We’ve heard this music before

The global stock markets are in turmoil. There are rumblings from China, Europe and the USA. Are we in the middle of  another crash – or is this just market turbulence? Whatever it is, we’ve seen this sort of thing before, and we should brace for the potential bear* market. It’s also just good business practice to be prepared for a downturn.

So with that in mind, here is what we potentially could expect to happen during the next few weeks and months and maybe (but hopefully not) years.

1: A global sell-off in shares will continue off and on. Shares will go up, shares will go down. Nobody can predict what will happen but the drops and rises means that investors in all asset classes are going to be more fickle.

2: Some companies with poor fundamentals (bad numbers, lousy products, poor growth, high debt, no customer lock-in etc.) will be exposed and some of them will go bust, as they will fail to raise equity and lose access to debt.

3: “Growth” (smaller, earlier stage) stocks tend to get hit a lot harder than “Blue Chip” stocks during market falls. The conventional wisdom is that you want to own mass-market breweries and sell high tech. (Growth stocks have higher Beta – volatility versus the market – and so are hit harder on both the downside and the upside. Xero’s share price exhibits  this extra-volatility versus the market)

4: Valuation multiples (versus EBIT, Revenue etc) will fall, especially for growth stocks, which will in turn change rules of thumb for a while. 

5: In the high growth ecosystem in NZ this means that it’s going to be a lot harder to raise money for early stage companies that are not exemplary, because investors get scared overall.

6: Meanwhile NZ as a distant and small market internationally may suffer from withdrawal of offshore funds.

7: Early stage valuation multiples for companies will go down, because and some will fail to raise at all.

8: It will be harder for funds with poor track records to raise money as well. On the other hand if you have a fund with lots of money then the investing will be good.

9: Revenue per customer will be lowered by the general downturn in business and consumer confidence. The number of customers may drop, and the risk of slow or no payment events rise.

10: M&A activity will occur, and at low prices.

11: The NZ housing market is not immune to a general market drop.

Advice to businesses

Make sure you can get to cash-flow positive on the funds that you have. Nobody can be sure that the next round will be there, and if it is then the valuations might be horrible.

Operate with a margin of safety, and be able to cope with a downturn in customer growth, upturn in churn and lowering of per-customer metrics. This is no time for flaky start-ups, and customers won’t like that either.

Tweak your selling proposition by emphasising how you will help your customers survive and prosper through potential tough times, for example how you will help them save dollars and grow business.

Advice to investors

That’s a trick heading – I’m not allowed to give advice under NZ law.

Punakaiki Fund

Punakaiki Fund will always try to support worthy companies and we will very much want to have funds to invest during tough times.

We remain very positive about the strong fundamentals of the companies we have invested in (they have revenue based on helping customers save, grow and achieve better outcomes) and future investment opportunities.  



*Bull Markets are when market sentiments are positive and prices are rising, Bear markets are when investor optimism turns into despair, as the prices fall.  The trick is to be positive when others are most negative – and vice versa, as this ‘contrarian’ thinking is where the bargains are picked up as the market turns. 

Posted in NZ Business | Leave a comment

Introducing a decent carbon tax will reduce our overall spend on fuel

Here’s the latest chart of how we use energy in New Zealand. It’s from the excellent Energy in New Zealand 2015 publication from MBIE. As y Luca see we are edging up towards 600 PetaJoules.


Transport, in purple, makes up 36% of our energy use – and that’s essentially all petrol and diesel.

What if we could halve that, losing 18% of our power requirements? We can. Shifting all of that hydrocarbon burning from vehicles to large efficient power plants and then transmitting the resulting power as electricity to electric cars would halve the fuel needed for transport. Here’s a good explanation, using US examples.

In New Zealand we are grateful to have 80% of our electricity generated from renewable sources, and so we can save even more fuel. We can also build more of the lower cost steady state geothermal plants rather than expensive per MWH gas-fired plants, saving even more. We can more quickly adopt the trend towards micro or distributed generation, which, along with the battery packs like the Tesla ones that Vector will market, will allow us to essentially charge our vehicles free of operational costs.

