Punakaiki Fund Limited

Punakaiki Fund invests into early and growth stage New Zealand-based technology, Internet and design-led businesses. Their philosophy is to invest early, reinvest where merited and hold as a long-term investor.

Minimum investment: $1,450.00

$2,000,000
Funded
Min target: $200,000 (3.34% equity) Max target: $2,000,000 (25.69% equity)
Ended Wed, 1 July 2015 10:16am (NZST)
391 Number of investments
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$2,000,000 Funded
$200,000 Min target (3.34% equity)
$2,000,000 Max target (25.69% equity)
Offer closed 18:07pm, 03 Jul 2015

Investing in New Zealand’s premier start-ups

Punakaiki Fund invests in the premier high-growth companies from New Zealand. We have investments in Mindscape, Timely, Onceit, Vibe Communications, InfluxHQ, RedSeed, Melon Health (Social Code), Weirdly, Boardingware and Revert. Punakaiki Fund led or were the largest investor in the investment round for each of these companies, and we have a very strong pipeline of opportunities available to us (and often available only to us). Because of who we are, rather than what we are, we are able to offer rare access for investors to what we believe are the best early stage companies in New Zealand.

We launched as a private fund in April 2014, and since then have raised and invested over $4 million into these 10 companies and now assess their value at $6.39 million. That increase is driven by the increase in value from our first four investments - the remaining six were completed in the last few months, and are valued at cost.

The companies all have revenue - indeed the combined revenue from the 10 companies for the year to March 2015 was $13.90 million, and the year on year growth from the first four companies we invested in was 86%.

The businesses we invest in cover diverse industries, but they are united by their use of technology to deliver simple yet powerful solutions to end users. They are also united by the strength of their founders, their teams, their growing revenue and their long-term potential.

We invite you to join us on our journey, as we re-invest into some of these 10 companies, and invest into more high quality early-stage companies.

Our History

Punakaiki Fund first hit the public eye in 2013, when we tried and failed to raise $20 million in a public offer. We tried again and simplified our proposition, reduced our internal costs and streamlined our processes, before making a private offer to a very select group - those investors who had participated in the 2013 public offer and who also qualified to invest in a non-public offer. We were very happy to raise $1.5 million in April 2014 from just over 50 investors, and shortly thereafter we invested in the first four companies - Mindscape, Influx, Timely and Vibe Communications.

Those companies were good choices, and are growing strongly and continue to perform well.

Our original investors confirmed their belief in our strategy when they collectively exercised 98.4% of their November 2014 options, providing us with a further $1.5 million in capital. We then raised another $1.2 million in another low-profile private offer in December 2014, and now have raised a total of $4.2 million from just over 90 investors.

However, make no mistake – your investment is an investment in Lance and Chris Humphreys’ ability to deliver returns for Punakaiki Fund. Lance and Chris, as directors of the manager Lance Wiggs Capital Management (LWCM), provide balance and checks to each other. However Punakaiki Fund itself does not yet have an independent director to provide additional oversight. We will search for and put forward an independent director candidate for a shareholder vote, but note that great directors for small funds are hard to find. If investing in Punakaiki Fund, you will need to be comfortable with the amount of control that Lance and Chris have over Punakaiki Fund.

Our Performance

Punakaiki Fund made all but one of its investments within the last financial year, and at the end of the financial year (31 March 2015) the draft financial statements (compiled by our accountants Deloitte Private) show a Net Asset Value of $6.0m (or $15.24 per share on an undiluted basis). The financial statements have been prepared in accordance with International Financial Reporting Standards, which require our investments to be held at fair value.

Since the financial year end there was one further investment (Revert) but more importantly there have been two (and will be a third) transactions involving shares in our investee companies which demonstrate that the conservative accounting value is already dated. This largely independent transaction evidence values the portfolio (including cash) at $6.8m, or $15.04 per share, after providing for the accrued Performance Fees, the potential dilution from the options we have on offer, a discount to account for the relative size of the transactions and the Brokerage Fee relating to this offer. We also note that we have invested into six companies since Christmas, and while we are delighted with their performance since then, the fair value of these assets has been held at the value at which we invested, due to the relatively short period in which to observe sustained performance.

