R&D policy under fire

First published in the New Zealand Herald on Tuesday February 5, 2013

Sale of another tech company overseas sparks debate over fair use of taxpayer funds.

The sale of a technology company to a British buyer has reignited debate over the Government’s approach to research and development funding and the growing number of innovative Kiwi firms shifting overseas.

Ebus, a provider of cloud-based video transfer services to broadcasters and television advertisement production firms, has been acquired by London-based media logistics company IMD for an undisclosed sum. The company was established in Auckland in 2005 after its founder, Italian businessman Carmine Masiello, sailed his yacht from Europe to New Zealand and decided to settle here.

Ebus’ shareholders include Auckland business incubator The Icehouse, investment groups Movac and Sparkbox Ventures, and Trade Me founder Sam Morgan’s Jasmine Investments. Singaporean investors also hold shares.

Ebus received around $240,000 in government R&D grants and $304,000 in NZTE market development funding between 2006 and 2009, said Economic Development Minister Steven Joyce.

The Icehouse chief executive Andy Hamilton, who was also a director of Ebus, said the company had initially conducted research and development in this country but that work was now carried out in Singapore.

Masiello also relocated to Singapore in 2009 to be closer to the firm’s core markets in Asia, leaving Ebus with only one remaining New Zealand-based employee, chief operating officer Michael Orton.

Technology entrepreneur Selwyn Pellett said the Government’s strategy around R&D funding was in some cases having “very questionable outcomes” for taxpayers.

In December Pellett traded blows on Twitter with Joyce after the politician took umbrage at him saying New Zealanders should be unhappy with the sale of Auckland-based technology firm Endace to a US company.

Endace, which Pellett founded in 2001 and left in 2010, had received more than $11 million in government R&D grants.

Pellett has suggested introducing a convertible notes scheme in which government grants could be turned into equity in takeover events.

Joyce said the Government could request repayment of grants in some cases, but only within three years of a funding round’s completion, meaning it would not be able to recoup the funds allocated to Ebus.

The Government was reviewing policy on grants and whether they should be repayable in the case of a foreign takeover, he said.

Hamilton, who declined to reveal the price IMD paid for Ebus as it was subject to a confidentiality agreement, said the company had paid taxes in New Zealand and the returns investors such as The Icehouse, Movac and Jasmine Ventures reaped from the sale would be reinvested in Kiwi start-ups.

Ebus’ move to Singapore in 2009, he added, had been fundamental to the success of the business and IMD’s acquisition would allow the company to grow further.

Data from the Technology Investment Network show more than 30 of New Zealand’s most innovative companies have been acquired by overseas buyers in the past decade.

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