Punakaiki Fund Limited

Punakaiki Fund makes long-term investments into high-growth, revenue-generating New Zealand companies. It has a diverse portfolio of investments in 18 Portfolio Companies and total assets, including cash, of NZ$20.3 million.

This offer is made by Punakaiki Fund Limited as the issuer of shares under a Product Disclosure Statement which can be found below.

Minimum investment: $1,900.00

Funding target: No min or max target Equity offered: Ordinary shares
Ended Tue, 20 December 2016 9:00pm (NZST)
131 Number of investments
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$889,200 Funded
131 Number of investments
$0 Min target (0.00% equity)
$10,000,000 Max target
Offer closed 9:00 pm, 20 Dec 2016
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About Punakaiki Fund

Punakaiki Fund makes long-term investments into high-growth, revenue-generating New Zealand companies. The company has a diverse portfolio of investments in 18 Portfolio Companies and total assets, including cash, of NZ$20.3 million.

The Portfolio Companies represent a diverse range of products and services, target markets, business models and sizes. Their aggregate revenues (annualised September 2016 quarter) were approximately NZ$69 million1 with the largest individual investment representing less than 15% of the portfolio value.

Punakaiki Fund is profitable and predominantly generates returns through changes in the fair value of investments (net of accrued Performance Fees), as well as dividends received from investments. The company has negative operating cash flows, as cash spent on operational expenses exceeds cash received from dividends.

Punakaiki Fund has a target asset allocation of 2.5% of its assets to be held in cash to ensure that the company can meet operational costs for 12 months without further fundraising.

1This is non-GAAP information

This offer page contains highlights of information contained in the PDS but it is not a full summary of all terms material to this offer. All defined terms have the meanings given to them in the PDS. For full offer information, please download and read the PDS. You will not be able to apply for shares under this offer until you have downloaded the PDS.

Punakaiki Fund Ltd is the issuer of shares. The product disclosure statement for this offer is now available and can be obtained below.

Download PDS

Letter from the chair, Mike Bennetts

Dear Investor,

On behalf of the Board I am pleased to present Punakaiki Fund to you.

Punakaiki Fund has rapidly grown from NZ$1.5 million invested in four companies in 2014, to total assets of NZ$20.3 million today (including cash) and investments with eighteen businesses. Together, based on the last few months’ performance, these companies have annualised quarterly revenues of over NZ$69 million1. They are achieving year on year revenue growth rates of over 50%1 when weighted by Punakaiki Fund’s ownership interest in each company.

The Manager’s ability to deliver has been key to this success to date. Lance Wiggs and Chris Humphreys from LWCM have our mandate to invest in high-growth New Zealand-based private companies and to hold these investments for the long term.

We believe that New Zealand is faced with a large funding gap for investment into high quality, high-growth companies. We see that Punakaiki Fund has demonstrated an ability to invest in many of the best local opportunities, and has already helped to change the landscape here in New Zealand. We expect the capital raised from this offer to be applied to both the existing portfolio and new investments.

While the Manager’s mandate is to grow the portfolio, the Board’s top priorities are risk management, valuation and the path to a listing on a stock exchange in the next 24 to 36 months.

In line with generally accepted portfolio management practices, the diversity of our investments is intended to lower the risk of our portfolio. We do expect the natural volatility of public markets to continue, for companies to have good and bad times, and for some companies to fail. We review the risks to the portfolio at every Board meeting, and mark down valuations where we see underperformance. We track the share of our assets placed with companies that will require further funding to survive and are pleased that it is currently under 7% (well under the 20% limit we set for ourselves).

The Board treats our obligation to ensure that valuations are fair to both new and existing investors very seriously. We adopted the International Private Equity and Venture Capital Valuation Guidelines (“IPEV”) as our valuation standard, appointed Ernst & Young as our auditors and received an unqualified audit report for the year to March 2016. The Board is also building a stronger governance foundation through the ongoing development of policies and practices, and recently broadened our collective skills and experience through the appointment of Mandy Simpson to the Board.

While the portfolio is resilient, many of the companies would like more funds to accelerate their growth, while other opportunities beckon. Your investment in Punakaiki Fund will help us help those companies grow. To ensure that an investment meets your specific objectives, we recommend that you read this document carefully and, before making a decision, consult with your financial and other professional advisers. We invite you to invest in Punakaiki Fund, joining myself, the Board, Lance, Chris and our almost 500 other investors. As with any investment, we cannot guarantee the outcomes, but we believe if we stick to our approach of supporting New Zealand’s best high-growth companies, we have the potential to deliver attractive returns.

