Submission to the Science System Advisory Group

What follows is a submission that I made to the Science System Advisory Group that I recently made - you can find out more about their mission and function here . In time, I am sure they will publish all of the submissions.

May 2024

Context

I have been involved in the small business, startup, innovation and related communities since 1999 when establishing and leading a corporate venture capital arm for a listed public entity, Fletcher Building and getting involved with initiatives including one of New Zealand’s first incubators and also one of the first business plan competitions.?

In 2002 I was the founding CEO of The Icehouse and remained in that role for nearly 20 years. During this time, I have been a partner in the build of New Zealand’s innovation ecosystem - including incubators, accelerators, angel groups, seed funds, venture funds, impact funds, University entrepreneurship challenges & funds, TTOs, commercialisation initiatives, mentoring of leaders in the system, peak body establishments including the Incubator Association, Angel Association and other industry good initiatives including Summits, Showcases and more. I also travelled extensively through Europe, Asia (including Singapore, Hong Kong, Japan, India & China), Australia and North America (mostly the US) to study, understand and learn from their innovation systems, what works, what does not. I have also hosted hundreds of international experts into New Zealand to help us with the build out of New Zealand’s system.?

Today, I am an advisor, a mentor to founders and teams, a mentor to members of the ecosystem, a fractional executive in a deep-tech startup, a writer and an angel and fund investor. I have advised 100’s of companies and founders on how to raise funding, how to enter markets, and I continue to do that today. I am also a resident of a startup in Outset Ventures, and after being the founding CEO of The Icehouse and its incubator and community spaces, I understand a lot about the role these communities play in New Zealand and their relative importance - at the micro and system levels.??

My micro driven activities of working with founders & owners enables the insights that I get from a system wide perspective. I have on the ground driven perspectives that are not top-down. I don’t believe in top down driven insights, they often fail for lack of understanding or appreciation of what is actually happening in the market and they miss what are the real issues that exist. Ultimately, I think of myself as an expert in business establishment and growth, and a systems thinker as to what initiatives will make a difference to the performance of our innovation system.?

These activities also have taught me that there is no one path, and that no one person has the answers to how you advance. There are many well meaning people who believe they have the answer, and time proves them mostly to be wrong. Whether cynically or not, I have formed a view that it is better to often do nothing than to do something that is not insight driven or is not truly going to make a difference. I am cynical about the public sector’s views, I am also cynical about Ministers’ views as again they are often not insight driven, and I am also cynical about international experts who come to New Zealand like we have had over the years including people particularly from some regions, who espouse their models without truly stopping to understand context, to understand New Zealand’s position and what would actually work in New Zealand. Many of what these so-called experts have recommended have also failed in New Zealand, even if some of them continue to be funded. For far too long, we have held onto initiatives that seemed like the right idea when they were introduced and we have just kept doing them.

I care deeply about the performance of New Zealand’s economy and how we can be more productive over time for the benefit of our people - and unfortunately, I do fear that we are back to the unfortunate days of the early 2000’s when the Knowledge Wave was created, again our young are choosing to leave New Zealand for better opportunities offshore, in Australia particularly.?

A key philosophy that I think with is that the answer often exists if you look from the outside, rather than looking from the inside. A sole push out from our innovation system will fail, if it is not informed from the markets, from the future and being an outsider can greatly assist with relevance. A singular push out is sub-optimal, a combination of this plus outside informed insights will give a much more effective outcome.

I also believe that it is better to do nothing if there is no hypothesis for market failure and if you do something be clear on the hypothesis and don’t be afraid to measure, tweak or stop some initiatives. But above all consider, mostly what we are doing is funding a system (inside and outside) to enable individuals and teams to come together to do things that make a difference to New Zealand and to the world - it is a people's game. People can lead teams to companies that become centres of excellence and clusters in the New Zealand context.?

Think about this last point - individuals and individuals working together can lead to single companies becoming clusters and major competitive advantages for New Zealand’s future prosperity and productivity. This is important, clusters in New Zealand can arise from one company because of the situation our own innovation system is at.?

