How are you involved in the IT industry?
I've been interested in computers since I was 17 and bought a ZX81 (this dates me badly!). However, I was better with words than numbers, so rather than struggle with computer science I did a law degree at Auckland University instead.
Throughout my legal career I've taken every opportunity that's come my way to work on technology related projects. In the early days much of this was drafting and negotiating commercial contracts for IT and telecommunications services, but as I developed as a corporate lawyer, I've been increasingly involved in the establishment, financing, governance and buying and selling of technology companies. Some of the highlights have included working in London on several tech company floats (on the NYSE and the Nasdaq), acting for Trade Me and its shareholders on the sale of the company to Fairfax, and helping Rod Drury with early planning that lead to the Xero float.
Simmonds Stewart is exclusively focussed on the tech sector. We have a diverse range of clients, from tiny start-ups through to major companies, across the technology spectrum. As well as providing day to day commercial law/company counsel type support to our clients, we are heavily involved with Kiwi tech companies raising capital in NZ and the US, and in tech company M&A (the end game for many NZ tech entreprenuers).
What sort of potential does NZ have to be a real innovator in the tech industry?
NZ's innovation ecosystem, and the technology sector that it feeds into, have grown dramatically since the 90's. The NZ tech scene, particularly at the start-up to $20m turnover range, is vibrant, and I am regularly amazed by companies that I come across which have great technologies with growing international customer bases.
I personally think NZ's best opportunity to shift the dial is in the software, SaaS, web and mobile space. The capital costs of setting up these types of businesses is dramatically lower than most other technology sectors. The businesses themselves are highly flexible in comparison to sectors like pharma and biotech, and we have a skilled labour force to draw on. There is a great deal of entreprenuerial talent in this area, and the international success of our software and SaaS businesses in particular, is improving the expertise available to the next generation of companies.
I also see a lot of great companies involved in niche tech manufacturing (increasingly with software and SaaS offerings as the "value add"), and in niche food and related technologies. It is possible to create high growth companies in these fields which are not capital intensive. However, the key seems to be to focus on niche technologies or markets. For main stream technologies it is extremely difficult for NZ companies to compete with big international companies which have established sales and distribution channels and substantial financial resources.
How do NZ tech businesses make their ideas and products scalable?
Every business is different, but:
• Find a business model that is not capital intensive (and remember this as your business grows and you enter new markets)
• Raise as much capital as you can when you can, and don't be scared to have a smaller piece of a bigger pie
• Work with people that have experience in growing international businesses.
How do relatively small businesses protect their IP?
Read as much as you can online about IP issues that arise in your industry. Spend time working out what is novel about your technology or business model (often they are not as novel as entreprenuers think). Find a good patent attorney that is a specialist in your technology field and invest in a few hours of their time to talk you through practical steps to protect your IP. Sign contracts with all your founders, contractors, employees and suppliers with a clause assigning all IP generated in connection with your business. Register your trade marks and domain names.
What other support does the tech industry need from the Government and the investment community?
The Government already provides a lot of financial support to the tech sector, so I wouldn't advocate more grant or investment funding. Areas where I think the Government could help would include:
• Speeding up the introduction of the new securities law exemptions for employee share schemes under the Financial Markets Act.This is a major bugbear for the tech sector
• Revamping government procurement practices. At best these are unnecessarily cumbersome and costly to participate in, at worst they are an abuse of the Government's market power.
• Rethinking education priorities, particularly at the tertiary level, to increase the number of students training in technology related felds, in areas where there is strong demand for graduates such as computer science and software engineering. I personally think the Government could pay for some of this by reducing its funding of scientific research that is unlikely to be succesfully commercialised in NZ.
How should these businesses approach international expansion?
Setting up international sales channels is virtually always expensive. Selling direct in overseas markets is particularly expensive, and may not be effective unless you have a large budget behind you. If you run out of cash before you start generating material revenues in overseas markets, you may end up wasting all of the money you've invested in your expansion, or worst still you may have put your business at risk.
Think carefully about your sales and distribution model. If capital is limited, it may be more effective to establish sell through distributors or resellers. However, it can still be expensive to set up those sales networks and there are risks involved, and if your funds are really limited licensing your technology may be the most effective way for you to get your product to market and for you to earn a royalty based return.
Developing channels by trial and error will be costly in both time and money, so try to involve people in your business with plenty of experience setting up sales and distribution channels for your type of technology.
What other challenges do you see for the tech industry?
US and European economies (key markets for many NZ tech companies) are struggling, capital-raising is hard, and big money exits are thin on the ground in the absence of debt funded acquisitions.
However, I think these challenges present some great opportunities for NZ tech companies:
• Technologies that help customers to save costs, manage risk, achieve efficiences and increase business performance tend to be in greater demand in a recession, and customers are more willing to try new solutions. This is good news for NZ's young tech companies as these tend to be the key selling points for our new and often disruptive technologies.
• While capital raising is hard for NZ tech companies, this is the case world wide. This is good for NZ, because our companies are used to doing things on a modest budget so are better able to cope with these conditions than most. The reduction in the number of US competitors with deep VC funding at their disposal is certainly an improvement in the competitive landscape for NZ software and web companies.
• The absence of easy exits has forced the owners of many NZ tech companies to hunker down and grow their companies to the next level. This should capture more of the economic benefits created by our tech companies in NZ, and will hopefully lead to a number of exciting tech listing on the NZX over the next few years. Also, lower M&A prices coupled with the high NZ dollar has created a good environment for NZ tech companies to buy up weaker overseas competitors. It will be great to see value being created by acquisition as well as by divestment of tech businesses.