Finance: Pennies from Heaven

By Adam Gifford

Photo / Getty
Photo / Getty

One particularly progressive angel investment vehicle is taking a punt on a bunch ?of clean tech and environmental businesses, and it's paying dividends.

New Zealand's sole remaining manufacturer of solar panels. Extracting ethanol from gasses produced in steel manufacturing. Making Omega 3 compounds from algae. An electric bike. What ties together companies like LanzaTech, Photonz Corporation and Wellington Drive Technologies is K One W One (K1W1), the investment vehicle of Warehouse founder Sir Stephen Tindall.

Since its incorporation in 1999, K1W1 has put money into more than 100 companies.

Christchurch entrepreneur Grant Ryan says K1W1's practice of investing from the early stage and angel rounds, as well as contributing to the various venture capital funds, gives it extraordinary visibility into what is going on in the sector.

He says in combination with the greater overall sums put in by the Government's Venture Investment Fund, it helps an investment infrastructure exist and attracts other investors in a sort of snowball effect."

They're a fantastic investor in New Zealand Inc. If not for them, the New Zealand tech community would be much worse off," Ryan says.

K1W1 has stakes in three of Ryan's companies.? The most successful so far is SLI Systems, which is now the largest single e-commerce search vendor in the United States. More e-commerce sites are using its technology than Google's.

"We export zeroes and ones and bring back eight-figure revenue," says Ryan.

In the year to June 2010 SLI had an after-tax profit of $94,000 on revenue of $10.9 million.?Along with other investors, K1W1 lost its dough on Eurekster, a social networking site that was before its time, but it was happy to stump up for Ryan's current baby, The YikeBike.

It's a fold-up electric bicycle designed for trips of up to 10km, and weighing less than 9kg. The company sells 97 per cent of the bikes overseas. "The focus for the next 12 months is distribution. We started by selling only on the web, but now 80 per cent of sales are through distributors - it's the only way you can get scale. The good thing is we have 3200 people who want to distribute the YikeBike."

He says the K1W1 involvement is vital. "They are clever guys. There is so much value-add. There are times when Stephen Tindall has suggested someone I should talk to in the US or UK, and it has happened. He is so well connected, as are (fellow director) Brian Mayo-Smith and (analyst) Damon Crowe.

"Stephen is a very good thinker on the question of how New Zealand can pay its way in the world, rather than just relying on sending tonnes of milk powder overseas."

Another company whose growth plans are underpinned by K1W1 is Nelson's Solar City. Director Andy Booth says when Nelson City Council made a $9 million commitment to encourage residents to go solar, "we put together a business plan to be the leading solar power business in the country".

"There were about 300 businesses in the sector. We bought three of the best, rolled them into one and sought venture finance to go national."

He says demand for solar technology is growing phenomenally while the price is dropping, driven by countries which offer feed-in tariffs for solar power fed back into the grid. In January, Solar City signed a contract with developer Maxim Projects to put solar power into 3500 new homes in Christchurch.

"That takes us from being a start-up to having substantial forward orders, and other large builders are now looking a making solar standard," he says.

The numbers

Amount invested so far by sole shareholder Stephen Tindall

direct investments in ?New Zealand companies

total investments through involvement in 15 other venture funds

Standard return target from venture capital model, usually achieved by "hitting one or two out of the park" to make up for any failures.

THE BOSS, Sir Stephen Tindall, says...

The philosophy behind his investment vehicle is to find ways to make New Zealand cash flow positive.

"I really believe there are so many good ideas out there that a number of them will eventually become big ideas and very big businesses. Some of them, that we've invested in, are looking that way now.

"We've been doing this for about 15 years so we have learned as we go. We are not the sort of people who go in for a quick exit.

"We are looking for companies that can go to scale overseas and bring export dollars back to New Zealand for products and services.

"There could be opportunities to exit to return the capital to New Zealand so we can reinvest in something else, usually when some big outfit is willing to pay us way more than it is worth for us to hold on to something, but our aim is more to grow the bigger businesses that will be domiciled in New Zealand if possible.

"Our ambition in every case is to try to be located here so people can be employed and the benefits flow back to New Zealand."

Tindall says a good idea is about a tenth of the investment equation, with people and performance the rest.

"Our ambition in every case is to try to be located here so people can be employed and the benefits flow back to New Zealand."

He says New Zealand needs to get serious about investing in green and sustainable technologies.

"I think because we are already ahead of the curve compared with every other country in terms of our clean green environment and image, we should leverage that. I think we have a natural propensity in that our culture helps us in terms of how we relate to the water and the land.

"People are crying out for product to clean up things, so a company like Lanzatech is a win-win. It cleans up the atmosphere, takes the carbon monoxide and carbon dioxide and nasty gasses out of the smoke stacks of steel mills and coal fired power stations and turns it into energy and other valuable chemicals.

"We have a company Photonz which bypasses the fish to create Omega 3 so you don't keep killing fish to get the fish oil.

"There are other people turning algae into energy with bio-diesel. There are many different green technologies being developed in New Zealand and I think we could get a name for ourselves. You have to milk a niche."

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