Below are some initial comments and then I have attempted to address the questions for this stage of the review. The task is challenging, that the Panel has, but I would say it is necessary and even critical that you have courage to recommend fundamental change. Fundamental change is required, at the least to stop activities that are sub-optimal, not evidence based nor impact based, as that will enable the effective activities to continue possibly with more scale, and for new initiatives to begin.?

I am not a person captured by the system with one exception. I believe in outside looking in, not inside looking out, especially from a system perspective. That can make my views somewhat challenging to some however they are made with respect and a hope that better outcomes for our system can occur. I have no IP on what is the right mix of activities, and it is far easier to say what is wrong than what is right, however saying no to some activities and creating a new structure to support the strategy will greatly help drive change in the future.

Andy Hamilton ONZM?

LinkedIn ?

Comments:?

• Where are the successes in our innovation ecosystem (in the micro) and what can we learn from them - including the source of these successes most importantly? Think both about system initiatives and also individual firms. Think about Rocket Lab, F & P Healthcare, Lanzatech, Xero and many more. Please don’t exclude some of these for not being research led, they are innovations in the market in their own right, and they are technology and they are creating value from our country, that we can benefit ultimately alongside the owners, the investors, the teams and the wider supply chains and ecosystems. We can’t afford to prefer only vials or atoms as a place to focus resources if we want our country to be more productive, more wealthy and more successful.?
• Where is the evidence and data to evaluate whether the ‘current’ interventions have worked against the market failure assumption when they were created? Why is there no stated market failure statement behind many interventions or policies? If there is, where is it? Why are we not more open about this? What does this say about our own culture??

Beliefs:?

• There have been well intentioned approaches to building out the innovation ecosystem.
• Some approaches have passed their use by date.?
• Some approaches continue to deliver value and compound returns.?
• There is a lack of rigour, accountability, measurement and honest assessment about the impact and return from Government expenditure - a better basis needs to be implemented, whether the reason for this situation is laziness or incompetence is a moot point.?
• There is a somewhat anti-logical approach from many in the system that they look for returns from where the money goes, as opposed to thinking about where the outcomes have come and what can be done.?
• Our system has a dual role, to produce those researchers who might themselves be a part of launching something world-leading, ground breaking and solving a problem in the world but also producing talent and capability that will be the employees and team members of the future.?
• Generally speaking, programmatic solutions are and should be designed to provide a solution for a time, and then should be transitioned out once the issues have been addressed and/or it has been proven that the interventions are not working.?
• There has always been enough ‘funding’ and ‘resources’ in the system as an input, it has just been poorly allocated, directed and managed.?
• There are too many decision makers across the ecosystem, and ultimately a lack of accountability because it is unclear to know who is actually calling the shots - is it people or is there a clear strategy for our innovation system -? is it the Minister for Research Science and Technology, is it the Minister for Economic Development, is it Callaghan Innovation, is it MBIE - it is far far to confusing and there is a lack of accountability to outcomes. There is no clear articulated strategy that exists beyond the personal beliefs of people who are largely not equipped to set the strategy.?

Questions:

• What would be success from a more effective returning science and innovation ecosystem in New Zealand??
• How would you measure this success??
• How is this likely to be different from other ecosystems given the particular context of New Zealand??

The Brief for submissions then asked for input on specific issues they wanted to canvas.

Question set 1 – The Science, Innovation and Technology System.

• What future should be envisaged for a publicly supported science, innovation and technology systems?
• What are the opportunities, challenges and barriers that need to be addressed to build a more thriving research, science, innovation, and technology system that delivers positive sustainable growth and prosperity for New Zealand? This might include specific comment on the following topics: (1) How can they drive innovation and accelerate the shift towards a knowledge-based, diversified economy? (2) How can they contribute to developing innovative solutions to emerging challenges such as climate change, biodiversity loss, and societal health? (3) How should they adapt to, and make good of opportunities provided by, a rapidly evolving global research landscape? (4) How can the Government’s effectiveness be enhanced using scientific data, knowledge, and new technologies?
• What principles should underpin the design of a science, innovation, and technology system for New Zealand, given its demographic composition and distinctive cultural makeup, its geographical position, and its social, environmental and economic futures? This might include specific comment on the following: (1) Where are the major structural barriers to greater efficiency, effectiveness, and impact? (2) What are the barriers between publicly funded research entities (especially universities and Crown Research Institutes (CRI)), and in turn how can we facilitate closer partnerships between them, the private sector, government agencies and communities including hāpori Māori? (3) How should the science, innovation, and technology system embrace and reflect the growing diversity of culture and peoples in New Zealand and the contributions of Māori as reflected in the Treaty/te Tiriti? (4) What are some important factors for the government to consider as criteria when prioritising investment in research appropriate for New Zealand’s size and characteristics? (5) How can New Zealand better leverage its small domestic, science, innovation, and technology system to be more effective? (60 What future are we envisaging for the science, innovation, and technology system in New Zealand?

