High hopes for high-tech

Press, 13 March 1985, Page 34

High hopes for high-tech

By

NEILL BIRSS

Investors will have the chance later this month to buy into what will be New Zealand’s first listed venture capital company. The New Zealand Venture Capital Corporation, Ltd, will seek significant shareholding in new-technology ventures. The intention is highly commendable from a national and investment viewpoint, but Silicon Valley-scale success will almost. certainly elude the firm.

Investment banks, trading banks, and unlisted public companies have entered the venture-capital field in New Zealand, seeking to emulate the success of such firms overseas.

No spectacular successes have been evident, and least one venture-capital firm has not been able to find suitable investment projects. This is while many New Zealand advances are begging for development. The missing catalyst is entrepreneurs — the people who make things happen. It is a cultural problem: our society is just not producing enough people of this mould. The New Zealand Venture Capital Corporation will begin with one up-and-running new-technology venture. It will buy, for 800,000 ordinary Venture Capital Corporation 50c shares, the assets of New Zealand Agri-

cultural Processors. This Auckland firm, established in 1982, is advanced in foodprocessing technology, especially nitrogen freezing, which produces high quality preserved products, such as asparagus for the discerning Japanese. NZAP is also in processing and freezing of meat, offal, fish, and dairy products, the exporting of fresh vegetables and fruit,, mechanical deboning and processing of chicken, manufacture of pet food using enzymatic protein and other products, restructuring beef and mutton by reducing meat pieces and binding them back to a desired shape. The Venture Capital Corporation’s authorised capital is 40M shares. It will issue 13M ordinary shares of 50c at par. A separate block of 5M shares has already been subscribed by Investment Finance Equities, Ltd. This is a wholly owned subsidiary of Investment Finance Corporation, Ltd, the listed investment bank, half-owned by Hercules Finance, which in turn is jointly owned by N.Z. Forest Products, Ltd, and UEB Industries, Ltd. Of the 13M shares offered, 3.15 M will be reserved for subscription of shareholders of Investment Finance Corporation. Shares not taken up will be added to the public pool.

Another 800,000 shares will be reserved for the purchase of New Zealand Agricultural Processors. A block of 6.75 M has been reserved for brokers’ clients; and there is a pool of 2.3 M for general subscription. The preliminary and issue expenses are $353,000: legal fees, $9000; printing and advertising, $29,000; and underwriting and brokerage of $315,000. On the latter, an underwriting fee of 1.5 per cent on the S9M will be paid to Investment Finance Corporation ($135,000) and 2 per cent on S9M to the sharebrokers ($180,000).

The directors are Mr B. H. Picot, the chairman of Progressive Enterprises, Ltd, which runs the Foodtown supermarket chain; Mr D. J. Ross, a chartered accountant and director of a number of companies including Landmark, Investment Finance Corporation, and Ra Ora Stud; Mr D. N. Farquahar, a banker and co-founder and managing director of the Investment Finance Corporation; and Mr D. J. Sax, chief executive of Industrial Park Holdings, Ltd, which is redeveloping the Southdown Freezing Works site at Penrose. A good line-up of accomplished Aucklanders for an investment venture. The directors say in the prospectus that the company will not be a passive venture. “Where circumstances permit, the company will seek active participation in the development of each investment.”

They will give priority to manufacturing industry, scientific ventures, and projects that add value to indigenous resources.

It is planned to spread funds from the initial issue over at least 15 equity investments. The company will seek “significant shareholdings, but normally not 106 per cent of a venture.” The directors recognise it is vital for entrepreneurs to continue to be involved as their business grows.

The prospectus recognises, responsibly but not prominently, the high-risk nature of true venture-capital investment.

“Venture capital investment involves a high degree of risk. Enterprises in which investments are made will generally be small, growing rapidly, and will depend on the skills of a small group of technical and managerial personnel. Therefore, when assessing investment opportunities, major emphasis will be placed on the ability of entrepreneurs and their support staff.” The prospectus declares that company will promote ventures based on innovation, a word which it spells out in capital letters. These chosen ventures will offer “opportunities for exceptional returns commensurate with the nature of the specific risks attaching to the venture.”

The firm plans to seek high returns from capital gains in realising investments. No rate of return can be guaranteed, the prospectus says. The company plans to concentrate in start-up financing and bridge financing, which are, respec-

• Helping to set up manufacturing plant for an entrepreneur after a prototype has been paid, and supplying this person with working capital.

• Providing cash resources for an established company whose growth is outstripping its cash resources.

Given the tenacity with which entrepreneurs hold on to equity in their ventures, and given the weighing up of the relative risks, it is a good bet that this new venture fund will end up putting most of its money into established firms. That means much less risk, but less chances of extremely high returns.

This company will almost certainly do well in its market launch. The romantic association of the words, “high technology,” will ensure good chances for stags. But investors should not expect anything like the returns — or risks — that have come to American venture-capital companies from investment in start-ups in computers, lasers, fibre-optics, software, medical technology, and other new technologies.

New Zealand has the innovative talent, but the entrepreneurs to transform this into good pickings for venture capitalists are a ghost tribe. The Venture Capital Corporation will settle down into an investment-bank-like existence, rather than a venture firm with the excitement akin to that of oil exploration, or prospecting for gold. The issue will open on March 25 and will close by March 29.