The ladder against the wrong wall
Top Three 2025 Retrospective - Part 2
To finish 2025, I’m revisiting some of my favourite Top Three posts from the last year.
I did a lot of media interviews and podcast recordings this year to promote my book. Mike Hosking on NewstalkZB. Susie Fergusson on Radio NZ. Seamus Marten & Steven Holloway on Between Two Beers. Simon Pound on Business is Boring. Frances Cook on Making Cents. Simon Shepherd on The NBR.1 And many others. I was even the inaugural guest on a podcast called Startup Theatre2 - I definitely didn’t have that on my 2025 bingo card!
Thanks to an introduction from one of the producers - who is a Top Three subscriber - I was also interviewed by Guyon Espiner on TVNZ’s Q&A.3 One of his questions was about capital gains tax, picking up on a Top Three post I published in January. He seemed surprised I wasn’t opposed. At the same time, I’m not sure that it’s the great unlock that many hope it might be…
This week only How To Be Wrong is available 25% off, direct from Electric Fence. You’ll wait a long time to get a better price than that. Enjoy!
🏟️ Win
Try to imagine the scene. It’s the early evening of 16th July 2028.4 A hush descends over the Los Angeles Memorial Coliseum. The large crowd focus their attention on just eight athletes standing at the starting line of the 100m. One by one they are introduced and drop into the starting blocks.
“On your marks”, says the official, pointing the starting gun into the air.
“Set” Briefly, silence, then …
BANG! 💥
Ten seconds later it’s all over. One of the eight athletes is immortalised forever as the Olympic champion. Within a few hours they will be presented with the gold medal, and stand on the dais listening to their national anthem. Two others get the consolation silver and bronze medals for their efforts. The remaining five can only wonder what could have been.5 They quietly file past the media waiting to interview the winners, mostly forgotten like the hundreds of others who have been knocked out in earlier rounds of the competition and didn’t even make it to the start line for the final.
This is one of the remarkable things about sport, and perhaps part of the reasons why many of us are captivated by this type of competition. There is guaranteed to be a winner. But only one.6
We win. You lose. Or vice versa.
But not all things are as contrived as that.
One of the remarkable things about business is there are no guaranteed winners at all - it’s possible that everybody will fail. And at the same time, no reason why there can’t be multiple winners. When one startup is successful it doesn’t detract from the likelihood that another will also be successful - in fact, often the opposite, as lessons learned can be shared.7
In sports, victory is zero-sum. In startups, success is cumulative.
A finite game is played for the purposes of winning.
An infinite game is played for the purpose of continuing to play.— Finite & Infinite Games, James P. Carse
🥧 Bake
One of the things we love to talk about in New Zealand is “getting ahead”. Once you attune to that expression you hear it constantly.
It’s the reward promised to everybody who works hard. And it isn’t just a catch phrase - it’s a national obsession that shapes our politics and decision making.
Christopher Luxon has said: “I became Prime Minister so that you and your family can get ahead”.
The bit that is left unspoken is: ahead of whom?
When we talk about getting ahead, if we’re honest, we’re mostly only talking about one thing. By far and away the most popular way we believe we get ahead is by owning real estate. The common wisdom is we build our wealth by “getting on the property ladder”. This is an enticing idea. Provided you can somehow jump onto the first rung of said ladder (usually by borrowing as much as possible from a combination of banks and relatives) then over time you’ll be able to climb up the subsequent steps - presumably by buying more properties or more expensive properties or both.
The problems with this are almost never said out loud.
Spending more and more to buy little bits of our country off each other is mostly another zero-sum game.
Making housing increasingly unaffordable for everybody not already on the ladder is an empty victory.
Rampant house price inflation is not wealth creation, it is poverty creation as it makes homeownership less accessible to everyone.8
And, remember, “everyone” in this case includes all of the people who we need to continue to choose to live and work (and pay tax) in New Zealand.
In the last election, one of the big ideas was to make it easier to sell little bits of our country to international investors. As if that is not a one-time sugar hit. Our headlands for their muskets and blankets, all over again.
This fixation has pretty obviously made us relatively poorer, not wealthier. While we’ve all been busy trading houses amongst ourselves at ever-increasing prices, countries like Singapore have focused on creating actual economic value and seen their wages grow significantly faster than ours.
Consider a “businessman”, who after achieving some financial success invests their savings in a handful of rental properties and then sells them for a profit a few years later. What business are they in, exactly? What value are they creating? What problem are they solving?
We need to redefine what it actually means to “get ahead”?
