There are two features which differentiate successful from mediocre investment funds. The good funds accelerate fast failure, and they also accelerate companies that are meeting and exceeding their targets.
On average, the announcement of an alliance has an 18% uplift in the market value of a small cap company.
Jenny Morel’s MORGO conference for 2008 is underway, and it’s some of the best professional development and networking time I’ve spent in a great while. The talks have hit the sweet spot between academic theory on the one hand, and moving personal stories on the other, with lessons from the coal face of applied sweat and sagacity bang in the middle. Most people you meet here have either hatched an audacious idea, or have funded one; in many cases both.
Here are some quotable quotes:
Bill Day, Seaworks [on going after a small slice of a large market, or focussing on the local market]:
What would you like for dinner, just some of the leg of a cow, or an entire ant?
Didier Elzinga, Rising Sun Pictures:
Growth doesn’t hurt when you’re growing, it hurts when you stop.
Simon Hendery wrote an excellent article on the NZ Herald Website entitled “Blueprint for an Innovative New Zealand“. Simon interviewed a number of attendees at Cisco’s recent roundtable on “Inspiring New Zealanders to Innovate”.
Former Intel NZ MD Scott Gilmour echoed my comments from last week’s nzangels.com podcast interview with Doug Woolerton, that ‘[y]ou can’t be a globally successful company based here, I don’t think … So let them go, encourage them to go – just like our kids go on their OE – but try and retain more and more significant ownership stakes so that as they succeed and generate a capital return to shareholders, those returns are invested into further companies, so that cycle keeps repeating.”
This week we continue our series on political party policies on investment and innovation.
Pete Hodgson has been described by Helen Clark as the “Minister of Innovation”, as he’s responsible for Economic Development, Research Science and Technology, and Tertiary Education.
With respect to innovation and investment, Hodgson has been described as one of the very few people on the Parliamentary campus who “gets it”. Since coming to power nine years ago, Labour have developed a significant number of schemes around innovation. I’ve heard complaints that segments of the innovation framework are just another Wellington-based bureaucracy, with the cost of application and compliance often outweighing the benefits of accessing the available funding. That said, much funding under the various schemes is clearly getting to its intended destination, and the current government clearly understands that the future of New Zealand’s economy totally depends on innovation and entrepreneurs to drive the economy into new markets.
Is state intervention too heavy-handed and/or inefficient? Hodgson believes that taxpayer funding spent in these areas is a good investment for the general public.
While there is more policy yet to be announced, Hodgson would like to stand on Labour’s record, saying that none of the current innovation framework was even being thought about under the previous government.
Hodgson expresses the the following key points in the podcast:
Science is good, commercialisation is not up to scratch. We have a lot to be proud of in our inventiveness in our society.
There is a very low rate of private sector investment in R&D, but the government has initiated a number of schemes to address this. The 15% R&D tax credit which was introduced earlier this year should have a big impact – IRD predicts that by 2012 they will be foregoing $330m per annum, which means that the amount of R&D undertaken by the private sector will have doubled in four years.
NZ VIF is based on a model where the government shares the downside but private sector takes all the upside.
Over the last few years, angel investment has started to become formalised with VIF and SCIF; these enable angels to spread their risk.
Labour’s broadband plans have been announced, and are part of the record. “We’re not concerned with any philosophical ‘crowding out’ argument, we’re just trying to get as much glass into the ground in the right places as quickly as we can without overallocating from an investment efficiency perspective.”
“We have no secret plans to tax capital gains.” Internationally, it’s unusual not to have a capital gains tax, and that’s a good thing.
Tax cuts as a way of promoting economic development is not something that is sustained by the empirical evidence around the world. It’s the quality of the spend that matters. No further tax cuts are in the works, and the current differential between the personal and company tax rates will stay.
Rory MacGillycuddy and team at Central Capital have issued an Investment Memorandum for their new investment vehicle, the Central Capital Regional Fund. The fund is completely focussed on high-growth investments in the Central North Island. This is an novel development – I’m not aware of any other regional investment funds that aren’t controlled by local government entities. The fund provides exposure to NZ’s provincial economy, which has done well over the last few years thanks to the dairy boom, concentrating on early to late stage businesses (ie post-seed/angel) in the low- to medium-tech space.
Central Capital are looking for NZD 20-25M in the first close, with a maximum fund size of 50M. Minimum investment is 500K. It’s a non-retail fund, ie not open to public subscription.
To get a copy of the Information Memorandum, contact info@centralcapital.co.nz or ring +64 7 839 0804.
Note: If you plan to act on any information on this site, please be sure to read the disclaimer.