During May, we consulted with our existing shareholders and the weighted (by shareholding) average recommendation was a share price of $14.57 for this offer, and this offer is priced at $14.50 per share.

We are confident that this price per share is fair to existing and new investors. It aligns with our own assessment of value, which includes insider information, transaction evidence and a deep understanding of the companies and the industry within which they operate.

There are more details on the calculation of price of Shares for this Offer in the "Financial" tab.

As part of the Snowball Effect process we are asked to nominate KPIs, and our core KPI is to see our Net Asset Value per Share rise by over 20% between the Closing Date and 12 months from that date.

Just as we advise companies, we see that the best way to grow a business is to start small and prove yourself through growth. We feel that we are tracking very well at this stage in our own journey and see a clear path ahead as our existing investments continue their rapid growth and we investigate new opportunities.

Punakaiki, West Coast, New Zealand

Our Investment Approach

We invest in privately held companies, we reinvest where appropriate and we hold our investments for the long term. Our focus is on high growth New Zealand companies in the internet, technology and design sectors, because that is where we believe New Zealand has a global competitive advantage, and it is where we have superior access to opportunities. Our targeted sectors provide genuine opportunity to deliver billion dollar companies, as well as to grow a host of smaller yet highly desirable firms. In our view these companies are following the footsteps of companies such as Trade Me, Xero, Wynyard, Orion Health, SLI Systems, Vend and others, and early stage founders and staff are able to draw upon wide peer support networks in New Zealand.

Our philosophy is to be founder-centric, aiming to be the fund of choice for the founders of the highest quality companies, an approach which we believe grants us privileged access to the best investments and thus superior long term returns. Being founder-centric primarily means trusting the founders and placing our emphasis on helping the founders grow great businesses. We try to be easy to work with, to make quick investment decisions and we focus on the long term rather than on dreaming of quick cash “exits”. We focus on helping founders and leadership teams make better decisions, rather than trying to tell them what to do, or step well back and allow the company to grow without interference.

Supporting and being part of the early stage community helps us gain earlier access to the best companies. As an example, Lance first met Anya from RedSeed in his capacity as a judge for the Hi-Tech awards and later Lance ran two challenge workshops for RedSeed as part of the New Zealand Trade and Enterprise Better by Capital programme. A year later we agreed to invest. Lance first met Kurt and Paul from Boardingware in the BNZ Webstock Start-up Alley in 2014 and there are similar stories for each of the other companies.

When we analyse opportunities, we first look for end users who are being delighted by a business’ products and services. We then look for growing revenue curves that show the ability to attract and retain paying customers. We look for the best founders and teams, people who are experienced, who learn, who are smart and who can attract a series of even higher quality people to join them on their start up journey. Finally we look for a solid financial investment case, which is validated by previous evidence, and then invest on fair terms and with a long term perspective.

We believe in holding for the long term. When companies grow at, say, 70% or 100% a year we believe that it is smart to hold on to our investment and work with the founders, as and when they want us to, to help keep the growth momentum and value creation high.

Confidentiality

We believe in over-sharing with our investors, but it is each company’s prerogative on whether or not we can share anything, and confidentiality provisions usually bind us in our investment contracts. We do share anything material with our shareholders, and we deliver quarterly reports and updates on progress. However, don’t expect us to open anyone’s books to our investors. While you will be bound by non-disclosure clauses, we will always assume that competitors or potential competitors to our investee companies are on our shareholder register.

Structure

Punakaiki Fund Limited is the entity that holds the investments, and which is issuing new Shares in this Offer. It is managed by LWCM (a company owned by Lance Wiggs and Chris Humphreys) in a similar approach to Infratil Limited (managed by HRL Morrison & Co) and Maui Capital Aqua Fund and Maui Capital Indigo Fund (each managed by Maui Capital).

