Biofuel venture an ‘act of faith’

The investment appeal of biofuels seems clear – growing populations urgently need alternatives to scarce and expensive fossil fuels.

So when a company finds a way to remove naturally occurring algae from water and other waste streams (such as forestry waste) and convert them into biofuel, the commercial potential is immense – even more so when a byproduct of the process is clean, fresh drinking water.

NXT Fuels, formerly Aquaflow, was formed in 2005. Within a year it had produced a bio-diesel derived from wild micro-algae. Its patented process treats wastewater and creates “green crude oil” without genetic modification of the algae.

A renewable hydrocarbon fuel that’s virtually greenhouse gas-neutral and compatible with existing infrastructure sounds like an investor’s dream.

But NXT founding director and angel investor Nick Gerritsen said convincing those who’ve grown rich from one technology to migrate to another was always a challenge, so turning a clean technology business into one that’s sustainably profitable requires resilient, patient investors.

Gerritsen’s investment firm, Crispstart, specialises in renewable energy start-ups and what he calls “clean tech”. He recognised the potential of NXT’s business model from the outset but was savvy enough to know there were many hurdles between start-up and payback.

“It’s in a zone that’s extremely hard to crack from a new-tech perspective. In this sector, people always want as much volume as possible for as few dollars as possible,” Gerritsen said.

NXT Fuels director Anake Goodall joined the company only recently. He describes himself as a “professional director and social entrepreneur”.

Goodall met Gerritsen in 2008 in Singapore at an event focused on the sustainability of global freshwater supplies. “We struck up a conversation and stayed in touch through a series of serendipitous encounters in true ‘Kiwi village’ style”, said Goodall, who looks more like a rock band manager than someone you’d expect to see in a corporate boardroom.

For Goodall, it was a compelling prospect to be involved in a company that could potentially remedy rising carbon dioxide levels and find a greener way to replace the world’s diminishing fossil fuel reserves.

“NXT’s technology makes possible an important part of the sustainable future the planet so clearly needs and provides the lowest cost transition bridge possible. And it’s available today and is being led from humble Aotearoa New Zealand,” Goodall said.

He is equally enthusiastic about his new business partner.

“Nick is extraordinarily visionary, passionate and focused. These are all prerequisites for this transformative space, which is almost by definition unwelcoming, dismissive and lonely. This isn’t a role for the faint-hearted investor or entrepreneur.”

Angel investment was indispensable to ventures such as NXT, Goodall said. “Start-ups, especially those in uncharted waters like NXT Fuels, are at one level acts of faith. Established industry money is usually trapped in its own business-as-usual understanding of the world and knows all the reasons why this won’t work.”

But NXT is already harvesting revenue as well as algae – $122,669 after expenses in 2011 for its United States and New Zealand-based projects. As it makes the transition from technology researcher to implementer, the company is by requirement shifting its sights from angel investors to industrial-scale project design and delivery capital.

But Goodall said the small, immature and relatively conservative New Zealand capital market remained an obstacle.

“We struggle to establish a national vision that’s solidly supported by central Government. In this context a sum of, say, $200 million for a commercial-scale refinery is a significant barrier to overcome.”

Every proposition in Gerritsen’s portfolio to date has been angel-backed and while raising capital this way continues to be fundamental to his approach, clean-tech projects require more capital for deployment than traditional businesses.

“Obviously we make it clear from the outset that these are early-stage companies and there’s a real risk we could all lose our capital,” he said.

Gerritsen is a lawyer and former intellectual property consultant.

It might seem relatively unusual for a lawyer to move into the rollercoaster world of angel investment, but he says the move came naturally to him. He sees his role ebbing and flowing over a business’ lifecycle.

“I invest in the companies every day with my time – and often cash too. So I’m a blend of both angel investor and entrepreneur, probably more entrepreneur.”

As a result, his portfolio includes everything from renewable fuels to carbon refining and digital manufacturing. “I just engage with stuff that resonates with me.”

Produced in association with the Angel Association New Zealand.

