Sinead O’Sullivan: Rocket Lab exit to have profound impact on NZ innovation ecosystem


Rocket Lab’s decision to go publicwith a valuation of around US$4 billion is huge, not only for founder Peter beck, but also for New Zealand.

Beck, also CEO of Rocket Lab, has chosen to go public through a special purpose acquisition company (Spac) instead of the traditional route of issuing an initial public offering (IPO).

Although Spacs, which are similar in nature to reverse mergers, are highly controversial in nature, this strategy will nevertheless create a liquidity event for Beck that will have a profound impact on the wider New Zealand economy.

By listing on a public market, early investors in Rocket Lab, including Beck, will achieve what is called an “exit”; existing Rocket Lab shares will be sold to the public for much more than the price at which they were originally created. Beck stands to massively increase his personal wealth through going public, which gives cause for great celebration for the New Zealand innovation economy.

Through some of my earlier innovation research, I identified New Zealand as a “globalised centre”, meaning that it’s a very well connected nation with global entrepreneurs who rely on an international customer base to scale (but are able to test local markets such as New Zealand and Australia before expansion).

However New Zealand, as a globalised centre, ranks lowly in its connectivity to global entrepreneurship. The average startup founder in Sweden is connected to five startup leaders from overseas centres such as Silicon Valley. Australian founders are connected to seven, Singapore has a connected number of 17, and New Zealand sits at two.

Thus, the NZ innovation economy will only scale once New Zealand startups and entrepreneurs can be better connected to “integrated centres” such as the United States.

Innovation ecosystems comprise many interconnected and moving parts: angel and venture capital (VC) money; talented founders; the peer set of other founders; engineering talent; the set of social norms and so forth.

A growing innovation ecosystem requires all of these components to intricately dance with each other to the same tune for extended periods of time. The biggest impact on this intricate web is access to fast money.

The earliest form of investment in startups – angel investment – typically comes in two flavours: good angel money and bad angel money. Unfortunately, there are two kinds of bad angels.

The first kind are in it for the money: they want to see financial returns in a reasonable period of time, and push their founders to run their startups as an investment, like real estate. They are inherently biased against risk.

The second kind is maybe even worse than the first: they’re investors who participate in startups for the status of investing and are competing for nothing more than short-term bragging rights.

During the early stages of an innovation ecosystem, and through no fault of any particular actor, most startups take on the only form of existing angel money – bad angel money.

This is primarily because the ecosystem is unproven and investments must generate above a threshold of returns for the sector to be thought of as sustainable for reinvestment.

Initial investors seek to validate their idea, and themselves. It is natural that most early, and even established, innovation centres struggle to move away from this model.

Good angels, on the other hand, provide fast-moving, pre-institutional capital that is untethered from any future growth milestones and focuses on the long-term goal of market dominance, even at short-term cost.

This “growth mindset” leads to the growth not only of startups, but of a community of talent. The good angel, unlike the bad angel, is validated within the community they build, as opposed to within their existing network to whom they have bragging rights.

If done correctly, good angel money can create a virtuous cycle of growth, as seen in Silicon Valley and now emerging in Europe.

So where do we find good angels, and how can we convince them to invest into New Zealand?

Typically, there is only a single reliable source of good angels, and that is from a small pool of people who have themselves experienced big liquidity events. In other words, people who have themselves created significant wealth through innovation.

Entrepreneurs who have made their wealth this way understand the long-term required focus and the short-term tradeoffs of bad angel money.

They understand the ecosystem and are already an established member of it.

And most importantly, they enjoy playing the game of unbounded and uncertain growth, and want to keep playing it. The easiest way for them to do this easily is to invest in other startups.

Peter Beck will soon be New Zealand’s most successful venture capital-backed entrepreneur and has undoubtedly grown an innovation ecosystem around himself and his business across New Zealand and the US.

The immediate Rocket Lab ecosystem has directly incubated and grown startups from the teams of engineers Beck has hired and, perhaps more importantly, mentored.

While it cannot be guaranteed that his new-found wealth will be reinvested in the New Zealand innovation ecosystem, there are telltale signs that he could be the first serious angel investor in the Southern Hemisphere.

We already know, for instance, that he is passionate about the New Zealand entrepreneurial economy and has invested in, either through sweat equity or cash, several tech companies that have scaled from New Zealand through the US market.

Further, not only does he bring good angel money, but he connects two geographical ecosystems that he has built over the last decade that bridge Silicon Valley and Auckland.

Right now, a straight cash investment would not be capable of bringing New Zealand to realise its full potential as a globalised innovation centre, which relies directly on deep connections to large-scale markets.

Through his personal networks, Beck could accomplish a founder-connectivity ratio in the coming years that could surpass that in most European countries.

There has been ongoing discussion in New Zealand regarding foreign investment in startups which displace parts of the innovation ecosystem to places like the US and Europe.

However, if we want the ecosystem to grow, there needs to be increased fluidity and easy access to and movement of people, ideas and capital across borders.

Rocket Lab could never have scaled so quickly within its home borders, and Beck’s exit was contingent on moving significant operations to the US to become a global player.

As boring as the old adage may seem, a rising tide lifts all boats, and Beck’s previous and future engagement will certainly be that tide.

Today’s release of Rocket Lab’s public filing ambitions puts New Zealand on the global stage and. More importantly, it serves as an indication that through Beck, Auckland could become a major and competitive globalised innovation centre.

Peter Beck has a lot to celebrate when the stock goes public, and New Zealand should be celebrating too.

– Sinead O’Sullivan is a Senior Fellow at MIT’s AI Policy for the World Project where she focuses on innovation. She is formerly an Entrepreneurship Fellow at Harvard Business School and a space engineer at Nasa.

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