VANISHING VILLAS
‘Character’ isn’t the same as ‘heritage’ to the bulldozers
Zeald chairman David Kelly isn’t too keen on discussing his time as a bodyguard for touring film stars and musicians. Maybe he’s just a little embarrassed at the story behind how he funded his company during those early years.
Or maybe it’s because he thinks no one will believe a skinny ‘‘ginger white guy’’ (his words) was once trusted to work personal protection for touring band members and visiting Lord of the Rings cast members.
‘‘It was a weird period of time because by day you’d be the CEO of Zeald, and then you’d be the security guy searching vehicles,’’ Kelly says.
‘‘We didn’t get an income from Zeald until four years in. Four years without an income.’’
Nearly two decades on from his start as a tech chief executive and bodyguard, it’s Kelly’s proficiency in Brazilian ninjutsu, boxing, judo and krav maga that’s the unusual part of his story.
The fact he wasn’t able to persuade anyone to fund him in those early days is pretty typical even today.
There’s been a big increase in the amount of private investment flowing into the digital sector, but this isn’t enough to stop the most promising technology companies from listing on stockmarkets in Australia or the United States.
The digital sector says it struggles to get airtime ahead of the primary production sector, or even against well-established creative sectors like the film industry.
This became clear to New Zealand Game Developers Association chairwoman Chelsea Rapp when the Government prioritised letting film workers on Avatar through the border, but refused to entertain similar bids from the digital gaming industry, including from a firm wanting to relocate its entire studio here.
Domestic gaming companies also hit a brick wall trying to bring in world experts they’d hired pre-lockdown. Meanwhile, seasonal workers, farm workers, construction personnel, Netflix stars and the Wiggles seem to have had less trouble.
‘‘These are like top-tier talent . . . there’s a handful of people in the world that meet this requirement. Not just in New Zealand, but the world, and the Government would just not let them in,’’ Rapp says.
‘‘No matter how many appeals, no matter how good our rationale was, it didn’t matter. The Government still said no.’’
Skills shortages are shaping up to be a big headache for these companies. A situation they are in part to blame for, but also not entirely of their making.
NZ Rise co-chair Victoria MacLennan says that historically, graduates struggled to secure their first job and often ended up working in call centres. Digital companies preferred to hire experienced personnel funnelled through immigration, but this meant there now was not a pipeline of domestic workers.
Then again, information technology has often been tacked on behind other government training priorities too, she says.
Rush Digital chief technology officer Danu Abeysuriya says the whole industry struggles to get the Government to listen to it on these and other issues.
Veteran tech sector chief executive and NZ Rise board member Rahul Govindan agrees. The sector has somehow lost the attention of Cabinet. When it came time to stimulate the economy they didn’t turn to overdue tech infrastructure projects but to ‘‘shovel ready’’ construction projects instead.
The work plan for IT system upgrades just wasn’t there, ready to go.
‘‘When an emergency happens, and you’re unable to leave your house, you open up the pantry, and you see what’s in it, and you eat the food that’s in there,’’ Govindan says.
‘‘And that’s what we did, we had an emergency in the past year, we opened up the pantry, and guess what’s in there? It’s full of roads and farms.’’
Which is strange because New Zealand Inc has been engaged in a quest to grow its digital economy for nearly three decades, and we’ve had a Minister for Information Technology since as far back as 1993.
Back then ‘‘IT’’ was often used in quotation marks on press releases. Over the years ‘‘IT’’ lost the quote marks and morphed into the ‘‘knowledge economy’’. Now the same philosophy can be seen in calls for digitisation and a digital economy.
Many think New Zealand punches well above its weight in the digital sector, and use this exact phrase whenever they’re asked about it. Fergus chief technology and product officer Chris Stevens is one of those.
He started his first tech job as a software engineer in 1993, more recently he was chief technology officer at Orion Health and head of product at Pushpay.
Stevens says we really value innovation, and our national story almost always revolves around the country’s ‘‘firsts’’: Everything from climbing Mt Everest to inventing the jet boat engine.
He says we also have some natural advantages in this sector: Plenty of native IT talent and a time zone that works with Australia and the United States.
Govindan says we have some disadvantages, too, including the wealth attached to our nondigital industries. Countries like Israel, Estonia and Singapore, for example, have embraced the digital economy more successfully because they didn’t have the fall-back option of a booming primary sector.
‘‘They’ve been able to get ahead of countries like New Zealand, not because they’re smarter than us or wiser than us . . . but they’ve been forced into it as well, and we haven’t been.’’
The digital success stories we have were aided by the rapid growth of homegrown venture capital (VC) funds. Punakaiki fund manager Lance Wiggs still remembers when his VC fund refused to use the term ‘‘venture capital’’ on its promotional material for fear of scaring everybody off. They used the term ‘‘early growth fund’’ instead.
