Punakaiki Fund December Offer – Now Open

Punakaiki Fund’s regulated offer to New Zealand investors for December 2017 is now open, and will close on Thursday 21st December. The next retail offer will not be until after 1 August 2018.

Read the Product Disclosure Statement

New investors are able to participate by filling out the application form at the back of the PDS, or, more simply, though our online process below:


Read more about the highlights of the Offer on our investor page. As always the PDS is the definitive source of information for this investment.

Posted in Punakaiki Fund | 2 Comments

Linewize Acquired by Family Zone (ASX:FZO)

Cross post from Punakaiki Fund

We are delighted to announce the sale of Linewize to Family Zone Limited (FZO.AX). Family Zone have released a comprehensive announcement to the ASX.

Why the combination works
There was almost immediate agreement, at the start of negotiations, that the combination of Linewize and Family Zone was good for both businesses. Linewize provides world-leading technology for firewall, filtering and classroom internet management tools, and has 260 New Zealand schools on board. Family Zone has a disruptive business model (selling on-device filtering software to parents via school mandates) and is growing very quickly in Australia, and can rapidly expand the use of Linewize’s technology. They have also signed deals with large telecommunications providers. The combination is a strong sales and marketing engine on top of some excellent technology, and better geographic coverage for all.

Linewize founders Scott Noakes and Michael Lawson were very keen to join Family Zone, and we collaboratively worked with them and Family Zone to arrive at a negotiated agreement that is good for all parties.

Family Zone will acquire 100% of the Linewize shares in return for up to 19 million shares in Family Zone, along with a small deposit of $200,000. Half of the Family Zone shares are “Performance Shares” and are only released, in five tranches, when certain performance hurdles are met. See the Family Zone announcement for more on this.

There is a short due diligence period now, after which the deal becomes unconditional. The issue of Family Zone shares as compensation will need shareholder approval at a Family Zone shareholder meeting, likely to be in late November. If the Family Zone shareholders do not approve the issue of Family Zone shares then the consideration price will be paid in a fixed amount of cash.

Founders Scott and Michael put in place a generous ESOP plan before Punakaiki Fund invested, and so the current and recent employees will share 16% of the consideration, as well as staying on with the business. Scott and Michael each receive 32% of the consideration. We are delighted with the result for Scott, Michael and the team, and commend them on their efforts and on this deal. Scott and Michael will stay with the business as executives, and will each be issued 1,000,000 Family Zone Executive Performance shares in addition to their base compensation and their consideration from this sale.

Punakaiki Fund Result
Punakaiki Fund holds 20% of Linewize, after an original investment of $1 million, spaced between June and December 2016.

If the Family Zone shareholders do not approve the issue of shares then Punakaiki Fund will receive AU$1.33 million (~NZ$1.5 million) in consideration shares, and the performance share compensation will be issued as cash using the share price at the time. We see that shareholder approval is highly likely.

Family Zone is a small company with a share price that has appreciated very quickly since their IPO a year ago. To provide against any risk of the share price falling between now and the Family Zone shareholder meeting, if volume weighted average price (VWAP) of the Family Zone shares is under AU$0.70 for the five days before the meeting then Punakaiki Fund’s number of shares will be increased to compensate. The share price closed last Friday at AU$0.855.

Punakaiki Fund will receive 1.9 million Shares and 1.9 million Performance Shares in Family Zone, as well as $40,000 from the deposit. We will use some or all of the deposit to contribute to deal costs and ensure the working capital is acceptable at the time of the transaction. At Friday’s closing share price of $0.855 per share this has a face value of AUD$3.29 million, or NZ$3.69 million. However the consideration is in listed shares, and half of them are locked up until (or if)  performance targets are met, so the value could go up or down.

Extracting Value for Punakaiki Fund

Punakaiki Fund will be able to sell the initial 1.9 million shares as soon as they are received after the Family Zone shareholder meeting. However at this stage we do not know what our strategy will be, and we are conscious that we will have a relatively large holding and will exercise caution whatever our decision.

Wholesale Round

It’s older news, and was covered at the Punakaiki Fund AGM, but we realised that we had not released the official results for the July 2017 Wholesale Offer. We closed this offer in early September, after being extended twice by the Board. The Board firstly elected to extend the offer until the end of August, and then another few days to allow the finally paperwork and funds to be received.

We deliberately kept a low profile for this offer, with very limited engagement with prospective investors. We were delighted with the result of $1.8 million raised from 11 investors, and welcoming 9 new investors.

Investor Statistics
We now have a total of 625 investors, with an average holding of just under $44,850, at $20 per share. That’s more than several listed companies, including Family Zone.