Response set 1 - The Science, Innovation and Technology System.

• When we reflect on say the last 20 years, what initiatives have worked, what have not? What does this say about what should be prioritised for future work??
• What we put in does not need to lead to what comes out, as long as something comes out e.g. Peter Beck was not a student of the Uni System, but as a result of his breakthrough and success, he is now contributing back with the need for graduates and researchers to work in the company - the publicly supported system is now benefiting from having a local, high tech success story. There are also major spill overs as Peter has invested in other startups (Halter) and been a part of establishing communities such as Outset Ventures - notably much of which was without support by Government Agencies because for example ‘Outset’ did not fit their criteria. Other examples include Lanzatech and many other companies - Halter and more. They did not come out of the formal system, they came about as a result of other factors.?
• We lack scale, we lack focus and we have duplication of resources, infrastructure and expenditure that does not add material value. Is there a better way to achieve scale without centralising everything? We need to be discerning and challenging here - for example, do we need so many CRIs, can we merge these and reduce the number by ? and then focus resources on their capabilities? Do we need so many sub-scale TTOs, that are subject to the whim and funding challenges of their host institution owners, or is there an argument for a direct funded national TTO organisation? What is the cost of applying for funding that our researches spend each year? Too much - yes.?
• Most of the ‘policy’ predictions (and subsequent funding decisions) around our requisite competitive areas and needs have been poorly made - somehow we either need to be better at predicting platforms of technology, R&D that we need or we just need to back researchers that have shown themselves to be world-class - there is something wrong with our allocation system currently. Look at the past to inform the future.?
• Most of the successful innovations in NZ and also in many other countries don’t come from inside the ‘towers’ they come alongside and outside, while also utilising the resources, and capability - but fundamentally they are often solving problems that academics and researchers are not focused on or thinking about, and most importantly the approach and speed of these startups is 100x on what the ‘inside’ approaches take. That does not mean we should dump ‘inside’ but we must accept that there is life for both.?
• Think about ambition, think about scale, think about courage. Why are the policies for approval of fund managers at NZGCP and Callaghan with Tech Incubators so ‘strict’, so ‘inflexible’ and so missing the point? We want to create a VC industry in NZ with expertise and relevance - that does not happen if you say everyone should be ‘world class from day one and like Silicon Valley’. In Australia, there was a vision for a deep-tech VC in Main Sequence, and Larry Marshall and his CSIRO team partnered with a group to create their first fund at something like A60m, and now it is over A1b of FUM. Ambition but also flexibility to get the outcome, not ‘strict rules’.?
• On diversity, there are some interesting observations. At Icehouse the community is varied - almost index to the market, albeit on the startup side its level of diversity from a Maori and Pasifika perspective was low when I last was involved. Good intentions and good success in the owner manager SME side, with more work to do, and in the startup side, low to minimal and I am not sure is a focus. In contrast, the Outset Ventures community is highly diverse from a founder and founding team perspective, including female and maybe that is helped by the fact that it is only for deep-tech companies. It also struggles for diversity in the Maori and Pasifika spaces. From my own experiences in Maori and Pasifika communities, trust is very important, and maybe our expectations on timeframe need to be much longer - what I also know is that as soon as the people in decision making roles are female, are Maori, are Pasifika then we will see change. There is clear evidence from international studies, that if you want to impact on diversity, doing ‘Maori’ only or ‘Female’ only initiatives will not address the fundamental issues, at least until there are people in decision making and resource allocation from these communities - we need more diverse people in decision making roles, and the State could play a role in this.?
• Ultimately, we lack scale, we lack focus and we lack a return. We also have made some well intentioned but ultimately poor allocation decisions on priorities. We have also listened at times too much to people from offshore who fail to contextualise to New Zealand. I don’t have the answers other than we do need to make choices, and we also need to find ways to explore scale benefits from centralisation without creating worse impact by failure of quality decision making and allocation of resources.?
• We are also challenged by the business structure in NZ that sees a very low intensity and appreciation of the role of R&D, absorptive capacity and interest - most of our large firms are nearing monopolies with domestic focus who are more concerned about the regulator than leading the world. How can a research, innovation system engage effectively when there is little interest from those that have the resources?
• How do we build international partnerships of research and development? We either build them because we have a reputation of expertise and/or because the Government (or some other party) funds them. We clearly don’t have the luxury of the Government picking winners, so we should not be trying to invent expertise and competence - if we don’t have it, there is no point trying to create international collaborations as we would just be wasting valuable resources that should be used in other ways.?

