Kiwis strike gold in tech boom

Software company Litmos founders Rich Chetwynd, Nicole Fougere and Daniel Allen. Photo / Dean Purcell.

With a $1 Grabaseat ticket to San Francisco and an unwavering belief in her product, Nicole Fougere set off from Auckland to get the global software industry talking about her company.

Fronting up to one of the sector's biggest conferences, but unable to get into the main hall, she waited outside making sure she introduced herself to the movers and shakers.

By the first evening, she was out with the keynote speaker singing karaoke.

By the conference's close, she had made enough friends to give the company - called Litmos - the exposure it needed to take off in the US.

Eighteen months on and with 150 customers, the Litmos team of three have just returned from California, where they sold their company for a multi-million dollar sum to Silicon Valley's Callidus Software.

Founder Richard Chetwynd, back from a San Francisco barbecue with his new bosses, said he began Litmos with an overseas sale in his sights.

Seeing a market that had failed to adapt to customers needs, Chetwynd in 2007 started creating software from his bedroom that allowed employers to train their staff via the web.

"The majority of learning management systems on the market were widely disliked. There was the opportunity to jump in and create something that people actually enjoyed using," he said.

Over the next two years Chetwynd was joined by Daniel Allen and Fougere and when some big US companies started to nibble, the trio began getting serious about creating a global software business. With little sales experience and a tight budget, the team had a tough task trying to create international buzz for their product.

"We came up with a strategy, the best way to get adoption was to get the people at the top of the industry talking about us. So we went out there and identified the movers and shakers on the conference circuit and we tasked Nicole with finding these people on Twitter and getting to know them," Chetwynd said.

Chetwynd, Fougere and Allen will now re-locate to San Francisco's Bay Area to work for Callidus and continue to develop the business.

While Litmos' success seems a Silicon Valley fairytale, business adviser and tech guru Nathan Torkington said Kiwis flying high in America are more common than expected.

"Litmos all happened under the radar in Devonport, but I think there's plenty of those companies in New Zealand. I keep hearing whispers of people running multi-million dollar companies from their houses but it's something that the country doesn't seem to talk about very often," he said.

Speaking from his current base in Colorado, Torkington said the timing was now great for New Zealanders to breach the US market.

Xero's Rod Drury, whose online accounting software is making strong gains in the US, said a string of companies were proving it is possible for Kiwis to make it in America.

He said the beauty of the latest tech boom is the ability for companies to succeed no matter where they are from.

"In the last generation of software, you had to be in the US, you had to build a global sales team. What's happening now is that the internet has given you infinite scale. The barriers of having to be there [are gone]. Now you can sell online to anyone in the world - it's levelled the playing field." Drury said.

Despite this, Torkington said the narrow focus of New Zealand companies was holding them back.

"What we lack in this country is people who are willing to think global first. They set their ambitions of being the biggest in New Zealand which is a wonderful thing to achieve but it is not a big success."

Tech entrepreneur Derek Handley agreed and said too many startups only set their sights on national conquest.

"If young people are going to give their lives to a business and invest all of their energy and emotions and money, there is no reason why they shouldn't be shooting for the moon, rather than shooting for Ponsonby," he said from New York.

Handley co-founded the mobile marketing company, The Hyperfactory, which he sold in late 2010 for a sum thought to be more than US$20 million.

Although many are optimistic about the sector's forward momentum, global commentators are wary the growth may be too much to handle. Economists warn of a tech bubble much like the dotcom bust that rattled the US in 2000.

Over recent months, the market value of tech firms has soared and this has pundits worried that history may be repeating.

In May, Microsoft paid US$8.5 billion for video-calling service Skype, even though the company ran at a loss in 2010.

A week later, the share price of LinkedIn more than doubled on the day it went public and the company's post-float value is now around 18 times higher than its projected revenue this year.

On Thursday, speculation was rife that online video service Hulu could be offered to Amazon or Yahoo for US$2 billion - a valuation 50 times higher than its annual earnings.

In assessing this trend, Stanford University's Steve Blank cautioned that a bubble was "unfolding by the book".

"No one doubts that social networks and web and mobile applications are reinventing commerce. Obviously, some of these companies will have hundreds of millions of customers, unprecedented revenue growth and great profits. Yet none of these companies has earned the valuations that they are receiving," Blank wrote on Economist.com

Torkington agreed that something was amiss and said over-valued start-ups were frequently bought up.

"We're starting to see a couple of bone-headed venture capital investments where the money's been high, the business has been questionable and those are the early warnings signs of a bubble."

However, Handley said even if companies are over-valued, many of them will still be successful with a strong, stable stream of revenue.

"The big difference between the dotcom bubble and today is that companies are generating revenues instantly and in some cases becoming multi-billion dollar companies within a few years because they're generating multi-billion dollar revenues," he said.

"I'm trying to encourage companies to come to New York and the Valley and try to give it a go because it won't be like this forever, but we are a good point of a cycle that will probably continue for a couple of years." Additional reporting: AP, Bloomberg.