As a sign of our success with larger investors, we now have 80 investors with holdings, again at $20 per share, of $100,000 or more, and 130 with $50,000 or more.

Posted in Punakaiki Fund

John – the real issue here is results, not dance partners

John Hart has written a series of tweets about why a Blue Green coalition wold not work.

That saddens me. It’s the politics of can’t, or lack of hope. A smart party would be working all sides of a deal to find the bet path forward for their policies.

At stake is the rapid pace of Climate Crisis and of the adoption of electric vehicles, distributed power, batteries and so on. The Green party have been thinking about these issues for a long time and have a series of polices and people that will set our economy and society up to succeed in the times of turmoil ahead. It’s not time ti hiker down for another three years, but time to cut a deal, a good deal, with whatever party is going to be leading the new government.

At the moment the Greens have zero negotiating power – they have ceded it all to Labour by refusing to treat with National, and their members are not helping their own cause by reiterating the same. By painting themselves into this corner they will either end up in opposition again, with limited action on the causes that matter, or they will get what they are given in a red black and green coalition. Labour knows that the Green Party will join them in coalition no matter what, and can afford to offer a far better deal to NZ First.

But what if NZ Greens treated with National? They might be offered a better deal than from Labour and NZ First. That deal would change the brokers of this election from NZ First to NZ Greens, and then the negotiating could really get going.

Imagine a Greens deal for National that required:

1: Climate change as part of every cost benefit analysis/policy document, and a significantly boosted part of the Business Growth Agenda, with carbon emissions costed at $50 per tonne rising to $100 per tonne over 10 years. (This will drive transport and mining decisions)

2: $500 million per year allocated to cleaning up rivers, funded by a tax on farmers who are not abiding by a Sustainable Farming Code of Conduct. Fund decreases as farmers move into more compliance.

3: A falling cap on the amount of land used for cattle farming. Farmers will like it as their land will become more valuable.

4: $200 million per year into a series of linked habitats for native birds, and creation of 10km wide marine sanctuaries every 50  km of coast.

5: Julie-Ann Genter as Minister of Transport, James Shaw for Climate Change etc

6: Local bodies required to prepare for 1.9m sea rise from climate change, per the hidden report

7: Moratorium on any new mining or drilling operations, and increase of royalties of 4x.

8: Agreement to settle water rights with iwi and to allow each iwi/region to set a price for their water. Minimum price to apply.

9: Introduce a carbon tax at $5 per tonne, rising by $5 in the second year then $10 per tonne per year for 9 years. Charge it like GST with cascading carbon tax applying. No exceptions, including farming.

10: Use the proceeds of the carbon tax to invest in carbon reducing systems (public transport, lower methane emissions from belching cattle) and to subsidise entities who spend more money to lower carbon emissions.

11: Take 100,000 children out of poverty in 3 years, where poverty is defined as <definition> and annual targets are met or coalition fails.

I can imagine National negotiating and then agreeing to some, most or close to all of this. Some of it would be very tough, no doubt, but they have already agreed to 11, understand how to do 8 in a way that doesn’t destroy businesses and farms and are excellent at implementing big projects – this time public transport instead of roads. Some of the others are relatively cheap, and the biggest issue (and something worth fighting for) is the carbon tax, but if done well can be used to lower business and personal income tax – long a National goal.

That’s a Blue-Green Coalition. It aims to achieve goals for both parties. And a coalition like that would leave both parties stronger.

Why would Green Party members not support this? The answer is perhaps “because we don’t like National because of past behaviour” or “We don’t want to be crushed by being a coalition partner to National

These are selfish motivations, and quite unlike the entire ethos that Green Party lives by. I’ve always seen the Green Party as a movement that is endeavouring to achieve certain environmental and societal goals, and they have welcomed it when other parties have adopted their policies. A coalition agreement like the above is one where they would achieve genuine lasting change could be put to members, and members strongly encouraged to vote.

Ideally another agreement with Labour and NZFirst would also be presented, and a genuine dilemma could emerge. What if they can achieve more with National than with Winston and Labour?

Real change happens when you move the normal – and there is no better way to change society to be Green than by moving National towards the solidity of long term green economics.

Posted in NZ Business | 1 Comment

Could Auckland attract or retain the next Amazon?

I had idly thought that Amazon’s RFP for  a second headquarters  location could be answered by Auckland. Sadly, albeit unsurprisingly, the request is for a North American location.

Perhaps we should still try –  after all the size of the prize is enormous:

Amazon is careful to show that they will create value well beyond that of the company’s investment in capital and salaries. Later on the expectation is that the winner will pay some of that benefit to Amazon.

