We asked Punakaiki Fund chair Mike Bennetts why he’s been involved in venture capital and what’s in it for other Kiwi investors. Mike has been chair of the fund since its inception and instrumental to its growth and journey towards IPO.
So Mike, first of all, why should we be interested in this 2022 wholesale offer?
I can answer that in two ways. One is the offer itself. So it’s an offer that’s a discount to the current price in terms of what we’ve advised the market. It’s $30 a share, so about a 10% discount to the net asset value that we’d normally communicate.
And it also comes with an option that is exercised by November of next year. And that option in itself has value. I think it’s an attractive offer for existing and indeed new shareholders who are eligible to participate. So the money sort of speaks for itself.
And then I think you do come back to the general thesis of the investment in Punakaiki, or this particular part of the venture capital market in New Zealand. I think we’ve proven over the last couple of years in particular that we’ve been able to have some exits. A lot of people point to us and say ‘Well, you’re doing really well but until I see an exit, I don’t really know how precise or accurate your valuations are.’
But last year we’ve had a couple of reasonably high-profile exits. We’ve had a couple of companies who had to value down to next to nothing. I think it’s good in a portfolio to have the odd failure – you don’t want too many obviously – but I think having some successes that pop to the upside on your evaluation and some proof that you are marking companies down when things don’t go as well as you planned is really good. I think that investors can have greater confidence in the portfolio effect.
The current offer I think is a particularly attractive one. And then that’s set against the background of a fund that is performing pretty well. I mean, half the value of the fund today approximately has come from capital revaluations as opposed to new money coming in. So I think that it’s a reasonably good track record over say five to six years.
Why invest in VC as a class?
If you come back to strict investment criteria, you like to have a balanced portfolio – you like to spread your risk. And you may make investments in blue chip stocks. You may invest in smaller stocks. You may try to invest in early-stage start-up companies or in the tech industry.
But there are not a lot of opportunities for that to take place on public markets because very few of those companies are large enough to do that. Sometimes you’ll be denied the opportunity to invest directly because you’re not a wholesale investor.
I think it’s important that people have the chance to have a diversified portfolio, particularly when we are putting a lot more emphasis on saving for our futures, putting away retirement savings, et cetera. If you had an unbalanced portfolio, you could be inadvertently a winner or loser just because you weren’t able to participate in something.
I think that’s really, really important for everybody. At whatever stage of your investment life, you come into this need to spread your portfolio. Punakaiki Fund offers an option in an area that is largely inaccessible through public markets.