Punakaiki Fund does not have the typical general partner/limited partner structure seen in venture capital funds. The key advantages we have is that we have a much longer investment horizon and can provide early liquidity to investors by quoting Punakaiki Fund’s Shares on a recognised exchange.

Conflict Management and Director Independence

Lance is the sole Director of Punakaiki Fund, an approach that has served us very well in these early frugal days of Punakaiki Fund. We have been able to save Punakaiki Fund the costs of external directors and their associated insurance, and have been able to move very quickly to close investment opportunities and perform capital raising activities.

The downside is, of course, that while we have structured Punakaiki Fund to give investors protection, there still remains a good degree of trust based governance.

Our rules cope with this situation. Without an independent director, for example, we are obliged to obtain the approval of shareholders before we:

  • Make investments into conflicted companies (e.g. where Lance owns shares); and
  • Make changes in the Net Asset Value (NAV) of any company without external validation, shareholder approval or a transaction that values the company (such as sale and purchase of shares). Please note that the NAV is the key number that sets our fees, and the NAV for the July-September quarter will be set as the sum of the NAV as implied by the price of Shares for this Offer, plus the proceeds from fundraising activities between the date of this Information Memorandum and 30 June 2015, net of brokerage fees and any other costs incurred by Punakaiki Fund prior to that date. Any change to the 30 June 2015 NAV arising from a material transaction by an investee company will require sign-off by Punakaiki Fund’s yet to be elected independent director and the difference (if any) in management fees will be applied retrospectively. We anticipate that Punakaiki Fund will appoint an independent director before 30 September 2015 (i.e. prior to the NAV being established for the purposes of calculating the December quarter Management Fee).

We have not made any conflicted investments so far, and while there is no independent director we will hold ourselves to the higher standard of requiring at least 75% of the shares voted to be in favour of any resolution to approve such a transaction. Meanwhile we have made changes to the NAV only after transactions have occurred and as part of the end of year financial reporting process with Deloitte Private.

We have committed to finding and presenting an independent director for a shareholder vote within three months of this fund raising process ending, and we have made this our second KPI. We prefer that the director is an investor, either already invested or investing during this process, and we will be asking shareholders, new and old alike, for suggestions.

We have always signalled our intentions to gradually put in place the elements of a publicly traded fund company, and an independent director is the next step.

Our Investments

We have invested in a diverse set of companies. Raygun.io, Mindscape’s signature product, captures and sorts billions of software errors and allows programmers to understand what is going wrong with their software. Timely provides appointment booking services to the health and beauty industry; beauty salons, hairdressers, spas, clinics and personal trainers. Influx helps gyms manage their classes and staff. Melon Health (formerly Social Code) helps people living with chronic disease live a better life and Weirdly helps employers find better staff. Vibe Communications uses software to deliver heavy-duty telecommunication solutions, and Onceit delivers fashion to your door. RedSeed combines their technology, great video production and retail sales expertise to help their customers train better retail sales staff. Revert backs up your SaaS data, and will track what is happening there as well. Boardingware helps boarding masters, parents and students manage leave and pastoral care.

Our two largest companies, Vibe Communications and Onceit, are substantial yet fast-growing businesses, delivering combined revenues at an annualised rate of well over $10 million per year as at April 2015. They are both profitable and they are both growing strongly, showing a combined increase in revenue of over $3 million for FY2015 over FY2014.

Mindscape (Raygun.io), Timely, Melon Health and RedSeed are well-established businesses with strong customer support. Their combined revenue run rate is around $4 million per year, and they collectively grew their revenues by 41% in FY2015 compared to FY2014. Mindscape and Timely, as business to business Software as a Service providers, are consistently increasing annualised revenue. Melon Health and RedSeed sell to much larger customers, have much slower sales cycles and less smooth revenue curves (each dropped revenue from FY2014 to FY2015), but in our view are equally promising in the long run.

Boardingware, Weirdly, Influx, and Revert are all much earlier stage companies, and while they have revenues, the amounts are small. The combined revenue run-rate for these companies is only around $200,000 per year, but this has grown quickly, and we expect to see this continue.

The table below sets out the revenue growth rates from the businesses in which Punakaiki Fund has invested in by investment period.

