Shy investors hold back technology innovators

Grant Straker. Photo / Kenny Rodger

In theory software is the ideal export product for New Zealand because it doesn't require physical transportation across the seas. But the tyranny of distance is still holding Kiwi technology companies back.

Software firms, including healthcare and financial services, account for 46 per cent of the Technology Investment Network's second 100 ranking of tech companies (TIN101-200).

Most are not startups - the average age of firms in the ranking is 14 years, and many are crying out for capital to move to the next level.

North Shore translation software company Straker Interactive got close to a deal with a European venture capital (VC) company earlier this year, but in the end the investor decided not to put its money into a company on the other side of the world.

"They could see absolutely no reason why we were based in New Zealand," chief executive Grant Straker said.

It felt the company should be in the same market as the majority of its customers. It also had concerns the Kiwi firm had not yet proved its new language translation service model, but Straker still believed its location was an issue.

"It's just one more battle you have got to overcome that somebody else doesn't."

With current turnover of $2 million to $3 million, funding in the $500,000 to $2 million range would be the "big kick" the company needed, Straker said. "Our distance and lack of capital has stopped us ever getting that hockey stick effect."

Waikato biotechnology start-up ZyGEM is in the process of closing a round of venture capital funding in the US.

For this company dealing in extremophiles - rare micro-organisms found in harsh environments such as Antarctica that produce unique proteins with clinical, industrial and laboratory applications - the funding of "more than $1 million" would be the vital next step.

In his three years in the States he had been repeatedly asked why ZyGEM kept its headquarters in New Zealand, chief executive Paul Kinnon said.

VC investors needed to be involved in the business and that meant being able to get on a plane and talk to the CEO face-to-face. But New Zealand was not just an overnight trip away.

ZyGEM now had a US research and development site after buying a company in Charlottesville, Virginia.

"One or two venture capitalists have said to us, 'well you know, what are you going to do with the New Zealand one?"'

But ZyGEM was seeking funding to expand its New Zealand facility because the quality of work coming out of New Zealand was high, Kinnon said.

Serge van Dam, head of marketing at Kiwi mobile banking software firm M-Com, said if companies were providing a commoditised product their location would always count against them. "New Zealand companies have to find a niche that is deep enough that they can say 'we are better than anyone else in the world', at which point it ceases to be a problem."

Most of M-Com's 75 staff were based in New Zealand and the company wanted to stay here. It had recently signed Canada's third largest bank, Scotiabank, as a customer and that deal alone would create seven new jobs.

"There's an ability to feel good about the impact you've made to your home country and I think that still drives us to a certain extent," van Dam said.

New Zealand Software Association president Terry Paddy said New Zealand's venture capital industry was still immature, and while many technology startups had angel investors the next step up - the $3 million to $5 million level - was hard to find. "It's just part of New Zealand's unwillingness to invest in anything that isn't bricks and mortar," he said.

Managing content proves a lucrative move

Creating software to manage website content, including different languages, is one thing.

Becoming a fully fledged international translation service is quite another.

However this is the route North Shore firm Straker Interactive has taken, for the simple reason that content - not just managing it - is where the money is.

The company's software products always had the ability to handle multiple languages, and many of its clients were overseas, CEO Grant Straker said.

When the shareholders sat down to figure out how they could scale up the business, they came to an interesting realisation - of the US$20 billion ($25.9b) translation industry just US$1b was the technology component.

"So two to three years ago we decided we'd really focus on the language side of the product and that would be our niche," Straker said.

Since then the firm has been on "a bit of a journey".

Its biggest challenge was to find a pool of trusted translators and there were some false starts. "It took us three to six months of really weeding things out, a process of natural selection."

It also needed to be cost-effective to compete internationally.

Instead of paying the usual 20-30 cents a word, Straker pays translators by the hour. This had dramatically reduced the cost to under 5 cents a word, he said.

Straker Interactive can provide translations of any kind, but most of its work is English to one of the main languages - Chinese, Spanish, French, Arabic, Japanese, Portuguese and Russian.

In May the company's revenue from translations was zero.

This month it will be six figures, and Straker predicts by January it will be the firm's major revenue source.

"We're kind of almost reinventing ourselves as a new company."