First published in the New Zealand Herald on Thursday August 15 2013

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Medical devices give healthy boost to exports

Medical device firms have contributed more than a quarter (27 percent) of export earnings to New Zealand’s high tech manufacturing sector, according to a just-released report by the Ministry of Business, Innovation and Employment (MBIE).

The high tech manufacturing sector as a whole contributed $1.4 billion in export earnings.

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Bootcamp to get city’s entrepreneurs running

A new scheme aims to help Rotorua entrepreneurs turn business ideas into reality – with the support of local “angels”.

Plenty of Innovation, run by Bay of Plenty investor group Enterprise Angels with the support of Grow Rotorua, launches next week with its pilot Rotorua Entrepreneur Bootcamp.

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Angels Get Carry For Helping A Startup Raise Money With AngelList Syndicates

AngelList is testing out a new service that lets angel investors syndicate deals with each other, a feature that could allow startups to raise venture-sized rounds of money with relative ease. Called Syndicates, the private-beta product lets any accredited investor on the AngelList fundraising platform essentially create, lead and collect carry for a fund of angel money for a specific startup.

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Software firms miss out on tax aid

First published in the New Zealand Herald on Thursday July 25, 2013

Proposed tax changes that aim to improve cashflow for start-ups include some fishhooks for software companies and firms that run clinical trials, a Deloitte partner says.

An Inland Revenue Department policy paper proposes allowing 100 per cent of eligible tax losses arising from research and development expenditure to be immediately deductible.

Minister of Science and Innovation Steven Joyce said that under the current regime, tax losses must be carried forward and deducted against future taxable income.

“Early-stage businesses often endure particularly long periods of tax loss meaning they cannot access the benefit of these loss deductions when they need it most,” Joyce said.

“The proposals to remove this distortion in the tax system are another part of the Government’s agenda of building a more productive and competitive economy that supports innovative Kiwi businesses, investment, jobs and growth.”

Deloitte tax partner Darren Johnson said the proposed changes were mostly positive. “They’re focusing on the right area – cashflow,” said Johnson.

But he said the fact that software coding was not considered research and development and was excluded from the proposed changes would have a detrimental impact on some firms.

“In the start-up and tech space, a huge portion of the companies are software companies developing software to take international,” Johnson said.

“A lot of money is actually spent on software coding so limiting that is quite a major.”

And he said firms in the biotechnology sector would be particularly disadvantaged by clinical trial expenses being excluded from the changes.

Listed companies, qualifying companies or special corporate entities will also be ineligible.

Johnson said there was no rationale for excluding listed firms, as early stage companies often took on stock exchange listings as a means of raising capital.

“Just because a company is listed doesn’t make it different to any other type of start-up.”

Joyce said ministers and officials would consider submissions on the proposal.

“It’s important to note that none of the proposals in the paper will make anyone worse off and the core proposal being consulted on will greatly improve the position for many start-ups with high research and development costs,” he said.

Eligible losses would be capped at $500,000 initially – equivalent to a refund of $140,000 – but would rise incrementally.

Submissions close on August 30.

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US tech investor trend offers clue to Xero’s rapid rise

First published in the New Zealand Herald on Thursday July 25, 2013

New research from the United States might help explain the meteoric rise in New Zealand tech star Xero’s share price over the past year.

A study by CB Insights, a research firm that tracks venture capital investment, found only 2 per cent of total funding in the internet sector went to social media firms during the second quarter of this year.

That’s 19 percentage points down from the peak in the third quarter of 2011, when social media companies led by micro-blogging service Twitter took in 21 per cent of the total US$3.8 billion ($4.8 billion) in internet deals by VC firms.

New buzzwords have arrived and “big data” and cloud-computing companies are now grabbing the attention of venture capitalists, said Anand Sanwal, founder of CB Insights.

Cloud computing is the delivery of computer services over the internet.

Wellington-based Xero, which develops cloud-based accounting software for small and medium-sized businesses, has seen a 258 per cent increase in its stock over the past 12 months, making it the best-performing NZX stock in 2013.

Earlier this month Milford Asset Management executive director Brian Gaynor said the massive rise in the company’s share price was being driven by US investors who were more interested in Xero’s strong growth in customer numbers than traditional methods of analysing businesses, such as earnings multiples.