We have invested in winners - Timely won their regional rising star competition for the Deloitte Fast 50 last year, while both Vibe Communications and Onceit were on the top 50 list itself. RedSeed, Mindscape, Melon Health and Timely have all been NZ Hi-tech Awards finalists (the premier awards for this sector), with Mindscape (Winner) and Timely (Highly Commended) taking away prizes both last year and this year.

You can read more on our investments in the "Products" tab.

About Us

We are professional investors. Lance spends all of his time helping companies before, during and after investment, through Punakaiki Fund itself, along with New Zealand Trade and Enterprise’s Better by Capital program and his other obligations. Chris makes sure that we do what we say we do, that we comply with the law and to balance out Lance’s enthusiasm with hard facts and tough questions. He is steeped in spreadsheets and he has seen countless contracts and offers. He has been doing this while holding down a full time job (we are a frugal outfit), but he has now committed 20% of his normal working time to Punakaiki Fund, and we expect that percentage to rise in the months and years ahead. Chris and I met at Pacific Fibre, and we have worked together on Punakaiki Fund since 2012. Chris has a day job as a financial analyst for a very large entity.

It is a sustainable, low cost business, but as we add new investments we will increasingly lean on Chris and others for support, including for the boards I am part of. It has been a great success, for example, having (at our instigation) Kirsti Grant from Vend join the Weirdly board and we will be focusing on finding a new generation of people experienced in high growth companies to help the companies we invest in.

Final Words

We believe in New Zealand and the high growth ecosystem we have here, an ecosystem that has delivered thousands of people with hands-on experience in high growth companies. There are now hundreds and hundreds of founders with a history of failure - and of success. We intend to support as many of the best of them as we can.


We are looking for investors who believe in New Zealand, in the hi-tech ecosystem and in our ability to find great companies and to help them grow.


We are delighted to be able to use crowd funding and Snowball Effect to offer shares in Punakaiki Fund to all New Zealanders. However there are limitations. The maximum amount that we can raise using a crowd funding offer is $2 million within any 12-month period. Once the $2 million cap is reached, we cannot make any other offers to crowd funding shareholders for at least 12 months (unless a crowd funding shareholder is also an Exempt Investor), and will always give our existing investors (including the crowd funding shareholders from this Offer) the first opportunity to invest in subsequent rounds. Therefore, we see this as a one-time opportunity. The next opportunity for members of the public to invest is likely to be if Punakaiki Fund lists on a recognised exchange.

We intend to list Punakaiki Fund on a recognised exchange, such as NZX, within the next two to four years. In the interim, we will continue to make offers to Exempt Investors, so if you do fit in this category we encourage you to apply for shares in this way. This is not an investment for those looking to make a quick trade – it is long term, illiquid and subject to the vagaries of the economy, tech sector valuations and our own abilities to continue to invest in great companies.

We look forward to investing, with you, in what we hope will be the next generation of billion-dollar companies.

About the Manager

About Lance Wiggs

Lance has co-founded or personally invested in over 15 companies, and brings experience from McKinsey, Trade Me and many early-stage companies. He has long been involved in high-growth sectors of the economy.

Lance has invested in over 15 private companies in Australasia. His active private investments include:

  • Vend, a SaaS point of sale company with strong global growth;
  • Pocketsmith, a SaaS personal financial manager which is the preferred destination for customers migrating from Xero Personal and for many upgrading from Mint.com;
  • 200 Square, a real estate agency that uses a proprietary SaaS system to lower costs;
  • Authentic Tours, trading as My Tours, a SaaS product that allows tourist operators and museums to create walking tour applications for mobile devices, including iPhone, Windows phone and Android;
  • Lingopal, an Australian developer of nearly 100 iPhone and Android translation applications;
  • Taggle, an Australian water metering company using innovative radio technology;
  • Define Instruments, a designer and manufacturer of control systems and panel meters;
  • LTW Wiggs, which in turn has a shareholding with Performance Labs, which has a platform to drive the next generation of fitness products.

