Twitter spat as Joyce hits back over Endace

Selwyn Pellett believes Endace could have spawned more New Zealand companies. Photo / APN

Economic Development Minister Steven Joyce and Selwyn Pellett have exchanged blows on Twitter after the Endace founder said that taxpayers should be unhappy about the tech firm's impending takeover.

Auckland-based Endace, which develops technology that measures, monitors and protects high-speed networks, has been approached by California networking solutions firm Emulex with a cash takeover offer worth US$130 million ($156.76 million).

Emulex say they hope to expand company's operations and could help double Endace's revenue.

Pellett co-founded the firm in 2001 but stepped down two years ago.

His comments on the takeover sparked a heated Twitter exchange today.

He said yesterday that the company's investors would likely be very happy about the takeover, but New Zealand taxpayers should not be.

Endace has had two separate grants from the Government.

The first was a $4.4 million investment grant from TechNZ in July 2010 and the second, in December of that year, was a technology development grant worth up to $6.7 million over 36 months.

"Institutional investors will be very happy. I suspect the staff who have stock options will be very happy, there's a lot of people who are happy about this.

"People who shouldn't be happy if they understand the implications are the New Zealand taxpayers.

They should be saying, 'That was one of the highest-tech companies in New Zealand, it could have with appropriate encouragement spawned another four or five companies' ... the company itself has so much IP [intellectual property]," said Pellett yesterday.

Pellett said there were problems with the government grant system.

Instead of grants, he believed the Crown should be putting money into companies as a convertible notes, which could be turned into equity during a takeover event such as this.

If $10 million from the Endace deal was to go back to the Government, it would not be a "deal breaker", Pellett said.

"But $10 million goes a long way to funding the next Endace."

Yesterday evening, Joyce told the Herald that Endace was already majority-owned overseas and the Government was willing to provide funding as long as research and development stayed in New Zealand.

He said if research moved overseas, the Government had options to get money back.

The minister took to social networking site Twitter to complain to Pellett about his comments.

"So you collect taxpayer support, decide to sell shares, make lots of money & then moan about it in @nzherald #unbelievable...BTW [by the way] R & D co-funding is about doing R & D in NZ, not supporting individuals. But happy 4 u 2 repay so we can fund others," Joyce tweeted at Pellett.

Pellett then replied: "Mr Joyce you should check all yr facts. Interesting a Minister would target an individual for speaking out on policy."

The entrepreneur said in a second tweet: @stevenljoyce on record 4 a long time about the need to get grants stopped & switched to convertible notes. Public agree why not?"

Pellett also offered his congratulations to Endace's employees and said that if the company had to sold then Emulex was a "good a home as you could ask" and that its chief executive Jim McCluney was a decent man.