The recently-rewired Punakaiki Fund is seeking up to $10 million in a new retail capital-raising round that will inch the venture capital outfit closer to a NZX listing.
Lance Wiggs, principal of LWCM (which manages Punakaiki), said the fund hoped to raise between $5 million to $10 million in the latest capital-raising.
Under the deal, investors can buy into the Punakaiki fund at $23 per share (close to net tangible asset value) followed by a non-renounceable rights issue offering. All Punakaiki investors (including new ones) would have the option to buy one share at $16 for every seven they own, Wiggs said.
Currently, Punakaiki has almost $50 million under management, scraped together through a series of wholesale and retail capital-raisings and a rise in valuation of the underlying companies.
Wiggs said the manager still intended to list Punakaiki when the fund reaches between $100 million and $200 million in value.
He said the fund also narrowed its investment scope in the middle of this year to NZ technology companies only of a reasonable size after taking a hit on a number of “non core” exposures.
All up, Punakaiki has written-off one investment while substantially lowering the book value of four other companies in its portfolio. The fund also pocketed a small profit after selling its holding in Linewize, a Christchurch-headquartered school internet security firm, to an Australian purchaser.
Including the write-downs and Linewize exit, Punakaiki has an indicative annualised return of over 20 per cent.
Wiggs said the fund had “taken its losses”, giving investors exposure to a solid portfolio of 14 ‘core’ NZ technology companies with good growth prospects.
In the latest product disclosure statement (PDS), Mike Bennetts, Punakaiki chair, says “we are confident about the aggregate future performance of the remaining 14 core investment assets”.
“The 14 companies have performed well as a group, with four increasing revenue, from a low base, by over ten times since we first invested,” Bennetts says. “Overall, the companies show an equity weighted increase in revenue of 2.9 times since our original investment. Their aggregate revenue was $124 million for the last twelve months, with seven companies achieving revenue of over $5 million, and 13 over $1 million.”
According to Wiggs, the latest capital-raising round would contribute to paying Punakaiki fees as well as investing both in the existing portfolio companies and new opportunities.
Punakaiki, the only NZ venture capital fund open to retail investors, has about 830 shareholders.
However, the fund would almost certainly miss out on any investment flows issuing from the imminent government-sponsored NZ Venture Capital Fund (NZVCF). The government has earmarked $300 million for the NZVCF, diverting some contributions from the NZ Superannuation Fund (NZS) to establish it.
Both the NZS and the NZ Venture Investment Fund (headed by Richard Dellabarca) will share responsibilities for running the NZVCF, to be structured as a fund-of-funds.
Wiggs said the NZVCF structure and co-investment rules would favour offshore funds – particularly Australian-based entities – rather than support the local industry.
“Why should the government build a $300 million fund to give to Australian managers to invest in NZ companies?” he said. “The Australian funds will get the fees and it won’t help build a local venture fund ecosystem in NZ.”
Australian venture capital funds, including Airtree and Blackbird, were already allocating to the NZ market without access to the NZVCF, Wiggs said.
In its submission on the NZVCF legislation, Punakaiki said the proposed fund could have a “chilling effect” on the local venture capital scene, which features only three entities that fit the definition.
The Punakaiki submission suggests alternative methods such as government matching funds to local manager capital-raising or giving tax breaks to individual venture capital investors would be preferable.
Also, the manager argues “a case for the market forces working without government intervention, and a high possibility of the intervention having unintended consequences”.
“We are concerned about the speed of both this bill and the policy development, the implications of which for last for the next decade and beyond,” the submission says.
The NZVCF legislation is currently in committee stage with a final report due back early in December with the fund expected to kick off in the middle of next year.