Punakaiki Fund Exceeds Expectations from 2015 Crowdfunding Offer and makes Three New Investments.

A press release from Punakaiki Fund. Punakaiki Fund Limited is raising capital through a Product Disclosure Statement (PDS). Investors may apply at Punakaikifund.co.nz/InvestNow or via Snowball Effect.


19 December 2016

Punakaiki Fund Exceeds Expectations from 2015 Crowdfunding Offer and makes Three New Investments.

Punakaiki Fund has exceeded its Key Performance Indicators (KPIs) set as part of the June 2015 crowdfunding offer on Snowball Effect’s platform.

Punakaiki Fund manager Lance Wiggs says each of the KPIs were not just met but exceeded.

“Our Net Asset Value per share rose by over 26% in the 12 months after the offer, while in 2015 we appointed three new directors to the Punakaiki Fund board,” he says.

The results come after a strong year from the portfolio of 18 companies. “We invest in growth, and the hard work from the hundreds of people at these high growth  companies is paying off” says Wiggs.

Punakaiki Fund also announces three new investments into existing portfolio companies.

The first, increasing the shareholding of school firewall providers Linewize (LINK), was signalled in the Product Disclosure Statement and lifts Punakaiki Fund’s shareholding to 20%. Linewize CEO Scott Noakes says he is very pleased with the investment and says, “We are expecting continued strong growth in New Zealand over the next 12 months and have also launched our partnership with Hapara in the USA, with a team visiting our first installations this month.”

The second investment leads a small internal investment round with Mobi2Go, and lifts Punakaiki Fund’s shareholding from 11.0% to 12.6%.

CEO and Founder Tarik Malett thanked Punakaiki Fund and says, “The funds are primarily being used to support our expansion and we are focused on new opportunities with large franchises including fuel stations and restaurant chains. Meanwhile our development team isn’t standing still, recently optimising our core code to run 50% faster, reducing our infrastructure costs by 25% and delivering a noticeable speed increase to customers.”

The third committed investment is the early exercise of half of the options held with NZ Artesian Water, raising Punakaiki Fund’s shareholding from 11.8% to 16.1%. Founder and CEO Andrew Strang says, “We are overwhelmed with demand from several very large global customers for our E’Stel bottled water, and are using these funds to buy new plant to expand our capacity.”

NZ Artesian Water’s Nelson plant was opened by Prime Minister John Key in March 2015 and is already showing signs of strong growth.

“We just had our biggest month of sales ever – more than double our next biggest month, and we are aiming to increase monthly sales by over five times over the next six to eight months. We need to invest in our plant so that we can keep up with demand,” says Strang.

Punakaiki Fund has received investor commitments for $1.8 million so far in the current public offer, which closes on Tuesday 20th December.

Wiggs says, “These new investments show the demand for our funds from great companies. Each of them is growing their revenue at a very high rate, and these and others would benefit from even more funding to accelerate that growth.”




KPI 1: Net Asset Value per Share rises by over 20% in 12 months

The Net Asset Value per Share, as defined during the 2015 crowdfunding offer, rose by 26.4% in the 12 months from the offer closing on July 1 2015 to June 30, 2016.

The closing date of the crowdfunding round was 1 July 2015, but some shares from the three offers at the time were only issued during the month of July. This analysis uses pro forma accounts as at 1 July 2015 as if all shares were issued and all capital raised had been received.

Punakaiki Fund Limited completed a full valuation exercise as part of the preparation for the current offer to the public in September 2016, and the result (the Net Asset Value rising by 34.8% over 15 months) represents a similar percentage increase on an annualised basis.

Punakaiki Fund has subsequently refined the definition of Net Asset Value for communication with investors. They now use the term Investor Net Asset Value (iNAV) to refer to the key benchmark that investors should track, as it also accounts for the equity portion of Punakaiki Fund’s manager’s accrued performance fee. Using this investor rather than accounting-centric measure shows slightly lower returns of around 25% in the 12 months after the crowdfunding raise.

The price for the 2016 offer was $14.50 per share and the current public offer is priced at $19.00 per share. These prices include brokerage of 3%.