Xero chief executive Rod Drury has also said overseas investors, particularly those in the US, wanted exposure to cloud-based technology like Xero’s.

“In US investor circles they’re seeing this massive transition to the cloud like we’ve seen in mainframes [the computers that pre-dated PCs] to mini computers,” Drury said.

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Software firms miss out on tax aid

Proposed tax changes that aim to improve cashflow for start-ups include some fishhooks for software companies and firms that run clinical trials, a Deloitte partner says.

An Inland Revenue Department policy paper proposes allowing 100 per cent of eligible tax losses arising from research and development expenditure to be immediately deductible.

Read more

US tech investor trend offers clue to Xero’s rapid rise

New research from the United States might help explain the meteoric rise in New Zealand tech star Xero’s share price over the past year.

A study by CB Insights, a research firm that tracks venture capital investment, found only 2 per cent of total funding in the internet sector went to social media firms during the second quarter of this year.

Read more

Incubator graduate sells to rival

Wellington company Dash Tickets, one of the first to go through business incubator Creative HQ, has been sold to a rival.

The Fortress Group, based in Dunedin, owns TicketDirect which was established in 1999.

Yesterday it announced it had acquired Dash Tickets, the company Nick Schembri co-founded as a student at Victoria University, for an undisclosed sum. It had been part owned by Ministry of Sound.

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SEC Lifts Ban On General Solicitation, Allowing Startups To Advertise That They’re Fundraising

The SEC has just voted 4 to 1 in favor of implementing section 201(a) of the JOBS Act, which lifts the ban on general solicitation and permits startups, venture capitalists, and hedge funds to openly advertise that they’re raising money in private offerings. While it may pose added risk of investors being misled, it should make it significantly easier for companies to raise capital to start or continue financing a business.

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SmallWorlds creator’s mobile game debut

Outsmart co-founder Mitch Olson says the time was right to have a crack at creating games for mobiles.

Kiwi game development company Outsmart, which created global hit SmallWorlds, has “dipped its toes” into the mobile space for the first time.

Five members of the 35-strong Karangahape Rd studio dedicated themselves to creating Gopher Launch, which went live on iTunes and Google Play on June 13.

Although the game is free to download, Outsmart will generate revenue through advertising and by charging players to access an ad-free version of the game.

Outsmart will launch a second mobile game called Roost Raiders in the next six weeks, Olson said.

Both new games are based on the ‘freemium’ model, where users play for free but can then choose to pay for add-ons to enhance the game.

“These games cost between $250,000 and $1 million to make. If you’re giving it away for free you have got to make sure your monetisation models are robust,” Oslon said.

Although Outsmart had managed to survive before now without going into mobile, delaying the move any longer would have been unwise, he said.

“We haven’t been affected to date. We continue to grow and that’s been supported by shifting into other markets like Brazil.”

Outsmart last year launched a version of SmallWorlds in Brazil, calledMiniMundos, which now has four million signed-up users.

SmallWorlds - an online environment where users create personal virtual spaces and share experiences with other players – has in the meantime attracted bigger audiences and now boasts 10 million registered players.

SmallWorlds’ backers include Disney’s venture capital arm and Trade Me founder Sam Morgan.

First published in the New Zealand Herald on Thursday July 4 2013

Photo / Sarah Ivey

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For more information on SmallWorlds click here

New Govt service launched to raise capital investment

Economic Development Minister Steven Joyce today launched a new Government service in Auckland to help businesses raise capital and accelerate their international growth.

New Zealand Trade and Enterprise’s Better by Capital service is one of 50 initiatives in the Government’s Business Growth Agenda, Building Capital Markets.

“To achieve the Government’s target of increasing our exports to 40 per cent of GDP by 2025, it is estimated New Zealand will need to increase collective investment in export industries by 70-90 per cent on current levels,” Mr Joyce says.

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Reeling in the big investors

Last year there were around 100 angel investments in New Zealand startups, according to the Young Company Finance Index.

All these companies had to perfect their pitch to get investors on board.