Yours Sincerely, Mike Bennetts

1 This is non-GAAP information

Key Terms of the Offer

Punakaiki Fund Structure

PunakaikiFund is a limited liability company, registered with the Companies Office in New Zealand. We are governed by our Board, our constitution (which can be found on Punakaiki Fund’s website and the Companies Act.

Punakaiki Fund Structure (as at the date of this Product Disclosure Statement), including the percentages of Portfolio Companies owned by Punakaiki Fund:

The chart below shows the sum of the annualised quarterly revenues from all Portfolio Companies, weighted by Punakaiki Fund’s current shareholding in each company. This illustrates Punakaiki Fund’s exposure to the revenue growth of the Portfolio Companies.

For a more detailed description of portfolio companies, download the Product Disclosure Statement.

Download PDS

Purpose of this Offer

The price per share is $19 and the minimum investment is $1900. Information regarding valuation and previous investment rounds can be found in the Offer section or in the PDS.

Punakaiki Fund intends to use funds raised to make further investments into existing and new Portfolio Companies, and to pay our operating costs.

The table below shows scenarios for applying the combined funds raised from this offer and the concurrent IM for Australian investors.

Trading Your Shares

As of the date of this Product Disclosure Statement, Punakaiki Fund has not applied for quotation of the Shares on a stock exchange, and nor do we have a sponsor to facilitate this. While we intend to seek a listing in due course, if this has not happened before April 2018 (and it is unlikely to) then under Punakaiki Fund’s constitution, Shareholders will be given an opportunity at the following annual meeting of Shareholders to vote on requiring Punakaiki Fund to seek a listing on a stock exchange. Despite this vote, the ability of the Shares to, in future, be quoted or traded cannot be guaranteed.

Punakaiki Fund has established an informal internal order matching facility for matching buyers with sellers of Shares. This facility is not a licensed financial product market, is not an authorised securities exchange and is not regulated under the Financial Markets Conduct Act 2013. Investors will trade at their own risk, as the facility is not accompanied by the investor protections that accompany a stock exchange such as the NZX or ASX. Such protections relate to insider trading, continuous disclosure, directors’ and officers’ relevant interest disclosure, and substantial security holder disclosure.

To date we have facilitated a number of trades between Shareholders. Factors that may affect the price at which Shares are traded include the demand for Shares versus supply, the buyers’ opinion that the Net Asset Value per share is fair (or otherwise) and the investment horizon of the buyer.

Key risks affecting this investment

Investments in shares are risky. You should consider if the degree of uncertainty about Punakaiki Fund’s future performance and returns is suitable for you. The price of these Shares should reflect the potential returns and the particular risks of these Shares. Punakaiki Fund considers that the most significant risk factors that could affect the value of the Shares are set out below.

Loss of value due to the poor performance or failure of one or more Portfolio Companies, which would cause the Investor Net Asset Value of Punakaiki Fund to be revalued downwards. The Manager actively monitors performance of the Portfolio Companies and Punakaiki Fund marks the carrying value of any underperforming investments down. To date, investments representing over 25% of the value of the assets of Punakaiki Fund have, at any time, been marked down from a previous carrying valuation. The investments we currently regard as highest risk are valued at under 7% of the Investor Net Asset Value.

Risk of change in valuation of investments due to public market volatility. This reflects the heightened valuation volatility that Portfolio Companies have in response to public market valuation movements (e.g. downwards and upwards movements in the ASX, NZX and international share markets) due to their smaller size and higher growth. For clarity, a 30% fall or rise in global share markets would likely result in a greater fall or rise in the valuation of Punakaiki Fund’s investments.

We invest in companies which provide us with exposure to a diverse range of industries to help mitigate our technology and SaaS business model concentration. We also maintain a very long term perspective on investments, which can make us less sensitive to some short-term volatility.

Uncertainty about the valuation of private companies, with the risk that the valuations could be too high (or too low) versus market values. Punakaiki Fund’s auditor Ernst & Young draws attention in their Independent Auditor’s Report on the FY2016 financial statements to “Note 3.1.1 to the financial statements which describes the inherent uncertainty and difficulty in measuring the fair value of early stage unlisted investments”. Punakaiki Fund uses revenue, EBITDA, revenue growth rates and public market valuations of comparable companies to inform periodic valuations of the portfolio.

The loss or the poor performance of key people, specifically Lance Wiggs and Chris Humphreys from LWCM, the Manager. The Management Agreement can be terminated by the Board for cause, and by shareholders with a majority vote, each without penalty.

This summary does not cover all of the risks of investing in Shares. You should also read Section 8 of the PDS, Risks to Punakaiki Fund’s Business and Plans, on page 45 of the PDS.

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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