  July 1 2015 Pro Forma June 30 2016 Sep 30 2016 Current Offer
NAV $10,708,589 $18,112,940 $19,320,663 $19,940,803
iNAV $10,351,250 $17,307,152 $18,330,646 $18,936,819
NAV/Share $14.31 $18.09 $19.29 $19.37
iNAV/Share $13.83 $17.28 $18.30 $18.40
NAV/Share increase   26.4% 34.8% 35.4%
iNAV/Share increase   24.9% 32.3% 33.0%
Shares on issue  748,331 1,001,466 1,001,466 1,029,286

Summary table of changes in NAV and iNAV.

KPI 2: Present an independent director to the shareholders for vote within three months

Punakaiki Fund presented three directors to shareholders for shareholder vote within three months of the Snowball Effect Offer at Punakaiki Fund’s 2015 Annual Meeting. These candidates, Mike Bennetts (Z Energy CEO), John Berry (Pathfinder Asset Management) and Bryan Hutchins (Real Journeys), were selected after a call for nominations from shareholders.

All were voted in with overwhelming majorities at the 2015 Annual Meeting.

Lance Wiggs says, “Frankly we were overwhelmed when the three candidates offered their help, and have been delighted with the board’s support to date. They are doing a great job for shareholders.”

At the September 2016 Annual Meeting, Punakaiki Fund’s shareholders voted Mandy Simpson (CEO Cyber Toa, ex COO NZX) to be added to the board of directors, and Wiggs now considers that Punakaiki Fund has a highly experienced and well balanced board, especially considering the size of the company.

Lance Wiggs says, “The board works hard to protect shareholder interests, and we focus on risk management, valuation and Punakaiki Fund’s path to IPO.”

Punakaiki Fund more recently designated Bryan Hutchins as a non-independent director as interests associated with him held over 5% of the shares on issue prior to the latest offer.

More information

Lance Wiggs
021 526239

Punakaiki Fund Limited is raising capital through a Product Disclosure Statement (PDS).

The Governance section of the Punakaiki Fund website has background documents on Punakaiki Fund as well as bios for the directors.

Posted in NZ Business

Punakaiki Fund Extending 2016 Offer

Punakaiki Fund Limited is raising capital through a Product Disclosure Statement (PDS).

You can apply for shares Online with Punakaiki Fund, via Snowball Effect or by filling out and sending in the application form on the PDS.


We have kept relatively quiet at Punakaiki Fund while everyone has coped with the US election result and then the huge earthquake and aftershocks. It didn’t help that Ireland toppled the All Blacks – although that at least was well deserved.

Our offer was meant to close today Wednesday 30th November, but due to the events above we have just extended this to 20th December, 2016.

We will issuing shares soon to those who have invested already, and will be sharing news on any new investment commitments we make.

We currently have $1.44 million in applications, with $640,000 of that via  Snowball Effect and the remainder directly with Punakaiki Fund.

Anyone in New Zealand can invest. Australian wholesale investors can use the Australian Investment Memorandum aimed at them. Investors based elsewhere should get in touch directly.


Update about the earthquake

We have investments with several companies which have offices in Wellington and Christchurch, or with staff in those areas. All staff are safe. Some families were temporarily evacuated from low-lying areas during the tsunami threat, and several were unable to access their Wellington offices for a day or two.

The good news was that almost all of the Wellington based companies had prioritised offices with high earthquake ratings, and several had recently moved for that reason. The other company was about to move offices anyway. For us this was more evidence of why we like to invest with good people with strong values.

Meanwhile most companies were able to keep working – as remote working is now a part of doing business. The Christchurch, and Wellington, earthquakes over the last few years have nudged New Zealand based companies to be very proactive on handling things after a disaster and that preparation was evident.

I’ve visited both Wellington (twice) and Christchurch since the quakes. Christchurch seems largely unaffected, while Wellington’s infrastructure has certainly suffered and there are some frayed nerves. However life goes on, and it was good to see evidence in Wellington of the staunch just-get-on-with-it attitude that has served Christchurch so well.

Our continued best wishes to everyone in Wellington, Christchurch, Kaikoura and places in between.

Revenue Growth Continues

Almost all of the investments (i.e. the underlying businesses) are unaffected – with revenues mainly from offshore or with clients able to cope. One company, NZ Artesian Water, saw sales go up sharply, as they supplied increased demand from supermarkets in the South Island and even farmers in the Kaikoura region.  Others have continued to land important deals, with Melon Health in particular securing some strong clients.

