Investment in tech sector at record high

Greg Shanahan has built up a wealth of knowledge about the NZ technology sector. Picture / Brett Phibbs

Foreign investment in New Zealand technology companies is at a record high as venture capitalists look to invest in firms rather than acquire them outright.

Over the past decade more than 50 local tech businesses have been taken over by foreign buyers - including Navman Wireless, Intergen and Fisher & Paykel Appliances.

But data from the latest TIN100 report, produced by the Technology Investment Network, shows this trend is slowing.

The annual report, now into its twelfth year, tracks the progress of New Zealand technology companies and the sector as a whole.

TIN managing director Greg Shanahan said the shift to selling a stake rather than the whole business was a result of growing confidence within New Zealand businesses.

"What you saw over the period of the global financial crisis was a rise in acquisitions of TIN100 companies by foreign companies, and I think that was largely a sign of the stress that companies were under over that period," Shanahan said.

"In the past 24 months, those acquisitions have declined and instead what we see is a rising number of investments by foreign venture capital or private equity firms in New Zealand tech businesses rather than an outright acquisition.

"As prospects for companies improve there are fewer willing sellers whereas under currency pressure before, people were struggling to make margins. That's now not the case."

Between 2011 and 2015, seven technology companies on average were being sold to overseas companies each year.

This year, that number has dropped to just two while buy-in from investors has soared, Shanahan said.

In 2015, 25 major technology funds or private investors made investments in TIN100 companies, compared with just five the previous year.

One of the more high profile deals in 2015 was virtual reality company 8i which, at just two years old, secured almost $20 million in funding from a group of investors that included movie star Ashton Kutcher and Samsung.

Other big names investing in New Zealand last year included Vinod Khosla of Khosla Ventures, Viacom chair Shari Redstone and Paypal co-founder Peter Thiel.

Shanahan said this investment was coinciding with the highest level of growth in the technology sector in the last 12 years.

"Not only are US and other international investors showing greater interest in New Zealand but so too are local investors with some of the highest levels of early stage investment in tech companies," he said.

"Things like the change in financial market regulations that enabled crowd funding have provided more options for companies which has widened the accessibility to early stage tech investments for the general public," he said.

The report showed while companies were no longer selling at such high rates, they were increasingly making acquisitions themselves.

The TIN100 companies have bought 31 other firms in the past year.

The report will be released at a launch event on Wednesday and will be covered in this Friday's The Business.

New Zealand tech sector 2016
• Third largest export sector
• $6.5b in offshore revenue
• $16.2b of national GDP
• 27,749 firms employing around 98,900 staff