Cloud-based software contributes billions in export receipts today and will grow faster than New Zealand’s traditional export industries, according to a report by KiwiSaaS, which draws on independent research (see full report foot of story).

But the report’s release today is a bittersweet moment for the organisation, with Technology Minister Judith Collins confirming KiwiSaaS will be defunded as of June 30 – a year earlier than budgeted by the previous Government, which chipped in an $11 million, four-year allocation.

“My contract has been terminated,” KiwiSaaS chief executive Bruce Jarvis said earlier this week, when the Herald asked about his status.

The same went for his half-dozen staff. All will finish up at the end of the month.

Cloud or “software-as-a-service” (SaaS) software runs over the internet. New Zealand’s Xero was an SaaS pioneer. The sector has had 15 per cent compound annual growth since 2016 and earned $3.6 billion in revenue in 2023 – most of it from export receipts.

It’s on track to hit $9.7b by 2030, with export-led added value surpassing New Zealand’s top three primary sectors, creating an additional 50,000 high-paying, productivity-boosting jobs, according to research by Sense Partners.

KiwiSaaS has built a knowledge base, staged real-life events and facilitated networking. Jarvis emphasises that as a “weightless” export, software overcomes New Zealand’s tyranny of distance. It also means cloud software start-ups can be based in the regions, boosting provincial growth.

When the Herald first broke the news, ahead of Budget 2024, that KiwiSaaS could be defunded, and that a group of tech leaders were seeking a meeting with Collins about the programme’s future, the Taxpayers’ Union shot back: “A special interest group calling for corporate welfare isn’t exactly news, but Judith Collins needs to hold firm and not cave in to crony capitalism. Governments shouldn’t be using taxpayers’ money trying to pick winners or propping up fashionable industries like SaaS with handouts.”

Does the Taxpayers’ Union have a point? Couldn’t wealthy (if at times slim-profit) firms like Xero, Datacom and Gallagher, and other KiwiSaaS members, fund the industry initiative themselves?

“With those bigger companies, their focus is on shareholder value and wealth,” Jarvis said.

The plan was always to transition to self-funding once four years of funding expired in June 2025. But KiwiSaaS members only learned about the plan to axe the final year of funding recently (they wrote to Collins on April 8). With the timeframe, there are currently “no concrete plans” for a self-funded initiative, the outgoing KiwiSaaS boss said.

KiwiSaaS’s key focus had been on early-stage firms. Some 90 per cent of its members were small-to-medium businesses, with many outside the main centres. (All up, there are 378 members across 605 companies.)

“They start in a garage or a garden shed,” Jarvis said. Many were in the regions. It wasn’t the role of the likes of Xero to hold teach-ins and networking events or on-site visits.

A number of the larger SaaS players are now owned or based offshore, too, further removing them from on-the-ground or provincial efforts to boost New Zealand exports. Xero is now listed on the ASX, with a Sydney-based CEO; PushPay, Seequent, Xplor, EzyVet, Foster Moore, Education Perfect and Vend are now controlled by North American firms, while Volpara Health has just been bought by a South Korean rival.

KiwiSaaS’s focus is – or was – on helping the next generation coming through.

Nelson startup accelerated

“KiwiSaas has been amazing,” says Hannah Ippolito, who co-founded a web design software firm called SquareKicker with her husband Nick in 2020. The pair are now held up by KiwiSaaS as an example of what its publicly-funded programme could help achieve.

“We’re operating out of Nelson, so there aren’t a lot of examples of software companies. It’s been great to have members of the KiwiSaaS community jump on a call or even visit our office. Talking to people who are one, two or 15 steps ahead has helped us avoid costly mistakes and accelerate our progress,” Ippolito says.

SquareKicker makes a design tool for users of Squarespace – a New York-based competitor to the likes of WordPress and Wix.

The startup now employs 13 people and its software is used by some 25,000 websites worldwide. Ippolito anticipates it will triple in size when its first major upgrade is released in August.

Collins responds

“The funding provided for KiwiSaaS ends on June 30, 2024. New Zealand already has a number of SaaS success stories, for example, Hnry, Xero, Pushpay and Les Mills International and discussions have been happening with the sector to explore a future model for KiwiSaaS that is not dependent on Government funding,” Collins told the Herald in a statement.

The Government was criticised by the Technology User Association of New Zealand (Tuanz) earlier this week for halting work on an Industry Transformation Plan designed to address skills shortages through inclusion and education initiatives, and for ending funding for the Digital Boost progamme, aimed at lifting small business digital literacy and tech uptake and a $15m programme to provide underpriviliged students with free home broadband – while at the same time failing to match government initiatives in the UK, US and Australia to address areas like internet safety, cyber security and AI (artificial intelligence) challenges and uptake.

The Startup Council called for the $300m Elevate venture capital fund (now exhausted) to be topped up to the tune of $500m. It got nothing. A rebate for the video game sector was unexpectedly kept, albeit with only around half of the available funds paid out.

And as Sir Peter Beck thanked Industrial Research Ltd (IRL, now part of Callaghan Innovation) for giving Rocket Lab its start, Callaghan Innovation incurred similar staff cuts as other Government agencies and had its plan for R&D hubs in the capital canned.

“There were no new technology initiatives in the Budget, but agencies have been reprioritising resources to focus on new priorities including biotech, AI, and game development,” Collins told the Herald.

“The Government has closed the Digital Technologies Industry Transformation Plan. This Government is committed to supporting tech to set New Zealand on a path of more productive economic activity. The Government remains committed to supporting the tech sector, including through enabling the building of skills and talent in the sector.”

The Crown pull-back comes at a time when high interest rates have seen venture capital firms suddenly much less willing to fund early-stage SaaS firms and when, after years of employment growth, local cloud software firms pulled back last year. “Overall headcount reduced for the first time since 2016 by 1070 people (6 per per cent),” the KiwiSaaS report says.

KiwiSaaS report key findings

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.