‘‘In the early 2000s a number of venture capital funds were set up and they pretty much all failed. In the 2010s to 2015s you couldn’t really call yourself a venture capital fund because of the disastrous first decade.’’
Those days are long gone. Over the past two years institutional investors in New Zealand have also started making investments into VC funds, spurred on by how successful past investments have proven to be, Wiggs says.
Early stage investment by ‘‘angel’’ investors has gone from 104 deals for
$51m in 2015 to 95 deals totalling $160m in 2020, according to the
Technology Investment
Network.
Many of our most successful technology compan
‘‘No matter how good our rationale was, it didn’t matter. The Government still said no.’’
Chelsea Rapp New Zealand Game Developers Association chairwoman, on attempts to bring expert staff into the country
ies have chosen to list on stockmarkets overseas. Big names like Pushpay, Xero, Volpara, Smartpay and Laybuy have all listed on the Australian Stock Exchange (ASX).
Fergus’ Australian-based chief executive, David Holmes, says there’s a certain inevitability about these firms listing on overseas stock exchanges. Even Australia struggles to prevent its big tech success stories from listing in countries like the United States where the sums you can raise are just so much greater.
Still, Wiggs says we leave money on the table the more companies we let escape. Investors just need to write bigger cheques, although he also thinks the Government could help with tax incentives too.
Venture capital generally funds companies who have successfully navigated the earliest stages. Tech businesses starting from zero rely on savings, sweat equity, a university grant, or simply a bank loan secured against their house.
Rapp says this is a problem for the gaming sector. In places like Montreal, and even Australia, there are grants available for these very early stage companies, creating an obvious incentive for top talent to relocate there.
Yet people like Wiggs and Govindan aren’t sold on grants, Wiggs prefers loans and Govindan argues the best support the Government could provide for the tech sector would be for it to simply follow its own rhetoric and ‘‘buy local’’.
Perhaps the most high-profile example of the Government going against Govindan’s advice came during their hunt for a Covid-19 vaccine register. The Government decided to award Deloitte and international giant Salesforce a $38 million contract for a new system to keep track of Covid-19 vaccinations.
That prompted outrage from NZ-based Orion Health because it designed the National Immunisation Register and was never given the opportunity to tender for a new Covid-19 one.
Unsurprisingly, chief executive Ian McCrae uses a number of colourful terms to describe the Government’s procurement practices, ranging from ‘‘Mickey Mouse’’ to ‘‘bottom of the class’’.
MacLennan says it works the other way, too. Buyers overseas question how good your product is if you haven’t even been able to persuade your own government to buy it.
She has been raising concerns for several years about opaque procurement processes within government because she sees them as a handbrake on the development of our IT sector.
Research by Laurence Millar of Transparency International reveals 97 per cent of digital IT contracts awarded in 2020 were not published, while 70 per cent of published awards didn’t detail the amount of money involved.
MacLennan says the Government actually has some good procurement rules on paper, it just doesn’t follow them particularly well.
Risk-averse public servants are also more likely to pick a recognised international brand name like Microsoft or Salesforce over a less well-known local firm.
Onerous regulations also make bureaucrats eager to avoid formal procurement processes where possible.
Small companies might find it harder to compete for the attention of Wellington-based bureaucrats given the sales nous and lobbying budgets of large multinationals.
MacLennan says there needs to be some local component to the procurement process, similar to a requirement which helped the British digital industry.
Smaller-scale New Zealand companies are often perfectly capable of producing good solutions for government, but less capable at lobbying ministers and marketing their product.
And once these tenders go to a particular foreign player it locks them in to other contracts. If you operate Microsoft’s system within one part of your ecosystem now, all of a sudden, you need it in other parts too.
Abeysuriya, whose company developed the Covid-19 tracer app, says there are a lot of digital projects for the Government to get cracking on.
‘‘We shouldn’t view technology as an add-on to government and administration. It should be a core component of policy, and every single aspect of running the country.’’
This is the kind of thing the controversial government chief technology officer role was meant to drive, but the momentum behind it collapsed after the botched appointment of Derek Handley.
Abeysuriya says most announcements flowing out of Government seem to be around converting existing businesses to digital rather than encouraging more ‘‘digital first’’ businesses, enterprises which could never exist without the internet.
This year Zeald, which deals with digital transformation, was announced as one of the partners in a scheme to digitise existing small to medium-sized enterprises. Great news for them, but it also means Kelly’s company is two decades old and still dealing with a lot of non-digital businesses struggling to grapple with the basics.
‘‘I would definitely have expected us to be more digitally advanced as an economy by this point in time.’’