors who supported its goals. The idea was to keep as much of any future profit in New Zealand.

“What we have found is that it hasn’t aligned with some traditional mindsets in the investment community around existing mandates and exit strategies. This is about a large infrastructure, long-term transformative investment for the forestry industry.”

Dedual said there was an opportunity for the Government to support projects like this because the value would be retained instead of going overseas.

This interim stage, which he called the “valley of death area” was the most challenging for startups.

It was common to hear about companies that did not make it past this crucial stage, which was why Futurity was working to de-risk the project now so it could attract the big bucks later, he said.