Invest in Punakaiki Fund

Now that the dust has settled, the All Blacks and Black Caps are winning matches and the weather has improved it’s perhaps time to consider investing in the future of NZ – our high growth ecosystem. Please have a look at the PDS, and do consider joining the over 500 others who have already invested in this and previous rounds.

You can apply for shares Online with Punakaiki Fund, via Snowball Effect or by filling out and sending in the application form on the PDS.


Posted in NZ Business

Trump’s Plan and Potential Impacts on NZ

As this post mentions Punakaiki Fund Limited it could be construed as an advertisement for our public offer for New Zealand residents. So here is the link to the Product Disclosure Statement and you can invest online at Snowball Effect or directly with us.


The main reason for the post about Trump yesterday was to make the point that the US economy is strong, and, as a friend who is in Boston just messaged me, “People will get on with it” and that “they are relieved it is over.”

But I want to dive deeper into the potential impacts for New Zealand, which are not all that bad, jokes about US emigration to New Zealand aside.

The guiding presumption is that Trump will downplay some of his more radical rhetoric – especially his foreign policy statements implying he would use nuclear weapons. If that happens then all bets are off, but he is a lot smarter and will be better advised than his campaign would lead us to believe.

Trump’s 100 Day Plan

Trump’s Contract with the American Voter is a good read to determine what we are potentially in for.

Trump wants to propose a constitutional amendment for term limits for congress members – but that will be very hard to get past those congress people themselves. The perverse result would anyway be more power to the funders, rather than less.

He also wants to reduce the payroll to government, which every Republican president wants to do and few to none have ever achieved, as the chart below makes clear.

Obama is the only recent president to lower the number of public sector jobs.

Trump also wants to renegotiate or exit NAFTA, label China a currency manipulator (which will kick in trade barriers) and not sign the TPP. These are all doable – even NAFTA, which requires use a letter and six months notice to the two counter parties.

Trump will also remove environmental protections, unleash development of fossil fuel projects and cease climate change mitigation efforts.

He intends, and with a Republican Congress he is likely to, to lower the corporate tax rate to 15%, allow offshore funds to be repatriated at 10% tax and lower tax for rich people.  That will be an interesting trick considering the promise to increase spend on military and a need to not overspend too much. On the other hand increasing deficits when long term interest rates are so low is not silly at all.

Obamacare is for the chop, but neither Trump nor Republicans have any credible alternative yet, so expect turmoil and plans written by health care industry lobbyists to dominate. Trump also promises to make FDA drug approvals faster, which has good and bad implications.

Finally there are a number of anti-immigration measures, including the fabled wall, deporting 2 million people, tighter immigration checks and suspending immigration from “terror-prone regions.” These have a concerning police-state overtone.

There is more, including changing the balance of power in the Supreme Court, funding for non-public schools, tax deductions for childcare and eldercare and PPP programs to invest $1 trillion in infrastructure. That last one could be interesting – the USA’s transport infrastructure, for example, is long overdue for an overhaul.

It’s not all workable – but elements will certainly get through.

Beyond the 100 day plan Trump has incited racism, sexism and a general anti-education sentiment in the USA. It’s worrying to think about where this will end, and the USA certainly has unfinished business with slavery, the civil war and indigenous Americans.

Implications for New Zealand

The main potential implications for New Zealand, I see, are changes in the US economy, changes in trade barriers and climate change mitigation progress.  The other policies, while huge domestically in the US, do not really change things in New Zealand.

We do, however, have to be aware of and deal very quickly with the real issues that Trump and Brexit voters are concerned about, lest we fall in the same direction. That’s up to all of the political parties here, and National especially as the government. They are doing remarkably well for a 3rd term right of centre government, but more is required.

We are lucky to live in one of (if not the) best places in the world, and our politicians do care about social issues as well as driving business.

The US Economy

A change in the US economy would affect demand for imports, global investment returns and pricing of local investments.

The economy is due for some turmoil but overall Trump is a pro-business president. The policies he is pushing for, along with the Republican House and Senate, will defang or remove business oriented regulations, like environmental and safety mandates. Those taxes on business and high net worth individuals will fall and little to change in reality for Wall Street.

On the downside some sectors and people will suffer, in particular businesses exposed to elements of health care, the environmental sector and, more critically, people with low income who need government support. It’s  a strongly held belief by many Republicans n power that cutting taxes at the expense of social payments is a good, and as Trump’s budget is ludicrous something has to give.