It’s an intriguing vision of the future, and it’s one that is going to happen given the forces of economics. For now the prices of fossil fuels are very low, but over time the prices of solar and battery technology will become too low to ignore, and we can expect the prices of fossil fuels to be volatile, as they have always been. At the same stage the inherent advantages of electric cars – faster, quieter and safer, and a lot cheaper to operate – will become so obvious that we will all begin to switch.

New Zealand’s government is apparently chasing US companies to promote NZ as a test bed for autonomous vehicles. Perhaps we would be smarter to start by promoting New Zealand as the best place in the world for electric cars. And the easiest way to do that is by introducing a substantial carbon tax. As Gareth Morgan Foundation’s Geoff Simmons explains, even six major oil compares (and Z Energy seems to support this) demanded of the UN

we need governments across the world to provide us with clear, stable, long-term, ambitious policy frameworks. We believe that a price on carbon should be a key element of these frameworks. ”

And Geoff helpfully points out France’s “climate plan which will boost their carbon tax to €56 by 2020“.

Posted in NZ Business

NZTE is offering to help you raise $1-$5m. Apply now.

NZTE (this time joining forces with Callaghan Innovation and the Asian Business Angel Forum who are looking after different categories) are once again helping companies get ready for investment by using a showcase event as a catalyst.

The last one of these was in March 2015, held for Agri-Tech businesses during the Central Districts Field Days, which is in Fielding. This built on a showcase during the Fieldays near Hamilton  in 2015, and has delivered substantially better outcomes for the companies. We are all learning, and the showcase promoted a lot more interaction between high quality companies and pre-qualified investors.

Companies in the program receive three things:

1: Workshops and coaching to help with becoming (more) investable, learning the investment process and about investors, understanding and telling your story and help with compiling a deck and a pitch. This work is done by NZTE capital specialists and external practitioners such as myself. I suspect that most of the value for the program is in this stage – helping companies get ready for investment.

2: Presence at the showcase in Queenstown on the 14th of October, including a booth, most likely, and time for 1-1 conversations with investors before and after the showcase. And of course the chance to present to (and introductions to selected)  200 or so qualified investors, many of who are from offshore.

3: NZTE help with identifying, following up and closing with investors. This, along with help with 1-1 meetings at the event is a very valuable part of the process.

NZTE have been very generous with their time, help and investment in the event in the past, and I suspect the same will apply again this year.

The showcase is a catalytic event – it helps companies move much faster in their process to become investable so that they are introduced to investors in a ready state.

Criteria and Action

NZTE are looking for technology focused companies raising between $1 and $5 million, who ideally already have credible founders and people around them – such as lead investors, advisors, deal-makers and/or board members. Also ideally you’ll be operating in international markets, especially USA and SE Asia,  as many of the investors will be from there.

There are only five slots – so get in fast and fill out the PeakApplication, returning it to bbc@nzte.govt.nz.

Posted in NZ Business

Invest in Punakaiki Fund

We at Punakaiki Fund are very happy to announce our crowdfunding investment offer to the public:


We are seeking up to $2 million, the maximum allowable under the applicable law, and will close the offer once we reach that limit.

Larger investors who miss out may be eligible for our private offer, but it is far easier (and on the same terms) to invest through the Snowball platform.

Any questions please ask below, on the Snowball Effect platform (preferably), email me at lance@lwcm.co.nz or call (64) 021 526239.

Posted in NZ Business

Vibe acquires Melbourne based RackCentral

Vibe Communications continue their relentless growth – this time by acquiring RackCentral and bringing on board the much respected Shaun McGuane. Here’s the full press release.

Vibe acquires Melbourne based RackCentral (Cross posted from Vibe)
June 11, 2015
Rudi Hefer

We’re delighted to announce that Vibe Communications has acquired Melbourne based Colocation, Hosting and Virtual Server provider Rackcentral.