When Trade Me was sold, it didn’t close the door on other opportunities. In fact, the opposite. The capital returned to shareholders and employees was reinvested in dozens of new ventures. The team members who cut their teeth building Trade Me went on to start or join other companies, bringing hard-won experience about what works. The technical (and non-technical) challenges we solved became lessons that helped others avoid the same pitfalls.
When Xero succeeded, it didn’t use up New Zealand’s quota of successful software companies - it helped prove we could build world-class products from here. More importantly, it showed that we could take on international competitors in established markets and win. The pathway from startup to global success that Xero pioneered has since been followed by many others.
When Vend and Timely were acquired, it didn’t exhaust the pool of potential buyers, it highlighted that companies started here could achieve great outcomes. Each exit created new groups of experienced operators and investors who understood what it takes to build valuable businesses. Many of them are now working on their next ventures, armed with knowledge that can only be gained by doing it once. I’m excited to be invested in many of these founders again.9
I got to see all four of these examples first-hand, working on and investing in these businesses in the early stages. This is why I wrote How To Be Wrong. Not because there’s a formula to replicate these past successes - there isn’t - but because understanding how we navigated similar challenges can help founders working on their own ventures today to avoid common pitfalls and highlight the patterns that matter. And to highlight the reasons why we do all of this in the first place.
The wealth we create from technology isn’t extracted from a finite resource - it’s generated by solving problems and creating value. Each success makes the next one more likely, not less.
🤪 Choose
What would it take to convince more of us to invest in startups rather than real estate? How do we wean ourselves off our obvious and harmful addiction to property?
A common answer is: a capital gains tax. But I’m skeptical it’s the silver bullet that many hope for. Let me explain why…
Ellsberg’s Paradox describes how people make decisions when outcomes are uncertain. In a famous experiment, people consistently demonstrated preference for known probabilities over unknown ones - even when the unknown option might offer better odds. We choose certainty over ambiguity, despite poorer outcomes.
This perfectly describes New Zealand’s investment psychology. The fundamental problem with our housing market isn’t that capital gains on property are tax free. It’s that everybody believes those gains are almost certain and that property values won’t fall in the long term. Plus, these “sure thing” investments can be leveraged via mortgages.
This is why most people are much less enthusiastic about other types of tax-free capital gains - like investments in businesses. In those cases, both the capital gains and the capital itself are truly at risk. The outcomes, while potentially much much larger, are ambiguous rather than certain.10
Given this deeply ingrained psychology, it’s difficult to see how a capital gains tax would significantly change how capital is allocated. Especially if it was applied to all investments equally. And even more so if there are exclusions for housing (while even the most bullish advocates of a capital gains tax think the family home should be excluded, there is never any mention of excluding the family business).
If we really want to shift investment preferences - less into property, more into productive businesses - then we would somehow need to make those things we want to encourage seem less risky.11
On the other hand, if we want to make housing more affordable then we need a solution that causes prices to fall. But nobody wants their property value to fall, so any solution that would cause that to happen is considered politically impossible.
Which takes us back to the heart of our problem: The fundamental issue isn’t tax treatment. It’s that we’ve collectively convinced ourselves that property investment is a sure thing. We’ve created a negative feedback loop, that keeps dragging us down. We’ve chosen to get poorer together, while telling ourselves we’re getting ahead.
The alternative is building valuable companies that solve real problems. These might offer more ambiguous outcomes, but they are not zero-sum. They are the only way we’ll break this cycle. The sooner we start the better.
“On your marks…”
Dec-2025 Addendum:
So, should we bother with a capital gains tax at all? Given the ingrained positions taken by politicians of different flavours since I wrote the post above at the start of the year, that is once again likely to be a hotly debated question in 2026 - an election year. In many ways that in itself is remarkable. This is how I like to frame the debate for anybody still struggling to take a position on this:
This is our national blind spot.
There are only three countries in the world that still use the Imperial measurement system - miles and inches, pints and gallons etc: Liberia, Myanmar and the United States of America.12 I’ve never visited the first two, but I have made many trips to the US over the years (including to promote my book at events in San Francisco and New York this year). When I press an American on this, most of them still cannot compute that they are such an outlier. They assume their way is right and the rest of the world must be wrong.
Likewise New Zealand is a massive outlier, in that our default tax rate on capital income is 0%. There are exceptions but the paltry amount of capital gains tax collected by the government each year indicates how infrequently those apply. And, just like Americans stubbornly sticking to their outdated system, we don’t realise how unusual that makes us.
When I point this out to people they are often surprised that I think this should change - as Guyon was in the Q+A interview. They assume a venture investor would want to continue to benefit from paying no tax on realised gains. They assume a tax would discourage people like me to take those sort of risks. Maybe I just have a slightly wider perspective? I’m fortunate to know venture investors from other countries around the world: Australia, Singapore, Europe, the UK, and the US. And none of them think that capital gains tax is unusual at all. It’s part of the water they float in constantly. They expect to pay it whenever they have a big win.