Question set 2 – Public Research Organisations.

• What is the role of public research organisations such as Crown Research Institutes (CRIs) in the New Zealand context?

In answering this question, you might consider:?(1) How should the functions of government research organisations including the current CRIs be organised, governed, and managed into the future? (2) Are public research organisations too isolated from higher education? (3) To what extent should public research organisations be public good facing versus private good facing? Should these roles be separate? (4) How should public research organisations manage intellectual property?

• Does New Zealand need an advanced technology organisation doing applied and developmental research? If so, how would it be structured, governed, and organised? How would the private sector be engaged?

Response set 2 – Public Research Organisations.

Research organisations in New Zealand should in my view provide a fundamental and important role to support the country now and into the future:?

• In simple terms, I would hope that they are focused on addressing fundamental problems that are happening today which risk an industry (e.g. Kiwifruit disease) and working on break-throughs or developments that will underpin the future of our industries and possibly future industries.?
• The establishment of commercial expectations of funding by these CRIs and also because of many poor approaches by industry companies in NZ has led to some great challenges for the CRIs.?
• It makes sense to restructure these CRIs - possibly reduce the number by 50% and rethink the focus and approach, including funding as well as greater alignment to research groups in Universities to enable ‘group’ focus and research to address industry challenges in NZ.?
• The model of Callaghan Innovation has not worked - being a funder, and also a researcher has led to mixed outcomes, confused direction and poor outcomes. I also think it has been unfair on Callaghan with the model and now we have the opportunity to change it to be more focused and effective. The latest example of statements by leadership at Callaghan to focus on commercial revenues etc is an example of confusion, whether that is from the Board, or the Minister or MBIE is moot - it is clear from the outside that there is pressure and confusion around their role.?
• When we think about the board’s for CRIs - my question is really, whether the competence matrix for the board aligns to what role is required of the CRIs. I expect there is a complete disconnect between the skills that sit on the boards, and what we need the CRIs to do in the future - they need to have completely new competence on their boards.?
• With respect to IP management - this is a very interesting question and challenge. Because of the pressures of funding, and the importance of commercial returns, sometimes organisations hold onto IP or even they hold onto the IP in the interests of supporting industry. A more radical approach to IP would be beneficial - IP sitting on the desk, IP not getting funded is a waste. We want IP being commercialised and driven to market, therefore what could be done to speed up and improve this process? Release of the IP would also cause industry to be more active. Especially if there were time incentives for NZ industry to pick up this IP (I appreciate the international IP laws around favouritism to NZ). I would also state that what many host institutions think is IP and has value is very different from the reality of the market.?
• If there is valuable IP in these institutions - why is there not a market banging down their doors? Is it not valuable IP or is it that the industry is distracted and/or not interested??

Question set 3 – The Innovation System

• Does New Zealand have appropriate mechanisms to develop the innovation pipeline, attract global partners and funding? (1) Does New Zealand need a revised approach to promote innovation? (2) How can we use innovation and technology to make New Zealand’s economy more competitive? (3) If an innovation-focused policy and promotional organisation is needed, what would its core functions be? (4) How should Callaghan Innovation and other publicly funded industrial and commercial innovation support mechanisms evolve? For example, New Zealand Growth Capital Partners (NZGCP), incubators, accelerators and similar (excluding tax incentives).?

