Bay of Plenty Business News April/May 2018

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6 BAY OF PLENTY BUSINESS NEWS April/May 2018 Angels thriving, but still a gap in the VC space Startups in New Zealand recorded an unprecedented level of funding last year, with $86 million flowing into early-stage businesses, according to the latest Young Company Finance Index, published by PwC New Zealand, the Angel Association of New Zealand (AANZ) and the New Zealand Venture Investment Fund (NZVIF). Of the $86 million invested into young companies in 2017, more than half ($49 million) came from angel investment networks, rather than individual funds or institutional investment. But a key problem remains at the next stage. The venture capital sector remains thin in New Zealand, meaning it can be difficult for startups to make the transition required to grow into successful national and international businesses, says Bill Murphy, executive director of the Bay’s Enterprise Angels, the country’s biggest angel funding group. PwC New Zealand partner Anand Reddy said early-stage investments were almost three times the level of five years ago. “We’ve seen success stories like exits from TradeMe that created a whole new generation of angel investors.” Driving the growth in investment dollars is an increasing number of larger deals in 2017, compared with the previous year. While the number of deals in 2017 held steady at 111 – one lower than in the previous 12 months – the total amount invested has risen by $18 million, a 26 percent increase. AANZ chairman John O’Hara said that reflected a maturing ecosystem. “A number of the ventures angels have backed are now looking for larger capital injections to fuel their growth. With a thin VC industry, it’s not surprising we are seeing larger deal sizes in our part of the market.” NZVIF chief executive Richard Dellabarca said one of the reasons for the surge was that investors were seeing higher quality deal flow from aspirational entrepreneurs seeking to address global opportunities, not just New Zealand-focused or lifestyle COVER STORY SOFTWARE THE TOP SECTOR More than half the investment made in early stage companies last year was in the software and services space (53.8 percent), followed by technology hardware and equipment (17 percent). – Young Company Finance Index businesses. “With the mandate changes to NZVIF’s Seed Co-Investment Fund last year, we are seeing this quality deal flow from both angel groups and also individual angel investors,” says Dellabarca. “The next challenge is to address the paucity of domestic venture capital. “As we see an increase in the volume of quality companies in the pipeline, the ownership of our promising high growth companies is shifting offshore in the absence of a local institutional investor market.” Enterprise Angels’ Murphy said the early stage sector was definitely getting stronger. “We are getting better at being able to assist companies to get that post-angel funding,” he said. “Unfortunately in New Zealand there’s a huge gap - a valley of death so to speak. “You can see it at the microcosm level here in the Bay, where we have WNT Ventures at the pre-revenue stage, Enterprise Angels, and then Oriens Capital offering expansion and buyout capital. But there’s really nothing much in between Enterprise Angels and Oriens.” – BY DAVID PORTER Capitalising on innovation From page 3 both expansion capital, and management buyout funding for business ownership succession. The fund recently partnered with Pioneer Capital in its first deal, buying out the founder’s stake in Hawkes Bay-based Rockit Global. The deal also resulted in a significant increase in the value of the Enterprise Angels members’ early stage stake in Rockit. “Private equity engagement involves robust regular communication within the board and the executive team,” said Beale. “PE investors want to let management get on with their jobs, but they are absolutely James Beale, Oriens.Capital Photo/James & Wells prepared to assist the business where they can.” The key questions for a business owner to think about when evaluating a funding source are, were these people they could work with, said Beale. “Is there genuine alignment between the fund and the people and staff and business culture? You have to like these people because you are going on a journey together. And what do these guys bring outside of capital?” That could include industry knowledge, connections and relationships, geographic expansion and distribution expertise, and transactional expertise for a later M&A, trade sale or IPO. From Oriens Capital’s perspective, there had to be an investment thematic, as was the case with Rockit, which markets its fruit as a packaged convenience snack and played into the global “grab it and go” theme in food retailing. “And we need to understand the big goal, the vision,” said Beale. “We need to understand what key attributes provide the source of sustainable competitive advantage and how do we protect, then enhance these and perhaps take them to a global stage. “And what does that look like from a business perspective and from a value perspective.” Private