$10m injection music to ears

By DANIEL RIORDAN venture capital reporter

A $10 million injection of venture capital has saved a small Auckland company fighting a costly patent battle with a multinational competitor.

Slab International, which makes flat panel speakers and is a leader in noise-cancellation technology, says it has been paying more than $300,000 a month in legal fees to ward off attacks on its patents by British firm NXT.

Despite its technical edge and promising future, Slab was close to calling it a day in December when the $10 million from AMP Henderson Private Capital and Caltech Capital Partners came through.

Chief executive Chris Lock says December 22 was a watershed for the company and its 17 staff - 10 here and seven in Hong Kong.

"My personal resources were at an end and we were too shattered to even celebrate properly."

Mr Lock says NXT's actions are designed to delay Slab's growth.

He is confident Slab's patents will withstand the legal action - a confidence shared by his new investors.

An attempt by NXT to stop Slab selling its speakers in New Zealand is being heard in the High Court at Auckland and NXT is also disputing Slab's patents in Britain and Hong Kong. The legal arm-wrestling is expected to continue for at least a year.

NXT, which is listed on the London Stock Exchange, came close to buying Slab last year but the negotiations broke down.

The $10 million will be used to fund Slab's purchase of its Hong Kong-based distributor, AGC, and to recruit more engineers, taking total staff to between 25 and 30 by the end of the year.

Founded in 1992 as Slab Technology by Mr Lock, Kelly Waterman and Graeme Jones, Slab International has two divisions - Slab Sound, which makes flat panel speakers, and Slab DSP, which makes noise-cancellation devices.

The flat panel speakers, which come in a range of shapes and sizes, are being used mainly with PCs, but Slab's plans to move into the hi-fi market are gathering pace.

Mr Lock says a pair like those pictured will retail for well under $1000.

The sound quality is much closer to traditional cone box speakers than with most panel speakers. The company also has patents for home theatre and motoring use.

Slab DSP's initial market is airlines.

The technology can dramatically reduce the amount of background noise in passengers' headphones at a price that makes them affordable in economy class.

Japanese electronics giant Matsushita is partnering Slab in the project through its US avionics subsidiary, as is US loudspeaker company Labtec.

Slab has been through a substantial restructuring in the past year as it sets it sights on international markets.

Mr Lock says Slab DSP will eventually be based in the US but the holding company, Slab International, will remain in New Zealand.

Licensing and primary research and development for both divisions will be handled in New Zealand from state-of-the-art premises in Auckland.

Through its new Hong Kong subsidiary, Slab Sound will own an assembly plant in China.

AMP Henderson Private Capital director Deepak Gupta says the Slab loudspeaker passed his "Would I buy it?" test with flying colours.

The $10 million is the biggest single investment his company has been involved in.

AMP Henderson has invested $160 million in small New Zealand companies in the past couple of years.

It has about $28 million left to invest from its Private Capital NZ Fund, which closed last year at $51 million. It can also call on funds from AMP Life.

The Slab investment is also Caltech's biggest.

Director Douglas Paul said he spent a year working with the company before deciding its prospects justified the investment.

The level of equity taken by the investors has not been disclosed.