Response set 3 – The Innovation System

These are very interesting questions:

• Many Government Bodies, and Local Councils have promoted ‘local’ and ‘NZ’ IP - and generally it is wasteful and has created low return, even if these bodies will justify their position including organisations like NZ Story - the best ‘promoter’ of our IP our value are the companies that have created valued - Halter, Rocket Lab, Lanzatech, Tradify, and many many more - I would argue any money spent on innovation, marketing is a complete waste of time.? Show me the evidence, show me the return. Sure have some logo’s that can be used by companies like the Fern Mark if they want to use it, but please conserve resources and focus them where there is market failure and the ability to measure impact.?
• To be clear, I do not support tax payer funding being allocated into a promotion agency for New Zealand - we have marvellous resources and capability in our NZTE and MFAT networks internationally. I would instead focus on what exists in NZ, what support companies and/or industries need and then get on with it - creating another entity, another monolithic group that tries to promote NZ would be a waste.?
• We have a fundamental challenge of scale and infrastructure which is very challenging in this context: (1) We have only 5.5m people.?(2) We are a long and thin country, with duplicated infrastructure.?(3) Our large companies in NZ are smaller than other comparative countries’ large companies.?(4) The majority of our large companies in NZ are domestic economy focused and have high market shares. (5) We have a number of limited international scale companies - many of which are also not really focused on true innovation outside of their own horizon 1 and horizon 2 models.?(6) We have until recently been an angel led startup economy, thankfully we have now moved in the last few years to a VC led economy and we have seen some growth in FUM. (7) Think about this - it creates a real challenge - we are not the UK, we are not Israel, we are not Singapore, we are not China, we are not even Australia or China or Silicon Valley.?(8) We do ‘micro’ - a case study in point; how many deep-tech VCs and communities exist in NZ vis-a-vis Australia? We have many, many, so many. Australia does not have as many, curious isn’t it. When I talk to a VC in Australia on deep-tech, they will make A$10m calls, while the same deal in NZ would get NZ$1m. Challenge. We do micro. We lack scale. Our system lacks scale. We do mediocrity. Look at the tech incubators, look at the incubators.
• Let us also think about the last 20 or 30 years in NZ and consider what innovations or new initiatives that have come out as material contributors to the ecosystem - what were they, where did they come from, and what can we learn from them? Many said to me in our early days that you can’t do The Icehouse, it will not work, you can’t do both SME and startup, choose one and focus on that? - well, look at it now, two organisations, one with over $400m of funds under management on the startup side and a world leading education provider for small business -? we proved it could? be done and we achieved relative scale. Ask yourself, what breakthroughs have come which were designed by the Central Government? Suggest you look into this - unfortunately, the competence inside Ministers, Officials and Agencies is just not sufficient to handle and design an innovation system. The level of expertise is wanting - and the answer is not to adopt the Israeli approach or the Singapore or Denmark approaches - because they lack awareness of the context - sure learn, but please don’t just apply like Callaghan Innovation has with the tech incubators, and then completely clouded the impact and results so no-one knows whether it is working or not. Boards and Ministers have arguably supported this possibly because of the fear of failure - something we can learn from our international friends is - measure impact, if it is working double down, if it is not, try something else, give the money back to the taxpayer.?
• When we think about the Government Funded organisations that support the innovation economy - I would recommend some radical changes:?(1) There needs to be a published, written paper that details the hypothesis for action, for addressing a failure or market opportunity - how this will? be measured and the timeframe, then with that funding, let the organisation get on with it.?(2) Programmatic solutions are fine, as long as there are exit plans - for example, NZGCP’s role should be to fill the market gap, but then carefully and with a planned exit remove itself over time from individual firms e.g. a starting VC fund might be $2-$10m for its first 1-2 funds, and then if it met expectations for its funds 3-5 it would get materially more, but once it got to fund ? then it would be clear that NZGCP would be removing itself as a funder.?(3) My biggest point on the Government Organisations is there is a complete lack of accountability - the system is also set up to defend itself, because of the fear of failure. It needs significant remodelling and a culture change that needs to start from the top but also be materially simpler. Just start with significant restructuring and refocusing.? (4) If there is no market failure position, then it should not do it. Eg. incubators were here for a time, but they are not a valid intervention any longer, maybe accelerators make sense where there are issues of say diversity with female founders or Maori/Pasifika and/or Immigrant founders, but general incubators etc are just not a valid intervention for a Government to be involved in funding.?(5) This may be controversial, but go and look at the innovation system initiatives that have succeeded over the last 20 years, and ask why, how and what involvement was with these? UniServices, Velocity at the UOA, some VCs like Movac, Blackbird, The Icehouse - have others succeeded, have these succeeded - how would we know? Do all of these initiatives (and others) get Government Funding? Should they? Look at places like Outset Ventures - arguably has not received Government Funding, and yet it is successful, thriving and growing. Is it? Is there an argument for more support from Central Funding? This goes back to what do we define as success and then where should we allocate resources to support the objectives??
• On the innovation ecosystem players - both public and private, we have a wonderful opportunity to rethink the structure, resources & priorities - we should be courageous and not just accept what we have.?
• What is success ultimately that we are looking for - that will help guide the panel around your recommendations. Is it more industries, is it more world leading companies like Rocket Lab and a space industry (largely because of Rocket Lab) or is it more world research centres located in NZ (noting many have tried and failed to do this in the past). What is it that we want or aspire from our innovation ecosystem??