Meanwhile other sectors will boom, including, at least temporarily, industry exposed to fossil fuels and those infrastructure projects.

The US Equities Markets will be fine in the short to medium term. Investors are realising this, and, despite the dismay at Trump’s election, share prices are rebounding.

Indeed it would be surprising for a billionaire to do much to cripple the global investment markets – as that’s the primary way for billionaires to make money. I would not be surprised to see some market volatility as the reality of Trump’s appointees and policies become clearer over the next few months. But despite his rhetoric I don’t expect to see a sabre-toothed regulator placed over Wall Street, and expect other “business friendly” policies to emerge. I put business friendly in quotes as defanging regulators is a short term move – and tends to foster crises later on.

Meanwhile the sheer size of the US economy is hard to grasp sometimes. Their GDP is over $18.565 Trillion, and increased by $509 billion in the last year. Let that sink in – the USA grew, at $509 billion, by 2.8 times the size of New Zealand’s own GDP last year. The US GDP itself is 100 times as big as New Zealand’s GDP and the market is bottomless for New Zealand exporters.

Exporters to the USA

A change in the trade barriers would affect New Zealand’s relative ability to export and get good margins for products and (to a lessor extent) services in the USA.

Companies marketing to the US do so because of that vast economy size size. The economy growth rate is a relatively trivial factor versus the addressable market.

What’s more important is the confidence that US buyers have. New Zealand companies exporting to the US often do so on a basis of delivering something that is better and cheaper, and it’s in tough and turbulent times when buyers are looking for alternatives. So if times get tough we can rely on the size of the US market and hungry buyers looking for alternatives, and it times are good – well then times are good.

Trump wants to tear up trade agreements, and that means we can expect to see  high tariffs on imports. While that’s going to affect New Zealand companies exporting to the USA, our existing trade agreements with the USA are not that great anyway. Given that we have a poorer deals than Canada, Mexico or even Australia then we will gain comparatively if they are broken and the stasis quo remains with New Zealand.

The TPP won’t pass, although we could be surprised. It was a poor trade agreement per se, and especially for us as it skewed sharply to the USA with, for example, chilling copyright provisions dictated by the MPAA and RIAA. Overall it seemed too complex to deliver the comparative advantage to each country – economic benefits that Adam Smith and David Ricardo rightly pointed 200 years or  more ago.

Perhaps we now have the opportunity to recast TPP a treaty for the remaining countries, removing the US-imposed clauses before that happens, and adding maybe some more protection for domestic workers in each country. New Zealand could even take the lead on this, redrafting a simplified agreement that leaves in the benefits granted to every other country but takes out those demanded by the USA.


Net net – I see that New Zealand exporters of physical goods may be affected, and especially commodity exporters. But commodity exporters have it coming, and they should at least be well diversified, but more importantly adding more value to their products. (Fonterra – please call Lewis Road Dairy and ask about their margins.) High value products are less affected by price and tariffs, so it’s another nudge to New Zealand exporters to move up the value chain. Companies selling mainly services, such as SaaS, should not be affected, as these are too easy to deliver from anywhere without barrier.

Early signs for one hardware exporter that I know well are good – their own distributors are very positive about the future, perhaps seeing less regulation and tax as driving their businesses forward faster.

Climate Change

Trump’s climate change denialism is real – he has been consistent on this for years. Coupled with a Republican House and Senate, many of whom are who are underwritten by the Koch brothers, we can see that regression is certain.

The impact on New Zealand is the global impact – the loss of momentum to lower emissions and the acceleration of sea rise, extreme weather events and loss of habitat.

On the positive side, however, it’s increasingly clear that the switch from fossil fuels is becoming realistic without subsidies – especially if subsidies to the older industries were removed. Tesla and Wrightspeed are showing the way to a electric future that delivers better products (like faster cars), cheaper costs and reduced emissions. The price of solar generated power is falling fast, and once installed they are there forever. States, like California, meanwhile can and will keep their own incentives for lower emission approaches.

Here in New Zealand there is little we can do about the climate change policies of the USA – except for leadership by example. We do not have the funds to invest in the next Tesla, but we do have the ability to nudge, as Vector is doing, to a better future.