The Case For Auckland

So while we are not in North America, its worth considering the RFP to see what sort of factors (“key preferences and decision drivers) a smart company like Amazon finds attractive, and whether or not Auckland is able to deliver. We should aim to be a city and country where we can host local or offshore companies that are as successful as Amazon.

Their overall preferences are for:

We can definitely tick those boxes here in Auckland, and I’d far rather live here than in any of the mooted locations in the US or Canada.


“finding suitable buildings/sites is of paramount importance”

Amazon are looking for existing buildings, a greenfield site ready to go, or a combination. A greenfield site would need to be 100 acres. Wynyard Quarter in Auckland, for comparison, is 86 acres, not too dissimilar from the required size. It is in the middle of a transformation to mixed offices and residential, with most of the industrial operations being moved out.

While Amazon are happy with a site within 30 minutes of downtown, there is at least one other site nearby that could be interesting, as highlighted below. While fans of ports and golf courses would not agree, it’s worthwhile comparing, if academically only, the value created by each versus that touted by Amazon.

There is also the city itself – with a lot more densification possible downtown by building several courageously large towers.

Amazon’s location does not have to be downtown – merely within 30 minutes of the city and 45 minutes to the airport. But they also want their own train station, as well as access to other forms of public transport.

As it happens the port location would probably best deliver on access to mass transit, showing the value of that space. Leaving that red herring aside the CRL project will put stations within reach of most downtown locations. There are also plans for light rail to and beyond Wynyard Quarter, which would begin to be great if it also went across the harbour to the North Shore.

If we can provide mass transit so that the airport is 30 minutes away from the city (as it is now by car at most times) then a lot more possibilities would open up. I have probably highlighted some areas that are absolutely not available, but the point is that there is a lot of land out there.


There is plenty of public transport and liveability momentum, plans and ideas, and there seems to be enough space in Auckland. However Auckland is not yet able to credibly provide the combination of land and high quality public transport for a firm like Amazon. The implications are that we should continue to build our public transport and keep thinking about the value of the port space (and the cost of alternatives).

Amazon invests heavily in sustainable buildings and renewable power. New Zealand does provide a very high percentage of renewable power from the grid, but, despite an excellent power framework, has some progress to make when it comes to managing private power supplies.

Capital and Operating Costs

A stable and business-friendly environment and tax structure will be high-priority considerations for the Project. Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process.

While it may be hard for a NZ government to match US cities with incentives there is no arguing that our tax system is simple, and our business environment is very stable and amongst the world’s best.


Identify incentive programs available for the Project at the state/province and local levels. Outline the type of incentive (i.e. land, site preparation, tax credits/exemptions, relocation grants, workforce grants, utility incentives/grants, permitting, and fee reductions) and the amount. The initial cost and ongoing cost of doing business are critical decision drivers.

Incentives are so important that Amazon put them twice in the list. Again I can’t really see an NZ government falling over backwards in today’s economic or political environment. The scale of the deal is a bit too large, we fundamentally believe in fairness and finding jobs for high tech workers is the least of our problems.

Labour Force

The Project must be sufficiently close to a significant population center, such that it can fill the 50,000 estimated jobs that will be required over multiple years. A highly educated labor pool is critical and a strong university system is required.

Auckland gets a tick here, with 3 top universities present and as destination for graduates from every university in New Zealand. The jobs will be highly paid, so accomodation won’t be so much of an issue. The downside is that rents and house values would go even higher and the burden on those who cannot it.


Personnel travel and logistics needs, both from population centers to the Project site, as well as between company facilities, are critically important.

Amazon wants direct flights to Seattle, San Francisco as well as NYC and Washington DC. We can provide the first two at least, though they would be shocked at their down time between cities. Out national airline has requested Boeing, a company that decamped from Seattle for Chicago in 2001, and Airbus to develop planes that can fly directly to the other two cities. That might take some time.

Amazon also want access to local highways to access other North American Amazon locations. We might suffer a bit on that paramter.

Time to Operations

The Project requires an expeditious timetable for the location decision and the commencement of construction. Given this, sites with the requisite access, utility infrastructure, and zoning are critical. Please outline the permitting process and estimated timetable to initiate Phase I of our operations.

Amazon wants to get going quickly. Auckland has almost twenty cranes at the moment, and while we can probably expedite some of our regulations there should be no real barrier to a new build. Some US cities though would have large free spaces, for example Detroit with the remnants of the crippled motor vehicle industry.

The work by Panuku and private developers in Wynyard and Britomart, along with the CRL and bike lanes show that Auckland can think big, although perhaps Amazon scale would be a level up again.