Learning how to make an investment pitch is critical for any startup CEO, because external investment is likely the only way he or she will be able to grow the business quickly.

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Draft rules aim to free up raising of capital

Draft policy decisions about new regulations to New Zealand’s financial markets and “significant freeing up of capital raising” have been announced in Parliament by Commerce Minister Craig Foss. Changes in the Financial Markets Conduct Bill include allowing new forms of capital raising such as crowd-funding platforms and person-to-person lending services. The move to open new channels of capital has been welcomed by the business community. Read more

Bike crash leads to retail software start-up

Discount scheme that does away with loyalty cards was conceived during convalescence from motorbike smash.

Every cloud has a silver lining, so the cliche goes, and for Enis Bacova it was a road accident, which nearly killed him, that led to the establishment of an internet start-up.

“It took me six months to recover and Rippr came out of those six months of thinking,” he said.

Rippr was launched in February and is a web-based system that grocery retailers, restaurants and cafes can use to offer rewards to customers.

Instead of getting yet another loyalty card to put in their wallets or lose in a drawer at home, customers give their mobile number to the retailer to join up for free.

After activating their account online they earn “Rippr dollars” with each purchase (usually 5 to 20 per cent of the purchase price) that can be earned and redeemed on subsequent visits by entering a pin number at the store.

Users can also earn extra rewards based on the total amount of Rippr dollars that build up in each retailer’s “pool”. They are also encouraged to promote the service – and subsequently the businesses that use it – through social networks like Facebook, Twitter and Google Plus.

Ten companies are offering Rippr so far, including Dante’s Pizzeria in Ponsonby and the Covo restaurants in Fort St and Grey Lynn, as well as a number of grocery stores.

Around 3000 users are signed up, Bacova said, adding that he was focused on lifting the number of retailers using the technology to 100.

At that point Rippr – which charges a weekly subscription fee to its business clients – would become profitable, he said.

Bacova, whose brother Remion developed the technology that powers Rippr, said it was a challenge convincing companies to introduce the loyalty scheme because it was a “new thing”.

But it encouraged repeat visits from customers, as well as providing a database of clients that retailers could target in their marketing.

“Eighty per cent of revenue comes from 20 per cent of customers so these loyal customers who repeat business are very important,” Bacova said. “It’s much easier to keep a loyal customer than to bring a new customer in.”

Bacova graduated with a degree in political science from the University of Auckland in 2005 and gained an MBA from AUT after returning to this country following the motorbike crash.

“My move to New Zealand was a good thing … I feel alienated in Albania,” he said. “The way I see it is I want to give something back to New Zealand – I got educated here.”

Auckland business incubator The Icehouse owns a small stake in Rippr, while the other shareholders include members of Bacova’s family.

First published in the New Zealand Herald on Thursday June 20 2013

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Start-ups that really get going

A fast-growing company is a bit like a precocious child. It might eventually slow down and mature, or it might crash and burn along the way.

But if luck and good management is on its side, it will become a long-lasting sizeable export earner at a scale which will benefit our economy.

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Smart-fabric sews up Angel Investment

Christchurch-based Footfalls & Heartbeats has developed a manufacturing process that uses nanotechnology within the textile structure that acts as a sensor.

The company says there’s potential for the fabric to be used in a wide range of applications, including the monitoring of patients’ vital signs in hospitals.

In its latest funding round Footfalls & Heartbeats has secured investment from the Global From Day One programme, Wellington’s Sparkbox Ventures, the Government-backed New Zealand Venture Investment Fund and a group of private investors.

The firm has also become the first Kiwi start-up to secure funding from the China Angels, an angel investment group linked to local business incubator The Icehouse made up of Chinese investors who reside in this country.

Auckland investment firm Pacific Channel already held a cornerstone shareholding in Footfalls & Heartbeats and its head, Brent Ogilvie, has become the smart fabric company’s managing director.

Ogilvie said the company’s first commercial application was a smart compression bandage, which would be used for wound care.

“We’ve signed an agreement to advance that [bandage] with a company in the US and we’re about three months from having a prototype.”