Impact on New Zealand based High Growth companies 

The high growth New Zealand based companies that are doing business in the USA, and I am not constraining this to those with Punakaiki Fund investment, are succeeding because they are providing disruptive services. A disruptive product or service does well in a disrupted society, as buyers are looking for change. Pushpay provides alternative easy payment mechanisms, Melon Health lowers the cost to insurers paying for delivering health care, Vend makes it easy for stores to set up and expand and Xero changes the way the accounts are done, while reducing costs.

There will be category winners and losers, absolutely, with Orion Health’s share price affected today, but overall high growth companies are far more concerned about the next sale than the overall economy.

They are, like every company, potentially affected by exchange rates. But it works both ways, as if the USD falls versus the Kiwi then we will probably see other currencies rise to compensate. Companies will also see benefit in reduced costs, especially for high cost things like Amazon Web Services (AWS).

Above all this shows, as Brexit did, that it pays to diversify your markets. Punakaiki Fund’s portfolio is only abut 15% exposed to the US market, so we are not expecting any material change. And for those bashing Xero’s relatively slow uptake in the USA – the same benefit applies to them.

However so far we’ve seen little negative change in currency rates or market indicators, but I feel for the people of the USA. This post is about the effect on business here in New Zealand, but I worry deeply about the effects of the divisive campaign led by Trump.


As this post mentions Punakaiki Fund Limited it could be construed as an advertisement for our public offer for New Zealand residents. So here is the link to the Product Disclosure Statement and you can invest online at Snowball Effect or directly with us.


Posted in NZ Business | 3 Comments

10 Reasons for Hope in a Trump-led USA

It’s hard to see much hope for the world now, but let’s look for some brightness in the despair of the prospect of a Trump presidency.

10: The entertainment will not stop – especially when Trump gets his Twitter account back.

9: Trump clearly doesn’t like hard work, so don’t expect him to drive through major changes in legislation that require that.

8: The Republicans in the House and Senate have huge differences of opinions with Trump – so expect some issues will never be resolved.

7: At heart Trump is really a liberal on many social issues, so if he has a conscience don’t expect too much action on LGBT rights or abortion. Sadly he doesn’t seem to have a conscience.

6: It’s going to be a lot cheaper to travel to and buy things from the USA, just like the UK at the moment.

5: The US economy is vast, irrepressible and resilient – it can and will keep steaming ahead, despite what happens in Washington. Wait for the stock markets to drop 40% then invest. Or maybe 60%.

4:  Gun sales will fall, as they only rise with Democratic presidents, especially black ones.

3: Expect an abundance of news about the clueless and constantly churning staff working for and placed by Trump.

2: Fox News and their ilk will have nobody else to blame for their manufactured woes.

1: New Zealand tourism will boom – although we may have to enforce immigration law for US visitors.


Posted in NZ Business | 2 Comments

Punakaiki Fund PDS – Highlights 1 – The structure

The Product Disclosure Statement (PDS) for Punakaiki Fund Limited is published, and the offer for new shares opens tomorrow, 9th November. Read the PDS to learn more. 

Here’s the structure of Punakaiki Fund. As you can see we have shareholdings of varying sizes in 18 companies.

Posted in Punakaiki Fund

Let’s make downtown Auckland safe

Today someone in a van full of workers threw egg at me, while I was cycling to work. He was a lousy tosser, and the egg ended up on the street. It was as I was waiting to turn right into Commerce St from Quay St.

I chased the van down, much to their surprise, and the driver stonewalled and denied everything. I suspect I could have got more empathy out of the rolled up carpet in the front seat next to him – it was pretty obvious that someone in the van had thrown the egg.

I didn’t call the police – there was no time, and is it worthwhile to call 111 for assault with an egg? I didn’t even get a photo of the van, but here are the eggy remains after I returned from chasing the van.

Last week somebody stole my bicycle – it was locked up right in front of the ATEED, NZTE and Callaghan office building – and taken while I was inside NZTE’s offices assisting them help a number of high growth companies.

I got a lot of kind offers to help, including from someone inside ATEED. But there is no video track record of the bike’s last movements and the chances of recovery are slender. Do look out for those copper pedals though – they are quite distinctive.

Taken bike

Yesterday I was riding our tricycle down a temporary short one-lane road by Victoria park – put in place for the Auckland marathon. The driver of this NZ Bus car, which I caught up to later, wasn’t content with waiting a few seconds and honked and honked from behind me, even though there was no place safe for me to go. The trike normally carries our wee baby – this time it was just a trolley’s worth of groceries at risk.