Cultural Community Fit

Cultural Community Fit – The Project requires a compatible cultural and community environment for its long-term success. This includes the presence and support of a diverse population, excellent institutions of higher education, local government structure and elected officials eager and willing to work with the company, among other attributes. A stable and consistent business climate is important to Amazon.

New Zealand is commonly in the top ranks of places to live, and for good reason. We have a very diverse population, the world’s best relationship between a country and its indigenous people and many efforts to bridge across cultures. We will always have more to do, but we crush the USA on this measure – not least because our police don’t shoot people.

A stable business climate is critical to New Zealand, and we have been one of the top few easiest places to do business or many years. Meanwhile our local and national government systems make the USA’s look both corrupt and Byzantine.

Community/Quality of Life

We want to invest in a community where our employees will enjoy living, recreational opportunities, educational opportunities, and an overall high quality of life. Tell us what is unique about your community.

This is our greatest strength, where we take the ability to go to the coast, breathe fresh air and drink fresh water for granted. In Auckland we have a Council that, thanks to the Super City, is delivering strongly to increase liveability and workability.

Yes we can argue that we have taken things a bit too much for granted when it comes to water, and there are people living on the streets which is unacceptable. But without getting too political there is cross-party support, and very strong efforts by some, to solve these issues.

Other factors


The UFB program is something the National government got absolutely right over there last 9 years, and we are blessed with fibre to the business and to many homes. However Amazon would need to buy a lot of capacity on existing sub sea cables, or probably even build their own.

Climate Change

Sadly for the Port and Wynyard Quarter options the viability of those spaces is relatively limited over the next 50 years. With the current emissions on track to, as Schroders Bank reported, hit a 4.1 degrees rise by 2050, that land will be come unuseable, and certainly unsuitable for intensive development.  Perhaps that’s why the report stating that Councils should be assuming 1.9 meters for sea level rise was buried by the government earlier this year. Wynyard Quarter, as reclaimed land, is just 1.3 meters above high tide level.



It’s a short document, but we can all learn from Amazon’s perspective, kickbacks aside, of what makes a great place to live and work. Auckland stands ready, distant location and lack of a decent train system aside, to offer Amazon a new home.


Posted in NZ Business | 2 Comments

Stop complaining about rates in Auckland

The Taxpayers Union is a lobby group who, seemingly, would like to get rid of all tax. Insider Dave Farrar covered their latest attack on tax, which is on rates in Auckland.

It’s ridiculous. We actually have a great deal here and we have the opportunity to invest a lot more into making Auckland even better.

So let’s walk through the basics about rates, a tax that we use to fund councils to provide transport, infrastructure and all sorts of other services. Rates that are paid by Auckland ratepayers will substitute somewhat for tax paid to the national government, which needs to invest back into Auckland. So higher rates for Aucklanders should lower Wellington resident Dave Farrar’s own taxes, so I’m sure he will be a fan.

Firstly 34% of people and 32% of ratepayers live in Auckland, and 50% in Auckland, Christchurch, Wellington and Hamilton. So when it comes to ratepayers the cities matter. Auckland is growing very quickly, and has a legacy of underinvestment to catch up on. We need to spend a lot more than we are getting.

Number of Ratepayers by Region

The average rates paid per home vary by district. There seems to be no pattern between the size of a population and the average rates paid. The chart below is sorted, again, by population.

Rates paid per home

However we see that Auckland and Queenstown Lakes average house prices are well above the rest, while in general the cities have higher average house prices prices than the smaller rural areas.

Average Home Price

But the cities seem to pay lower rates as a percentage of their home value, and Auckland in particular looks suspiciously low.

Annual Rates Paid/Average Home price (July 2017)

Auckland has the lowest rates in New Zealand

Sorting the list by Rates Paid/Average Price shows that Auckland is offering the lowest rates in the country, at just 0.22% of the average house price per year.

That’s almost 30% less than the 0.31% fees lowest cost Kiwisaver provider Simplicity charges to invest your money and over 75% cheaper than Fisher Funds charges for their more traditional (expensive) Kiwisaver plan.

Think about it – it costs less to provide all the infrastructure for a home owning ratepayer’s Auckland needs than it does to manage the cheapest Kiwisaver plan. It costs less to provide all those services – while that housing investment is growing in tax-free value. It’s an absurdly great deal for the ratepayer.

No wonder so many people want to live here.

Annual Rates Paid/Average Home price (July 2017)

Plenty of room to rise

The average rate payer in New Zealand pays just 0.35% of their house value each year, still far less than most Kiwisaver providers.

If we had a single nation-wide standard rates fee as a percentage of home value then we would have a national rate of 0.35% of home value. That would mean rates in Auckland would rise by 50%, in Queenstown Lakes by 29% and everywhere else the rates would fall.

