As reality hits, what next for Nextspace?

Making any startup work is a terrifying balancing act: trying to get investment for your ideas without losing control of them, while constantly risking your financial neck. But that wasn't the case for 3D-visualisation company Nextspace when it was first created back in 2007. It was born as a not-for-profit with a taxpayer-funded silver spoon in its mouth. Now it seems reality is sinking in.

Making any startup work is a terrifying balancing act: trying to get investment for your ideas without losing control of them, while constantly risking your financial neck. But that wasn't the case for 3D-visualisation company Nextspace when it was first created back in 2007. It was born as a not-for-profit with a taxpayer-funded silver spoon in its mouth. Now it seems reality is sinking in.

Nextspace began life as the not-for-profit offshoot of the Right Hemisphere visualisation technology company, the year after Right Hemisphere was given a US$8 million five-year interest-free loan by the Labour government. At the time, the people behind Right Hemisphere claimed New Zealand private investors just wouldn’t come up with the kind of cash the firm needed to play with the big boys.

The loan nestled up comfortably against investment cash from Silicon Valley venture capitalist Sequoia Capital, and was partially justified by a client list that included heavy hitters like Lockheed Martin, Northrop Grumman and General Dynamics. The cash was handed over on three main conditions, all relating to the potential for ‘spillover’ economic benefits for the country beyond just getting the money repaid. These included keeping the high-tech jobs in New Zealand, creating a business cluster based on its 3D visualisation expertise while also providing cutting-edge software to New Zealand businesses and academic institutions at radically reduced prices.

The vision was: ‘New Zealand does 3D’. There was tantalising talk of a billion-dollar industry, and several million more flowed into the firms involved in the form of government R&D grants.

nextspace revisiaFast-forward to August 2009. The taxpayers’ largesse got Right Hemisphere and Nextspace over the economic hump, with about 40 high-tech Right Hemisphere jobs safe on these shores. The 3D ‘hub’ was headed up by three companies: Revisia, which creates walkthroughs and training resources for heavy industry, the Urban Voyage design studio and ‘virtual construction consultants’ Predefine. And Nextspace claimed about another dozen were busy getting their act together. In the preceding 12 months Nextspace provided technology with a list price of $6 million to educational establishments at a 97.5 percent discount, enough to cover any interest that Right Hemisphere would have paid on its loan.

So by 2010 Nextspace considered it had fulfilled its end of the bargain with the New Zealand taxpayer, and had gone as far as it could go as a not-for-profit. This led to some dainty legal footwork as it was converted to an independent private company with the government agreeing to stay on as a major shareholder.

Nextspace chief executive officer Gavin Lennox explains: “It was incredibly complex, we had a not-for-profit trust with trustees and at least one director who was also on the board. But the government have been good partners. When you are doing the legal stuff, if everybody agrees on where you want to go and what is happening it's really just for the lawyers to put it in the right words.”

Then in September 2011, Right Hemisphere sold out lock, stock and beautifully rendered barrel to German software giant SAP. With just a few days to spare to pay back the taxpayer’s money, the sell-off raised almost as many eyebrows and question marks as it did dollars.

SAP has an undertaking to keep the Right Hemisphere jobs in New Zealand, but it remains to be seen how that will play out.

Hitting the restart button

So where does that leave Nextspace, our national 3D hub, and New Zealand’s 3D future?

The most obvious change since our last visit to Nextspace is that it has vacated the spacious offices it shared with Right Hemisphere and moved to somewhat more modest digs above a sailmaking company in Wynyard Quarter.

The next big change is that Lennox won’t be CEO of Nextspace by the time you read this. Both he and business development and products director Richard Simpson are set to leave their day jobs at the company.

Simpson will continue to consult, and he and Lennox will still have a stake in the company since jumping on board at the October 2011 Ice Angels capital-raising for the firm. “We realised that the government funding was coming to an end and it was very unlikely that similar funding would come through again,” Lennox says. “We had to be realistic about the political agenda. It was Helen Clark’s government that did this with a surplus of millions, they took these ‘picking winners’ risks.