These NZ Bus cars, by the way, are constantly illegally parked in the bus lane on Victoria Street West, opposite the park. I’ve yet to see one ticketed.

The day before this numpty driving a truck decided to do a multipoint turn in the middle of Quay St during the pedestrian phase of the lights in a weekend that saw a cruise ship in town.

None of these incidents were reported officially. Our family has tried that before. The worst incident was where a woman driving a car deliberately went through a stop sign, hitting and almost killing my wife who was on a bicycle. The driver was not charged with anything, despite a traumatic visit to the police station and provision of plenty of evidence. While the woman who was driving made a mistake, it was one that almost resulted in death and the onus was on the police to handle this with the correct emphasis. They did not.

I see plenty of other bad behaviour when I’m on my motorcycle, driving my car or walking.

Riding a motorbike has long been accepted as a risky endeavour and we all know that riders need to be constantly vigilant. We know that drivers will turn on front of us, even deliberately try to move towards us, and the recent spate of distracted phone watching drivers are a nightmare to navigate. Motorcyclists can spot lousy and distracted drivers within a second or two – and so can the police. They are not fooling anyone, including themselves.

People in cars, meanwhile, are well protected by infrastructure that favours them and strong safety systems in cars. Have a crash an you will almost certainly walk away, at least at city speeds.

But there is no protection for people walking across intersections when drivers of cars or trucks choose to run the red lights. There is increasing but still little protection for cyclists, who have far greater exposure to be hit by those cars. There is no mandate for side-protection on trucks to prevent tragedies that result in death. The distracted driving rules still allow for touching phones – whereas in NSW the far more effective rule is that you can only do so when passing it to someone else.


What people do is driven by their values, and also to some extend by what they feel they can get away with. New Zealand has worked hard on changing the values associated with drink-driving, and backed it up with testing campaigns that are seen positively. However it’s still too easy to get away with distracted driving, red light running in Auckland (and really only Auckland) and driving dangerously near people cycling and walking.

And of course the few egg tossers are unaccountable for their actions.

I’m a big boy and able to cope with a lot, but we are talking here about potential and actual fatalities. We talking about children, babies (including ours), grandparents and commuters. We are talking about people walking to work, cycling in a new country and trying to get fit. It’s not funny to swoop near cyclists, to run red lights while tourists are crossing the street, to steal or to an egg tosser.

What can we do.

First – let’s keep installing infrastructure that separates vehicles and humans, and that encourages slower traffic. The shared spaces in Auckland are working extraordinarily well, and the physically separated bike lanes are encouraging a broad mix of people to add cycling to their mix of transport.

Secondly – let’s get serious about the magnitude of offences that are likely to cause fatalities and enforce them. Distracted driving in a downtown area feels, as a pedestrian or cyclist, a lot more dangerous than speeding, so why not elevate it to the level of dangerous driving?

Why not introduce the NSW rule about touching phones? Shouldn’t running red lights downtown with hundreds of pedestrians around be classified dangerous driving as well?

Shouldn’t we place the burden of guilt for injury of a person walking or cycling on the person driving the motor vehicle?

Thirdly – let’s use existing and new tools to change behaviour. Auckland is covered in connected cameras, and it should be relatively simply to turn on functionality that allows red light runners to be automatically caught, to review footage to follow up on egg tossers and dangerous drivers, and to provide that information to the Police.

Let’s also put in place processes where transport police are actively capturing evidence provided by members of the public over the internet – whether through a website or picked up from social media.

Finally let’s put in place processes to make sure that every incident results in an action, triaged by severity based on the level of hazard created. If this needs dedicated police then sobeit – but it will be a far more effective use of time than random driving.

We can do this. I was living in Melbourne when the introduction of speed cameras dropped the average speeds on major roads by 20-30 kph overnight. Nobody liked it, but less people died.

I am not advocating for a Police state – nor a constant citizen watch state. I am advocating for moving the needle so that we can reduce the most dangerous activities and help change behaviour before too many people die. We have a great opportunity to do this in downtown Auckland – so why not start there?

Posted in NZ Business | 11 Comments

What can we learn from Wynyard’s Voluntary Administration?

It is sad to see that the administrators called into Wynyard Group today. This should never happen, especially to what was a very well funded company.