I think it’s a shame that it is still a political question in NZ. Because it also ties into how startups actually contribute back to our economy. As I say in the book:
We need to demonstrate to [New Zealanders] how growing an ecosystem of companies that use technology to create high-paying jobs based in New Zealand ultimately flows through to fixing […] things for all of us. To do that we’ll need to focus much less on what the government can do for startups and narrow in on what startups can do for the government, and by extension for everybody in New Zealand. That will make a nice change.
Header Photo: National Transport & Toy Museum, Wānaka, August 2005.
This is Part 2 in a series of 3 posts. Part 1 is here…
Currently featured in the Air New Zealand seat back entertainment. Is it rude to say I feel a little sorry for anybody choosing to listen to an NBR podcasts on an international flight?
I went back to try and find the origin of my usage of the term “Startup Theatre”. The first I could find was in this blog post from June 2014.
Not for the first time, though. He was one of the hosts of Morning Report back in 2015 when I stumbled into the Red Peak flag debate. That old interview is still available on the Radio NZ archives: Social media provides platform for flag design change, along with the follow-up, just one week later: Could the red peak design fly?
I know different people have strong opinions about this topic, but I reckon these interviews have aged pretty well. If you’re interested I published a retrospective about the Flag Debate on Top Three in September 2021: Lessons from #RedPeak
In the footnote to the original post I said
I’m making up a specific date here for dramatic effect, but there is some method. The LA Olympics are scheduled to run from 14th - 30th July 2028. Unusually, the track-and-field events will be held on the first week of the games, having swapped places with swimming in the traditional schedule. The pool will be installed at the SoFi Stadium - home to the LA Rams and LA Chargers NFL teams - but only after the opening ceremony, hence the delay.
Curiously, there are nine lanes on the 100m track, and in the early heats, quarter-finals and semi-final races there are nine athletes in each race. But for the finals there are only eight athletes included, leaving one lane empty. I don’t know why. ¯\_(ツ)_/¯
Yes, yes, there are a few examples where the gold medal has been shared by multiple athletes - most recently the men’s high-jump at the Tokyo 2020 Olympics. And, no doubt some of you will read that and wonder where a draw after five days of a cricket test march fits into this theory too. Let those be the exceptions that prove the rule.
The exception to this rule, increasingly common in New Zealand, is when two startups are competing for the same limited pool of people to work on them. That’s a topic for a different post.
The good, the bad, and the reality of falling house prices, by Miriam Bell
Stuff, 10 September 2022.
To choose four examples from my portfolio:
Nick Houldsworth & Rowan Oulton were early employees at Vend, and are now co-founders at Prosaic.
Sam Gribben was previously CEO at Serato, and is now founder at Melodics.
Nik Wakelin was previously founder at Gelato. Ludwig Wendzich was previously at Vend. They are now co-founders at Sterling.
Aaron Ward was previously co-founder at Ask Nicely and is now co-founder at Huckleberry.
It is difficult (impossible?) to imagine a property investment that has returned anything close to the 12,887% gains on a share in Xero, purchased in the IPO in 2007 at NZ$1.00 and valued today at A$112.93 [Ed: It was 18,822% in January when the original post was published - XRO is down more than 33% since then]
Alternatively we could try and make the thing we want to encourage more rewarding. This is effectively the proposal from those who want to see things such as subsidies for startup companies and incentives for early-stage startup investors. The issue with these ideas is that the system is already very generous. The government already funds a long list of such subsidies and incentives. How much are we all prepared to spend to de-risk these ventures and investments even further? As I wrote in How To Be Wrong:
Imagine a different system where we incentivise startup investors by waiving all tax on capital gains. Unlike subsidies currently paid in advance, this would mean that taxpayers don’t take on any of the up-front risk. Plus the benefits flow mostly to the investors who generate the outcomes we say we want by successfully turning startups into high-growth companies. This system would be trivial to implement. The capital gains tax on startup investments in New Zealand is already 0%!
I believe both Myanmar and Liberia now use a blend of Imperial and Metric system. The US is more purist.
Excellent reframe on how the certainty illusion drives NZ's property obsession. The Ellsberg Paradox angle is spot on becuase people will keep choosing the "safe" leveraged property bet over startup equity even if CGT makes them equal on paper. I've seen this play out in Australia where CGT exists but peopel still pile into real estate like its the only game in town. The psyhcological shift needs to come first, not the tax policy.