"Then we had a period of global turmoil and it was very clear that when the grant came to an end, finding further funding was very unlikely with the firm in its existing form. So we needed to transform Nextspace into something that was investable.”

digital earth nzWhittling down the team to a total of 11 staff is apparently all part of that transformation.

“It’s basically about crunching the numbers and looking at the runway of time we have to achieve lift-off. What we are doing is restructuring to give ourselves bit more runway. It is almost like going back to the start-up phase. Previously, because of that mandate from government, we didn’t really have a commercial imperative. Now we have met our commitment to the government and are acting as a commercial entity, so we have to think like a start-up, thinking about cash flow and our market more in the way we allocate resources.”

Nextspace’s offering has also changed. Out has gone the development of educational and manufacturing visualisation tools in favour of a focus on creating the next generation of planning tools for local authorities and utility companies. Dubbed ‘Visual City’, it comprises dynamic 3D digital models that help city planners view their assets and operations as if they were seeing them in the real world.

‘Virtual reality’ is a phrase that has taken a battering in careless hands over the years. It has meant everything from blocky computer games to the latest fantastical movie critters, most of which has very little to do with actual reality.

But Visual City is the real deal. The platform relies on the Right Hemisphere-developed and now SAP-owned Visual Enterprise software.

Nextspace clients can upload 3D plans from buildings right down to individual components of fittings like air conditioning, analyse them, manipulate them and try out all kinds of possible scenarios.

The results are as good as the information you can plug in, and Nextspace helps with that, too.

Examining the underbelly

According to Lennox, Auckland alone currently has something like 200 asset management systems, tracking everything from the sewers to the streetlights. Getting them all into one searchable and navigable 3D environment offers massive opportunities to save time and money. Auckland Council is already on board, along with the New Zealand Transport Agency and New Zealand Steel. And the company has made its first forays overseas by signing up Melbourne’s South East Water.

Sales director Simon Ferneyhough, a Kiwi who has just recently returned from living and working in Hong Kong, is charged with increasing this toehold over the Tasman.

“We have looked at Hong Kong and Singapore, but we have decided that for the moment they are too difficult for us to address,” he says. “Having just joined I was surprised at how well-known Nextspace is in Australia.

nextspace visual city australia melbourne nswLocal authorities in New South Wales, Victoria and Melbourne all know the firm, which is surprising when you think the company is only a dozen or so people in Auckland. The opportunities are also a little larger there, and there is a lot of initiative there to look at innovation.”

And Nextspace’s ambitions stretch much further than Australasia. There are more than 500 cities around the world that are larger than Auckland, Lennox says: “There are masses of data being created in these cities, and more and more people living in them. This is where the really important decisions need to be made. We want to work in collaboration and come up with something world-beating.”

But the immediate challenges are to get more runs on the board and dollars in the bank, something Lennox and his team are refreshingly open about.

“We have built brand recognition and good will, as well as commercial contacts because of our connection with Right Hemisphere,” says Lennox. “But a lot of our potential clients are large organisations, with deals that have been fairly binary in nature: you either get them or you don’t. If we get one major contract together with the work in the utility space and plant, we will have a sustainable business in the next 12 months.”

Ironically, given its heritage, Nextspace considers the dearth of investment into research, development and innovation here an ongoing barrier to its progress. In Nextspace’s experience, most of the large utilities in particular are still in the mindset of wanting to buy something complete and effectively off the shelf, rather than take on the addition risks involved in creating a real partnership.

Simpson has a warning for the innovation industry.

“There is a challenge in New Zealand around its procurement culture: it is killing innovation. It is hard to get the support needed to prototype something, because there doesn’t seem to be the same appetite for innovation. There seems to still be a strong culture of risk aversion in New Zealand, which is a shame.”

Which is kind of where Nextspace, Right Hemisphere and the government came in. Because despite all the transformations and challenges Nextspace has gone through in the past five years, the idea of creating partnerships for a brighter tech-led future is still there, deeply embedded in its operating system. The technology is also there, albeit most of it now German-owned. For Nextspace, the challenge will be in finding the right partners, now that its two oldest and best friends have stepped into the background.