The cause is made pretty clear from the revenue and expense chart below:

(Source – Wynyard annual and interim reports. Please don’t quote this – the 2016 half year numbers are annualised, not all the years overlap as they changed their year-end date, and this includes depreciation but excludes interest and tax)

In a high growth company the norm is to raise money based on future revenue growth. If that growth does not transpire then the value of the company falls, and sharply. Wynyard’s share price fell 88% before the trading halt as a result of promised growth not appearing.

The right thing to do is pretty obvious, but hard, and that is to stop the red bars’ steady march upwards before the funding runs out. However the more palatable alternative is to keep raising money, but that gets increasingly tough when the investors do not see revenue growth, as Wynyard found out. As you keep flailing the investment terms get increasingly toxic, again as Wynyard found out.

Wynyard’s revenue guidance excludes a huge potential government contract, and that is likely in jeopardy now, as are all existing contracts, which I would expect may have out-clauses that speak to one party being placed into administration.

The tough decision that was not made

The board is to blame here – not the management team. The board failed to plan for the contingency of the growth not occurring, and the expenses should have been dramatically reduced so that the funding could last longer, or forever.

The company had $14.7 million in cash, $8.9 million in receivables and $12.8 million in payables at the end of June 2016 – net cash of $10.8 million.

But they also reported negative operational and development cash flow of $28.8 million in the 6 months to June 30, 2016, and despite raising funds then they really should have panicked.

That same interim report, dated 6 weeks ago on 12 September 2016, noted:

 “it is the considered view of the directors that the Company and Group will have access to adequate resources to continue operations for at least a period of 12 months from the date of signing these interim financial statements.”

But later noted, :

“The directors are in the process of undertaking a strategic review of the Group’s operations and product portfolio. This review also includes an assessment of the plans should one of more of these material uncertainties result in an adverse impact on the forecast cash position of the Group.”

That second statement is normally code for major changes, including redundancies, in a business. But while the investor presentation released at the same time as the interim report  itself showed that Wynyard had already reduced staff from 306 to 250 FTE, it is clear today that the process had not continued, at least not aggressively enough.

At over $20 million in annual revenue and $10 .8 million in cash Wynyard easily had enough funding to support 150 highly professional people, but not 250 people and their associated spend. The board needed to make the cost cutting decisions earlier, well before administrators were called in to make it for them.

Meanwhile the staff who would have been let go can be easily placed elsewhere in the vibrant New Zealand high-growth ecosystem, and it serves them and other staff poorly to let the business go to the accounting-based administrators.

I have been upset about this happening with other companies, and I consistently blame the boards of directors for this failure. It’s not an attack on the individuals, though in this case we see that there has been some recent churn, perhaps over this issue. I am sad but not surprised that this relatively new board chose the nuclear option, as it seems they had run out of time to chose the cost cutting approach, and their potential creditors were offering toxic terms.

What to do when times are tough?

I have some experience here – as currently I’m a director for 15  high growth companies, and an investor in more either directly or through Punakaiki Fund. It is very normal, in the high-growth space, for companies to go through periods where cash management is critical.

In these times the board, and that means the founders as well as the external directors, need to make tough decisions. That usually means reducing the number of staff, the costs of the founders themselves and reducing scope to make the company viable. I’ve been involved in these processes many times, and a smart board does it very early if not constantly. (It’s a lot easier to bear also when the directors are not paid – something to watch out for in very early stage companies.)

I’ve always been really pleasantly surprised at the support the company and founders are given when this is done well – staff generally understand that in high growth businesses things are uncertain and that the company needs to survive before it can thrive.

It’s always possible to survive – if a company has enough revenue, and even then a company with revenue less than one person’s salary can always be run as a supplement to that person being employed elsewhere.

The flip side of this is managing growth – a high growth company needs to change quickly to keep in control as their revenue spirals upwards. That’s a much more fun problem to solve.

As an investor I like seeing companies that have been through the fire of a financial crises, or who have started with essentially no funding. Those companies have worked out exactly what is and is not required to survive, and any funds applied are put to good use.

Wynyard’s origins as part of a larger concern perhaps meant that they have never experienced this, and so their burning moment is altogether far too public. Let’s hope that from the ashes we can see emerge a smaller but much stronger company.

Posted in NZ Business | 2 Comments