equity can help maximise future value and accelerate business with ownership transition and transform the business, said Beale. “Both parties need to be aligned in their goals and objectives.” Another funding option not to be overlooked is traditional access to bank debt. Andrew Pryde, head of corporate finance & insights at ANZ Bank, said the New Zealand economy was continuing to perform well. “Banks in New Zealand are all seeking to grow their market shares across the mid-market business sector. “These market dynamics make for a very competitive landscape for banks and nonbanks, all of which is good for NZ businesses seeking growth capital.” Pryde said a bank’s primary role was to provide capital to well-established and/or growing businesses. “Bank loans are structured to suit the underlying purpose of the growth capital. That includes, but isn’t limited to long-term capital to support business acquisitions or succession, and short-term capital for fund asset acquisitions and short-term working capital.” At a minimum banks will require a security interest over business assets and at a maximum they may require mortgage security where there is a property, and / or personal guarantees. The advantages of bank debt funding were that it was comparatively cheap because it was subject to full repayment, that it allowed businesses to plan their growth, and that the interest cost could be deductable, said Pryde. “And the business owner retains full ownership of their business.” BEST SMALL BUSINESS BANK WE’RE PROUD TO BE RECOGNISED AS THE BANK OF THE YEAR – SMALL BUSINESS 2017 anz.co.nz/business ANZ Bank New Zealand Limited 11/17 19790
COVER STORY BAY OF PLENTY BUSINESS NEWS April/May 2018 7 PlantTech poised for takeoff mid-year The Bay of Plenty’s PlantTech expects to get underway by July, say people associated with the new regional research institute. The uniquely structured institute was one of four research initiatives that won funding last year from the Ministry of Business Innovation and Employment (MBIE). PlantTech aims to build regional and national capability in the application of advanced technologies to strengthen hi-tech exports. A team of experts in data sciences and automation will focus on premium, natural plant production and collaborate with industry, research organisations and international partners. Priority One and the University of Waikato have partnered with a consortium of eight local high-tech focused businesses to secure $8.4 million in investment from MBIE. PlantTech is at this stage a working title, but it reflects the strong agri-tech focus of the founding companies, which include Bluelab, Cucumber, GPS-It, Eurofins, Plus Group Horticulture, Trimax Mowing Systems, Waka Digital and Zespri International. The companies have partnered up with Priority One and the University of Waikato. Priority One innovation manager Shane Stuart said PlantTech was still in the establishment stage under a six month initial contract from MBIE to assist in the set-up. “We’ve secured five of the seven board members we’re looking for and we’re in advanced discussions with a potential CEO and the three research directors we plan to hire at this stage,” said Stuart. The PlantTech concept aims to accelerate innovation using the region’s horticulture industry as a testing ground for new technologies and services. Through participating companies, PlantTech’s research will be commercialised nationally and globally in markets including sports fields, hydroponics, logistics and primary industry land use, as well as horticultural technologies. Stuart said bringing together commercial entities had helped win MBIE support, but he said the political machinery may have “struggled a bit” initially with the open innovation model concept. PlantTech aimed to not just develop innovation through its own capability, but through its commercial and other networks, he said. PlantTech was a good example of the collaboration that is a feature of how business is done in the Bay, he added. Steve Saunders, head of Plus Group Horticulture, said PlantTech was on track for a mid-year start. “It’s another piece of the eco system we’ve been building in Tauranga, from starting co-working spaces to getting WNT Ventures underway, growing Enterprise Angels to being the biggest angel group in the country, and now Oriens Capital providing private equity funding, “ said Saunders. “The great thing about PlantTech is that you’ve got Zespri in there as a founding member, as well as a number of tech companies so it all aligns really well. “It was clear to MBIE that it’s a research institute, but with a real commercial focus. The horticultural sector is not just growing, but really punching above its weight. Being able to bring new technology into a growing industry in New Zealand is really exciting.” – BY DAVID PORTER Shane Stuart: On track for mid-year start for PlantTech. Photo/Priority One. TURNING YOUR IDEAS INTO GOLD. If exporting innovation is your business, then talk to us about ours.
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Bay of Plenty Business News April/May 2018

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