Question set 4 – Contestable Research

• What is an optimal structure for managing mission-led and contestable research? In answering this question consider:?(1) Should the Ministry of Business, Innovation and Employment and its policy functions be more clearly separated from contestable funding decisions? (2) Does New Zealand need to rationalise its research funding mechanisms??(3) At what levels should prioritisation of research and research investment occur and on what basis? (4) How should investment into Māori research priorities be determined? (5) How should research involving the study of or the application of mātauranga Māori be managed and funded? (6) What should a Pacific research strategy consist of? (7) In what areas should New Zealand develop in depth research expertise over the next two decades? (8)How could the system better coordinate research across priority areas???(9)How should high intellectual risk, high innovation research applications be identified and supported? (10) How should the balance of research investment extend across from the humanities, social sciences, health sciences, life sciences, physical sciences and earth sciences? (11) What checks and balances should be in place to ensure effective and efficient science?

Response set 4 - Contestable Research

• There is too much competition, too much cost in the system, and too little focus on supporting the researchers to do good and defining work - there is something inherently wrong with the current system. Just analyse the layers of decision making, funding approvals, costs to apply. Maybe there is also average research being funded as a result.
• There are many good aspects to our current system including internships, masters and phd funding. I am sure others more expert in this area would be able to point out what is working well currently.
• When I think about making decisions and setting direction around the funding pools in NZ for research - there needs to be competence in and around these areas, and there needs to always be a % of the total funding pool available to adjust to trends. There is too little flexibility, too much management and too many poorly directed funding buckets.?
• Yes, rationalisation and focus will help with quality - there is too much spread now, and a lack of focus. The risk of being nice leads to funding being taken away from our greatest researchers which is not right.?
• There are many good questions here, which are very difficult to answer - including allocation.?
• When I think about for example research that is relevant to Maori and Pasifika,? budgets should be allocated to these areas, and their people should oversee the allocation and funding decisions to support the objectives. I would be very commercial in establishing these decision making groups to have the requisite competence and also expectation of results, given them freedom and then monitor accordingly. Devolvement makes more sense to me, as long as there is clear accountability.?
• In some of your other questions around decisions on the balance of decision making on the needs, again it is very difficult because many people disagree about the current needs let alone the future - however, some principles make sense to me, which is that generally Government Officials are and are not right to be making these decisions on behalf of our country - we need a new and different partnership with leaders (not Corporate NZ) to make these decisions. We also need some flexibility that enables new areas to be pursued and also more aggressive scaling of certain areas of competence that are both needed but also may lead to future industries.?

Question set 5 – Governments Research Needs.

• How should the government’s own research needs be identified and addressed? How should such research be quality assured?

Response set 5 – Governments Research Needs.

If the Government has needs, it should publish its needs and fully fund the work it needs.?

Quality assurance is a function of customer expectation. The Government is the funder, it should measure the quality by fulfilling its needs and expectations.