Footfalls & Heartbeats said other areas its product could be used in included monitoring of infants, stroke patients, athletes and workers in high-risk environments. There was even potential for it to be used to measure mechanical stress in satellites, aircraft wings, wind turbine blades, yacht hulls and high-performance cars.

Ogilvie said the firm planned to license its technology to other companies. The compression bandage was not expected to face any regulatory hurdles and it shouldn’t be “many more months” after the prototype is released before the product enters the market, he said.

Footfalls & Heartbeats was founded by Kiwi chemistry researcher Simon McMaster, who is now based in Britain.

AUT University and AgResearch have also been involved in the development of the fabric.

First published in the New Zealand Herald on Thursday June 6 2013

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NZ fashion firm crowdfunded to $170k

Kiwi clothing brand start-up which set out to raise $20,000 through a crowdfunding campaign has been left stunned after receiving more than eight times that amount.

Ohakune-based Opus Fresh was looking to get off the ground with enough money to fund the initial production run of its locally-sourced merino wool clothing line.

After turning to US crowdfunding website Kickstarter, the company has ended up raising US$139,000 (NZD$172,000) from 638 backers, with two days still to go in the two-month long campaign.

James Simpson, who founded the brand with partner Laura Currie, said people from all over the world had bought into the brand story and the product.

“We’ve got a good product but I think the story we sold was something a little different to what everyone else has done.”

Opus Fresh aims to produce garments for fashion-conscious travelers and outdoor enthusiasts. The brand tagline is ‘Adventurewear that doesn’t look like adventurewear’.

The massive funding boost meant the business could take its product to the market as a self-funded entity.

“We’re now in a pretty strong position not having to give up as much of the company. If we were to try and raise US$140,000 from scratch just off the idea or business plan, most likely we’d have had to give up 51 per cent of the company.”

Backers do not get shares in the company, but are given rewards ranging from a thank – you video for people putting forward small amounts to clothing packages for backers pledging US$79 or more.

Most backers were in the 25-40-year old age bracket and 98 per cent had pledged enough money that they were effectively pre-purchasing items of clothing.

We’ve heard from a lot of people who want to stock it but our sole focus at the moment is delivering to backers.”

Crowdfunding websites raised US$2.7 billion worldwide last year, an 81 per cent increase on 2011, according to a study conducted by research firm Massolution.

First published in the New Zealand Herald on Friday May 31 2013

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Innovate contest finalists picked

This year’s 10 finalists have been selected for Innovate, a startup ideas competition run by Palmerston North incubator the BCC.  Judges Simon Barnett, owner of sports equipment company OBO; Vicki Stewart, director of Stewarts Electrical Supplies, angel investor Sharon Bryant; InspireNet founder James Watts and the owner/founder of Rural Fuel, Larry Ellison, heard pitches from 32 semifinalists over two nights.

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Govt mulls R&D payback

The Government is considering new rules that would require research and development funding to be repaid by companies if taxpayer-supported R&D projects prove particularly successful.

Economic Development Minister Steven Joyce told the Business Herald that the measure, if introduced, would apply to the new Project Grants scheme, unveiled in last week’s Budget, which provides 30 to 50 per cent public co-funding for specific R&D projects.

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Govt mulls R&D payback

First appeared in New Zealand Herald Thursday May 23, 2013

Success for firms taking part in grant scheme may bring request for return of funding Steven Joyce is wary of discouraging firms from seeking grants. Photo / APN

The Government is considering new rules that would require research and development funding to be repaid by companies if taxpayer-supported R&D projects prove particularly successful.

Economic Development Minister Steven Joyce told the Business Herald that the measure, if introduced, would apply to the new Project Grants scheme, unveiled in last week’s Budget, which provides 30 to 50 per cent public co-funding for specific R&D projects.

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Startups raise $3m of investment in one day

Entrepreneurs going through the first Lightning Lab intensive incubator raised $3 million of investment in one day in Wellington.

Nine startup digital companies went through the intensive three-month business planning and mentoring programme at Creative HQ, culminating in a Demo Day pitching to an audience of 140 angel investors at Te Papa last week.

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