Investment Mandate
At our launch 5 years ago Punakaiki Fund had a broad mandate, able to invest in any New Zealand company that was “high growth”, as well as turn-around opportunities. We also stated that we would focus on Internet, technology and design-led companies.
Over the following years we added and amended our Statement of Investment Policies and Objectives, and then added a Socially Responsible Investment Policy addressing environmental, social and governance (ESG) issues.
These had the effect of tightening our investment targets, our mandate, and we no longer consider new investments that conflict with our Socially Responsible Investment Policy, and nor are we actively searching for turnaround opportunities.
1: Socially Responsible Investment Policy Enforcement
Under our now adopted policies we would not invest again in a water company like New Zealand Artesian Water (NZAW), due to the use of plastic in their bottles. So we will stop doing that, and will only invest further in NZAW itself with Board permission.
We like NZAW’s sense of design, and their local and international growth is excellent. I am excited about their rapidly growing business with trusted local and Chinese partners for exporting boxed water, which has very high water to plastic ratios. This water is sold online in China, which means customers do not have to transport the heavy boxes.
However it’s also fair to say, with some hard-earned learnings, that we are not the natural investors in NZAW. We invested too early in their journey, it was very capital intensive to build the plant, and we are not fast moving consumer goods (FMCG) experts. The company has needed a lot of governance effort from myself over the last three years, especially versus other companies we have invested into.
However we have learned from mistakes we made in our investment process, and from drifting too far away from our sweet-spot. While it’s pleasing as investors to see the company growing very quickly, and it has attracted a range of other investors, we now consider our NZAW investment to be out of mandate, and will look sell our shares in an orderly fashion.
2: Smaller Companies
We do have a policy of investing in companies that are early stage, and reinvesting as they grow. But we’ve now done the numbers and it turns out there are limits to this.
Our investments, for example, in SaaS companies that had under $300,000 revenue, and other technology companies that had under $3 million revenue, show a flat total return – with an IRR (annualised return on investment) of just 4%.
In contrast we report a 27% IRR from our investments into SaaS and technology companies that were above those revenue thresholds.
The difference is that the smaller companies are yet to become sustainable, and thus more likely to fail. Even if they do succeed they take a long time to show material returns for a fund of our size. It turns out when we play in angel investment space our returns are lousy, which is entirely consistent with our perspectives of that space overall.
So at LWCM we’ve decided to focus Punakaiki Fund only on companies with material revenue, with our investments aimed at growth. As a guideline we are aiming to invest in SaaS companies with minimum revenues of $300,000, preferably $500,000, and non-SaaS companies with minimum revenues of $3 million, preferably $4 million.
3: IT and IP Consultancy Companies
Our investments in Mindfull and Everedge are hard to classify.
Each company operates in technology but they also rely heavily on revenue from consultants. Mindfull is developing and selling software to a global market, while also reselling analytics software with trusted consultancy services to a large number of New Zealand enterprise clients. Everedge are specialists in understanding the value of intangible assets and work with a large number of enterprise companies in Singapore, Australia and New Zealand. Their Edge Fund is specifically targeting IP heavy technology companies and founders, while Mindfull’s QubeDocs and MiBi products are SaaS offerings selling to some of the world’s largest enterprises – and smaller ones too.
We see great potential in each company, and are holding on to our shares. But we are unlikely to look for other investments in companies that generate a high proportion of revenue from consultancy.
4: Overall
Our total investment portfolio shows an IRR of 20.6%, based on the latest valuation.
If we just report on our returns from SaaS and technology companies with revenues, when we invested, above the $300,000/$3 million thresholds above, then the IRR is 27%. The remainder of the companies – those with lower revenues at the date of investment along with water companies and consultancies – show a combined 0% IRR. We have not lost money overall, but nor have we gained any.
To be fair we do see a number of ways for all of those numbers to change, and it’s highly conceivable that we will do much better from smaller and non-tech companies. But the results so far do send a message about what we are good at, and what we are not so good at.
So at LWCM we have decided to tighten our mandate for Punakaiki Fund, to be as follows:
- SaaS companies over $300,000 (preferably $500,000) revenue
- Other technology companies with over $3 million revenue
We are excited about our mandate and continue to observe a rich sea of opportunities. As always the more funds we are able to raise, the more likely we will invest in even later-stage companies.
5: LWCM Limited
We have formally changed the name of Lance Wiggs Capital Management Limited to LWCM Limited. We’ve done this to reflect that LWCM is not just Lance, but a company that has a growing number of staff, and jointly owned by Chris and myself.
The newer name allows us to stand behind the performance from Punakaiki Fund as a team. We always refer to the company as LWCM anyway.
