Punakaiki Fund: Why we failed
"Lance - great that you are resilient and determined. Tough game, but you did have 300 people who believed in you and would back you again. Why not raise a fund privately and put the money to work?"Featured comment
We failed to get to our target of $20 million for Punakaiki Fund, and failed even to get to our very low minimum of $5 million.
But the real disappointment is that we are unable to help any of the very long list of high quality companies who were attracted to our fund and who were seeking smart and simple funding. While there is plenty to say, I take personal responsibility for not making this happen, for failing to earn the confidence of larger investors.
The people behind Punakaiki Fund were not local investment community insiders, nor were we cashed up high net worth individuals able to inject an initial stake of money. We did not have any large or big name investors lined up before we went to the market, although we tried, and nor did we have institutional support.
Instead we crafted a company and management team to be expert at doing the job of finding, investing in and helping early stage and growth companies. I put a lot of my own reputation and background on the line through the process.
We were raising money strictly in accordance with the FMA’s public offering rules. We could not identify any targeted investments, as doing so would mean providing full financials, often well before a deal was done. We could not even survey or talk in detail about any of the large number of superb investment opportunities that came our way during the process (and there were a lot).
We also could not say that I estimate my own, largely unrealised, returns in the sector at over 900% since 2007, at a rate of well over 40% per annum. Nor could we say that under 5% of that capital invested resulted in absolute loss. These figures are dramatically different from venture capital and angel club norms, and would have helped show just how different Punakaiki Fund might have been.
We could not show evidence that my own track record for helping to magnify both money made by others and annual revenue for firms, is measured in the high hundreds of millions.
We could not say that in the early years of the fund I expected - but could not at all guarantee - returns to be well in excess of 25% per annum, with a very good chance of wildly higher returns and at much lower risk of absolute loss than alternative approaches. We had no concrete evidence to suggest this was possible (as we were not allowed to even discuss potential investments), but that’s why we were launching a fund.
I’m not complaining about what we could and could not say. In a public offer like this it’s critically important to only say things that are verifiable, as it means things are clearer and fairer to investors. So we had to speak in legally obfuscated code, a code was not interpreted by the domestic investment community.
We had some good endeavours, but poor overall results in our marketing of the offer.
We held public events across the country, and had good feedback from those who attended. However we were blocked from presenting to any of the regional angel investor groups. Perhaps I annoyed the angel clubs too much with my writing, but it seems at least some angel clubs saw us as competition, with one principal even stating this directly to us. We found it sad that any angel clubs would deny their members access to listen to an opportunity like ours.
We saw strong demand from larger private investors and funds who wanted to co-invest in deals that we sourced - but they were all unwilling to pay for our expertise and deal flow by investing in the fund. You don’t get something for nothing sorry.
We managed to present to multiple offices of three of the four major brokers, but did not get in the door at one, and we received essentially no subscriptions from any. We were told by one insider that their brokers were tied up for five weeks on the Meridian deal, and by others that our product was just not going to pass through (or even into) their research team for recommendation to clients. We were also told that the latest regulations make it a real burden for any financial advisor to suggest that individual clients invest in a particular product. All that said, we still saw that the GeoOp pre-IPO fund raising made through to eligible investors, with 268 signing up for $10m, so clearly we did something wrong.
We did a few things well. We earned wonderful publicity, and our website, offer documents and email formats, created by Lee Ter Wal Design, set a new standard for what investment documents can be. Do send them your business.
We received superb legal support from Sacha Judd and her Buddle Findlay team, who are experts in both public capital markets and the early stage ecosystem. If you are doing an early stage investment round and Sacha (or one or two select others) is not on one side of the deal, then things are probably a lot more complicated than they should be.
We earned the support of 367 smart investors, many of whom are from the internet, technology and design sectors. They will be getting their money back shortly, along with our sincere thanks. Perhaps we will work with at least some of them in the future.
Ultimately we failed because we failed to earn local investor trust and confidence, and that was a tough message to receive. We’ve learned a lot, know there is more to learn and emerge battered, yet older and wiser.
We had demonstrated to us time and time again the scale of demand for a fund, as we saw a stream of high quality investment opportunities ranging from $30,000 to well over $20 million.
Savvy offshore investors understand what’s going on. Just yesterday we all heard that Neville Jordan’s Endeavour Capital raised “up to $200m” from offshore, while Li Ka-Shing’s Horizons Ventures showed up in New Zealand during our process, looking to invest tens of millions at least into early stage companies. From Germany we’ve seen Point Nine Capital and Australia we’ve seen Square Peg make investments here. So why is the offshore money smarter than the local money?
Were we too honest? Too naive? Have I simply annoyed too many people with my writing? Probably. But while we failed with Pacific Fibre, and we now we have failed with Punakaiki Fund, three things remain clear. The first is that these were each done for the right reasons, the second is that the business cases remain very strong, and the third is that I’m still here, still trying to do the right thing. I’m from the US school of failure as experience - and I intend to be back.
Lance Wiggs is a director of the Punakaiki Fund.