Balex Marine, Snowball crowdfunder participant, sunk by high costs, slow sales

Liquidator Kenneth Brown, along with colleague Paul Manning, says Balex Marine's crowdfunding was $700,000 below target.

Balex Marine, the automatic boat loader maker, has been washed away after the high cost of manufacturing and slow sales saw the Tauranga-based company burn through the crowdfunded $330,000 it raised last October.

BDO's Kenneth Brown and Paul Manning were appointed liquidators of Balex and sister company Suelex on May 1 after events conspired to drain the companies coffers without an immediate lifeline. Balex raised $330,000 through 80 investments via equity crowdfunder Snowball Effect in October, just above its minimum target. However, Brown and Manning's first report says that was $700,000 below target, leaving it in a tight cash position until the end of March 2017 and prompting Balex's board to search for a new investor willing to inject between $2 million and $5 million.

The failure is the first by a company that's used Snowball's platform to raise funds, and while Snowball chief executive Simeon Burnett says it was surprising and disappointing how quickly liquidators were appointed after the capital raising, there were a number of "good reference points" such as the shareholdings of directors and management and the company's earlier funding rounds.

"Is there anything we would have done differently? Probably not," Burnett said. "Directors are responsible for the information they put out. The reference points were there and we got to the point of comfort and were clearly there for a number of investors as well."

Balex's local sales of its boat loader started in March 2016, six months later than scheduled due to design and manufacturing problems, and it later branched out into Australia, the UK and Europe and had planned to push into North Amerca this year.

Before hitting up the crowd, Balex had already raised $2.2 million since it was set up in 2013, with research, development and manufacturing needing "significant capital investment", the liquidators said. Its tight cash position got even worse through the tail end of last year with poor sales in New Zealand and Australia, the cancellation of a $180,000 order from a new Korean distributor, delays in European sales after the UK's vote to quit the European Union and limited opportunities to cut production costs in the foreseeable future.

The liquidators said Balex was spending about $100,000 a month, couldn't extend its funding line with Kiwibank and had no leads for a new investor by late January this year.

At that stage, the directors looked for a buyer of the business after seeking advice on the firm's financial position, and while there were a number of interested parties who got in touch, a deal hadn't been done by late April and the directors recommended a voluntary liquidation.

"The liquidators intend to advertise the business for sale and contact previously interested parties with the hope the business might sell and continue to market the product it has development," the report said. Due to the previous level of interest, the liquidators are hopeful a sale will be achieved."

BDO's Manning said the buyer interest had come from both domestic and international parties.

Balex's shareholders include managing director Paul Symes, Tauranga-based investor group Enterprise Angels, the New Zealand Venture Investment Fund's Seed Capital Investment Fund, and Auckland investors Ice Angels.

The liquidators didn't disclose the total amount owing or the value of group's assets. Balex had 28 creditors as at May 1. Suelex, which held the intellectual property, had two creditors. Of those, there were five secured creditors including Kiwibank. Callaghan Innovation had previously provided Balex a research grant and wasn't among the company's creditors.

(BusinessDesk receives funding from Callaghan Innovation to help cover the commercialisation of innovation.)

(BusinessDesk)


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6 Comments & Questions

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If you are burning $100k a month you have no right to raise only $300k, or if you do you implement a plan to stretch this out for at least 12 months.

The fact the directors had large shareholdings increase the risk that they are blinded to the risks - they have a lot to lose so any lifeline is probably worth the risk.

While this might be the first to accept the end my guess is a lot of others are on life support.

Welcome to early stage investment.

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Somewhat surprised it has taken this long to see a failure given the nature of early stage investing. Snowball must be doing a reasonable job at curating (their word, not mine) the opportunities on the platform.

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Most companies tend to find ways to survive - the living dead. A lot of literature talks about failing fast as being part of the game.....this is fine in the US failure is not such a big deal and where investors are more decisive.

In NZ investors keep propping companies up.

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A case of the "mown poppy syndrome"?

Entrepreneurs are more fearful of failure than they would be elsewhere because of the stigma attached in NZ?

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Likewise investors - it means a lot of money, time and energy is wasted.

Eventually they run out of options or get hit with market reality.

Investors should be very cautious of offers coming out of angel groups etc. By the time they hit Snowball and others they have been shopped around.

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I was presented with several entreaties by EA and others to invest in Balex, but never took confidence from their stated sales pipelines. Not that I am brilliant, but if you want to invest early stage you must understand the ACTUAL widget sales commitments vs the expected/hoped for commitments, which are typically what are most touted in IMs.

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