So here in Auckland we underpay our rates, and the national government has to subsidise (and they don’t enough) our infrastructure more than they should. they certainly pay their way in Waitomo –  if Aucklanders paid as much as they did there then rates would rise by 550%.

A 50% rate rise in Auckland is entirely justifiable, and the rest of New Zealand should be demanding we pay our fair share, and lowering their rates too. But can Aucklanders afford to pay more?

Yes, yes we can.

Over just the last year homeowners have, almost everywhere, made substantial capital gains and once again Auckland’s did very well.

Let’s compare those tax-free capital gains last year with the actual rates paid last year. The capital gains are the long orange lines below, and the rates are the barely visible blue lines. Remember this is just last year – Aucklanders have enjoyed a sustained period of growth in property values.

Average Capital Gain/home in 12 months to July 2017 versus average rates paid

Last year alone Auckland ratepayers averaged a tax free gain of $52,000 from each property, and they paid an average of just $2,340 in rates. The gain is 2226% greater than the cost, a ratio any Kiwisaver fund would be proud to brag about.

We all need to stop complaining our rates, especially those who can afford to pay them with cash, and who are sitting on vast windfall gains.

If you can’t afford to pay then check out the programs that Auckland Council has for low income households. Or talk to your bank about how to cash in on your windfall gains.

So let’s start talking about the great deal we have in Auckland, and our capacity to increase rates. Let’s start thinking instead about how we can accelerate some of the transformational progress that has been made already.


I copied some data from the Taxpayers Union microsite [they want your details], and added the July 2017 data from the QV Residential House Values page for July 2017. I removed Kaipara and Waimakariri (1.6% of population) from some of the data as they did not have compete stats. All mistakes mine. 

Posted in NZ Business | 4 Comments

Punakaiki Fund 2017 Annual Report

We released the Punakaiki Fund 2017 Annual Report last week.

The assets have grown from $1.5 million in April 2014 to $28.4 million at the end of March 2017, with the iNAV/Share rising from $10 to $20.10 in the same period. The iNAV is the “investor net asset value per share” and not a GAAP measure. We see it as the most pertinent measure to use as it is the measure that relates to the share price.

That’s a good, if realised, return for our investors. Our internal calculations show a 45% IRR based on the unrealised investment value increase, driven mainly by companies we invested in two or three years ago.

We now have have investments in 19 companies, in seed, very high growth and more mature growth stages (e.g. over $10 million revenue), with most of the value split between the latter two. The smaller ones grew by over 600% (on average) over two years, while the medium ones were over 400% and the large ones over 130%.

We continue our focus on placing most almost all funds with companies that have growing revenue, with the combined FY2017 revenue estimated at $69.5 million in the annual report. We closely monitor financial sustainability, aiming aim to invest into companies that can maintain their viability without raising further funds, and almost all of he investment value is in that category.

As always our principal issue is raising enough funding to place with the companies. We do run periodic offers so get in touch if you are a wholesale investor (e.g. over $100,000 to invest) or any potential investor can sign up to the mailing list from Punakaiki Fund.

We keep our frugal approach to using investor funds during the year, and our net cash used in operating activities was just 1.7% of assets. Compare this to other funds that invest in (and are active directors of) private companies. Moreover we do not take money from the companies themselves – other than reimbursement for travel.

Posted in NZ Business

NZ Household income – addressing the gaps

This chart from the Household Incomes Report is worth deeper inspection.

Each row adds up to 100%, so, for example, 12% of people 0-17 are in the top quintile (top 20%) of households by income.


I want to call out three findings:

Maori and Pacific Island households are much less likely to be wealthy, and likely to be poor. We need to do better.

25% of European/Pakeha households are in the top 20% of earners, but only 9% of Maori and 6% of Pacific Islanders are in the top 20% of earners. 33% of Maori and 35% of Pacific Island households are in the bottom 20% of earners.

That’s a systematic gap that percolates throughout society, and we need to fix it.

Old people are poor (in income), but well looked after.

35% of households with 65 year olds earn in the bottom 20% of household incomes and just over half of all 65+ year olds living alone have income in the bottom 20%.

Our society has delivered to these people with a guaranteed basic income (superannuation), free health care and free public transport travel.

Single parents are poor, but not so well looked after.

50% of single parents are in the bottom 20% of household incomes.

We have not provided these parents with a no-strings guaranteed basic income nor with free public transport.

They have more expenses than old people (aside from health care) and making sure their kids are raised in a secure environment has large and positive future impacts on society. We can do better.


Posted in NZ Business | 1 Comment