Rod Drury laments the lack of local tech IPO’s in a recently posted IT Brief article. Proudly pointing out that “so far Xero is the only software start up to have successfully raised $15 million in an IPO”, he adds, “There should be two or three more software IPOs by now.”
I’m not so sure … Venturebeat recently reported that there were ZERO (sorry about that pun, it couldn’t be avoided for mathematical reasons) IPO’s in the US in the first half of calendar 2008, and that M&A activity was at its lowest level in 20 years.
While we like to believe that we are countercyclical or play by different rules here NZ, it’s suicidal to forget that we’re in a small corner of the global playing field.
My bottom line – entrepreneurs and investors need to put a reality check into that IPO dream for the near future. The best way to succeed is by building a great team, meeting a real market need, and above all running a great business by generating heaps of revenue. IPO’s are not part of the script for 2008. For the short term at least, funding will necessarily come from private equity and operational revenue.
The Challenge is being run by Unlimited and UK Trade & Investment together with a world-class team of investors, entrepreneurs, business experts and sponsors, who will help New Zealand companies get investment ready to take them into the UK market and beyond.
The programme runs as follows:
Ground Floor: Registration of interest
Level 1: Investment Ready Seminars – 21, 22 & 26 August – Auckland, Wellington and Christchurch
Level 2: GAP Analysis & Power Pitching Forums – 22, 23 & 26 September Auckland, Wellington and Christchurch
Level 3: Dummy Pitch
Level 4: Real Pitch to Investors – Practice is over. These will be real pitches to real investors with real money – Dragon’s Den style.
Level 5: Investment Results published in Unlimited Magazine
It only costs $99 to register, and you get a free subscription to Unlimited magazine. Even if you (or your investments) don’t get through to the final round, it’s a great way to practice for the real game.
Doug Woolerton is NZ First’s spokesperson for Economic Development. He was the president of the party for over twelve years, as well as a director of the Waikato Milk Company for an equal length of time.
One would think that such experience would stand him in good stead for articulately expressing party views on economic development, but unfortunately this isn’t the case.
I was disappointed with Doug’s grasp of the issues – he didn’t seem to know much about how startup companies or investors think, nor about the taxation system or general finance. His answers to my questions were long on generalities and short on specifics, often seemingly hedging as if he was unsure of not only what to say, but what was being discussed. And I was completely taken aback by his use of obscene language in a podcast which would be permanently available to billions of Internet users globally. No hidden microphones here, everything was above board.
Doug’s key points in this interview were:
The tax system should be incentivised; you can’t trust people to invest in the right things just by their own want
The government has a role to encourage the types of businesses it wants.
We don’t have enough angel investors in the country
Compulsory superannuation should be used for investing in NZ companies
Entrepreneurs shouldn’t be selling their companies to overseas interests, they should be getting investment from them and continuing their personal involvement in the company.
Warning, if you don’t like obscene language, you should stop listening to this podcast about nine minutes in, when Doug reveals his true thoughts about overseas investment.
Today, we continue our Politics of Angel Investment series with an interview with Rodney Hide, the leader of ACT.
ACT’s policies revolve around reducing government. It’s a simple message, easy to understand, and clear in its impact on investment and innovation. They want to reduce taxes, government expenditure, and the impact of government on our daily lives, leaving us to get on with the job in our selected spheres of expertise, and sinking or swimming on our own merits.
Rodney’s key points:
Entrepreneurs drive the entire economy
Governments are incapable of predicting which ideas are going to be great
The main task is to grow the economy, and catch up to and surpass Australia
Key policy areas:
Fiscal: reduce government spending – taxpayer rights bill would cap government spending at rate of inflation
Regulatory: reduce rules and regulations; they stifle innovation — regulatory responsibility bill protects property rights and freedom to contract
Education: Break state monopoly in education; fund students not schools – that would enable innovation to flourish
The state should be right out of business; they should stick to core business of providing police force and critical infrastructure. Ministry of Economic Development would be disbanded; if state planning worked, the USSR and Korea would have been staggering successes.
Taxes should be as low, flat, broad, and neutral as possible. In an ideal world you should be able to run the state on GST and get rid of income tax. If you have to have an income tax, it should be flat. The worst tax you can inflict on an economy is a capital gains tax, which is especially bad for entrepreneurs.
Broadband: Rodney disagrees with unbundling and the pretend split of Telecom and the constant regulation of the Telecommunications sector. ACT would pare back regulation to a bare minimum, especially the Resource Manangement Act.
Rodney closes by saying, “Angel investors, innovators, and entrepreneurs are the heroes of our economy … I salute them!”