We have shown significant growth in New Zealand and Australia through our IP transit, International Layer 2, Access Wholesale and VOIP portfolios and our appetite for growth means we had to look beyond our core bsuienss.

RackCentral plays a unique role in Australia, providing customers with colocation, virtual private servers (VPS), self-managed cloud hosting and physical server hosting on month to month contractual terms, meaning that it generates customer loyalty though service quality and technical capability rather than term contracts.

There are tremendous synergies and value add opportunities for both our customer bases and we’re very excited about the products and services we’ll be able to take to market.

Posted in NZ Business

Punakaiki Fund and Snowball Effect

22 May 2015

Punakaiki Fund will soon be presenting an offer through the Snowball Effect platform.

We are pleased to announce that we have selected Snowball Effect to present our fund raising offer to members of the public. Equity crowdfunding allows us to reach out to people who up until now have been unable to invest in Punakaiki Fund. This includes many of the investors who supported us in the 2013 Public Offer, when we did not reach the minimum.

Since April 2014 Punakaiki Fund has raised over $4 million from private investors, and invested into 10 great companies. We are seeing very strong growth in both revenue from those companies and in the overall value of the investment portfolio. The companies we have invested in are MindscapeBoardingwareVibe CommunicationsTimelyInfluxHQOnceitWeirdlyRedSeedSocial Code and Revert.

The crowdfunding offer will seek to raise up to $2 million (the maximum allowable under NZ law), will be alongside private offers to existing and new Exempt Investors.

Sign up
 to our mailing list and pre-register at Snowball Effect to ensure that you get early access to the investment. We do not expect to make another offer to the public in the next few years, but it is our intention to IPO in 2-4 years time.

Posted in NZ Business | Tagged | 2 Comments

When will electric cars take over?

I’ve been browsing a number of transport presentations from 2015 IPENZ Conference, which was held on 24 March. One, from Andrew Jackson from the Ministry of Transport has the following chart, as an example model of Electric Vehicle uptake.

I’ve previously done my own crude hybrid vehicle modelling, based largely on the uptake in Japan, and our future adoption of their fleet as ours. That resulted in the chart below, and estimated that new vehicle sales would hit 50% around 2025, and that the fleet itself would take a lot longer to transition.

However since then we have also seen the emergence of the Tesla Model S, which shows for me, and many others, that the superiority of the electric car is a foregone conclusion. While the Tesla is expensive, it’s also luxurious, quiet, extraordinarily quick, reliable, safe and has long range. Tesla and other manufacturers (like BMW with the i3 and i8 and an amazing ) are showing that as battery costs continue to decrease in cost and increase in performance the old internal combustion powered cars will become obsolete.

I would argue that the pace of change is going to be limited by the availability of batteries, which I also believe will be a highly competitive space, where giant capital investment will deliver temporary market dominance, similar to the computer memory game in the past. The first players to make are move are Tesla themselves, who along with Panasonic are building a so-called Gigafactory to produce batteries in Nevada. Those batteries will have a ready market in Tesla cars, homes (as power packs) and in other manufacturer’s electric vehicles. I anticipate this will be the first of many large battery factories, whether by Tesla or other enterprises.

Given enough gigafactories will we see a faster transition to electric vehicles? Will we see a chart like this?

I hope we will, but it won’t be  for a while. Tesla sold just over 10,000 vehicles in the first quarter of 2015, while about 3 million cars and light trucks are sold each month in the USA. Tesla’s ambition is to sell 500,000 cars a year by 2020, which is still a tiny fraction of the USA market. However I consider the Model S as the Apple iPhone of the car market, with a clearly increasingly superior product, fast development pipeline and the ability to increasingly capture the best segments and highest margins while the rest of the manufacturers scramble to deliver minimum economic volume and at low margins.

There is a very long way to go, and although we are very close to complete superiority of electric cars over internal combustion, let’s not forget how slow moving the car industry really is.

Posted in NZ Business | 3 Comments