Lance is a Director of Pocketsmith, 200 Square, Authentic Tours, Lingopal, LTW Wiggs and Define Instruments. Lance is also a director of certain Punakaiki Fund investments. He is not permitted to make any further private investments in Punakaiki Fund’s target market without the approval of the Board, and whilst he is the sole director of the board, without shareholder approval. The only exception to this is for new investments in companies in which Lance already has a shareholding.

Lance’s prior personal investment and founding activity includes:

  • Co-Founder, investor and paid consultant with Pacific Fibre, a company formed to build a fibre optic cable between Australia, New Zealand and the USA. Pacific Fibre ceased operations after failing to raise the required funding;
  • Co-Founder of Groupy Deals, a group deal site that launched a week before Grab One, and where the assets were later sold to Yellow and then to Daily Do;
  • Co-Founder of All About the Story, which built and marketed a web marketplace to match quality writers with editors. It ceased operations after failing to prove a sustainable market;
  • Co-Founder of SafePlus, a SaaS product to improve safety outcomes through training and testing. This was closed down after the passing of a key co-founder;
  • Investor in Valuecruncher, a SaaS provider of a company valuation tool. Lance negotiated, on behalf of Pocketsmith, for Pocketsmith to buy Valuecruncher in late 2013; and
  • Founder of Powerkiwi, a retailer of electricity on Powershop.co.nz. Powerkiwi ranked second in the Deloitte Fast 50 for 2012, and has now ceased operations after a negotiated agreement with Powershop.

Lance was the investment banking advisor for Trade Me on its sale to Fairfax Media, and has advised a large number of local early stage companies. He was an Engagement Manager with McKinsey & Company in Washington DC, contracted to the European Bank for Reconstruction and Development in London and consulted to BHP Billiton plants in South Africa, Australia and Mozambique.

Lance is an elected Councillor for InternetNZ, where he is a member of the Audit Committee. He will resign from InternetNZ Council in July 2015. He is in his second year of contracting to NZTE’s Better by Capital programme, where he has helped over 50 companies of all stages become more investable through Challenge Workshops. He was formerly a practitioner with the New Zealand Trade and Enterprise’s Better by Design programme. Lance has an MBA from Yale University (Strategy, Finance) and a Bachelor of Technology (Product Development) from Massey University.

About Chris Humpherys

Chris brings significant corporate finance experience and rigour to the team. He performed financial modelling, due diligence, deal structuring and deal advisory work for clients while at PwC, where he was an associate director. He is an entrepreneur in his own right with interests in the South Island. Chris is, for now, splitting his time between his work at LWCM and part-time employment.

Chris holds a BSc and PGDipCom (Finance) from the University of Otago and a BCom (Accounting, Finance and Information Systems) from the University of Canterbury. Chris is a CFA charterholder.

Lance and Chris met at Pacific Fibre, a company which Lance co-founded with several notable New Zealanders to build a US$300 million fibre optic cable between Australia, New Zealand and the USA. Following the conclusion of Pacific Fibre, Lance approached Chris about forming LWCM, with the intention of establishing a new growth orientated investment company.

Punakaiki Fund Structure

Investors will subscribe for Shares in Punakaiki Fund Limited, which in turn has a management contract with LWCM.

Our structure of separating the fund and the manager gives us the flexibility to extend investor protections as the Punakaiki Fund grows, to later seek a listing on a recognised exchange such as the NZX, and in our view to manage costs in a more transparent manner and to provide the ability to change the fund manager in the future if required.

The Punakaiki Fund Structure is set out below, noting that an independent director will be presented for a shareholder vote with three months of this offer closing:

Warning statement

It's crucial for you to understand the characteristics and risks of this investment opportunity. New Zealand law normally requires people who offer financial products to provide in-depth information to investors before they invest. The usual rules do not apply to offers by companies through Snowball Effect. As a result, you may not be given all the information you need to make an informed decision. Investing is risky. Some of the key risks include loss of capital, illiquidity, lack of returns, dilution, loss of key people and customers, and lack of control. You should only invest money that you can afford to lose.

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