Start-up | Whangarei Chartered Accountants

Was it debt or equity?

It’s unlikely there would be disagreement about this one, right? If a friend or family member has advanced cash to help your business through expansion or a cash flow glitch, it’s either debt or equity. It will always be obvious which, right?

Well not necessarily.

Here is a scenario that rears its head regularly – particularly in entrepreneurial ventures:

Your venture is in its early stages, and needs cash. You have exhausted your own resources – and the business is not yet an attractive proposition to the bank. Enter what many people call the “Three F’s” – friends, family and fools.

Your Auntie Margaret wants to help you out – and she generously agreed to advance $50,000 to your business. You graciously accept, bank Auntie Margaret’s cheque – and proceed down the rocky road to success.

Time goes on, and a few years later your venture may have been wildly successful – or otherwise.

Here’s what can happen next:

Just after you have successfully sold your business to a large competitor for several million dollars, you get the call from Auntie Margaret saying “Remember back when I invested in half your business? Well when do you think I can expect my share of the sales proceeds?”

Or in an alternative reality …

Just after you have closed the doors and liquidated the company after losing everything and grudgingly accepting that the venture was misguided or “ahead of its time”, you get this call from Auntie Margaret: “Remember back when I lent YOU $50,000? Well it’s gathered quite a bit of interest now – and maybe it’s time you started making me some monthly repayments.”

Either way, there has probably been a serious misunderstanding of the nature of the investment.

Friends and family are a major source of business finance – in fact US Angel Investor Bill Payne reports that in the USA, friends and family of business owners invest around US$60 billion per annum into businesses.

It is likely that a proportionate amount is invested into ventures by friends and family of business owners in New Zealand. And a characteristic of these advances is that they’re often not documented – and often the terms are not even agreed verbally, much less committed to paper.

So my message is this:

Make sure any investment by friends, families or fools is clearly documented – and that all parties are very clear about whether the investment is a debt or equity, as well as the terms of the investment. Is the investment a personal loan from Auntie Margaret to you personally – or is she lending money to the business? Does she expect her investment back if the business fails? Is there any interest payable? When does Auntie Margaret expect to see her money back? Has she invested in shares in the company which will see her rewarded if the business is succesful – but will see her walk away with nothing if it fails?

A one page signed agreement is often all you need to save a lot of anguish later.

NZ Focus on Health

The semifinalists for the New Zealand Trade and Enterprise NZ Focus on Health competition were announced this week. These 21 ventures will pitch to the five US and two kiwi judges for a spot on the ten-strong finalist’s list. All ten finalists will work on their business plans then participate in a US roadtrip in mid 2010 where they will be introduced to influential players in the US health industry. [Read more…]

Spark Challenge

It was an honor to be asked to present to the Spark qualifiers in Auckland this evening. Congratulations to the 12 finalists. All of those involved are affiliated with the University of Auckland in some way. Of the individuals behind the teams, 11 are alumni, 10 staff members, 49 postgraduate students, 77 undergraduate students and 26 others affiliated with the University.

Here is a list of the ventures that will compete for a divvy up of the $100k purse over the next 7 weeks between now and the final Spark Entrepreneurial Challenge prizegiving on 22 October. I’ll be watching this closely and will blog about this competition as it unfolds.

Metabo-link. The New Zealand economy still remains driven by raw material and food production. However, millions of dollars of value are lost during processing and subsequent transport due to fungal spoilage. Current fungicidal agents to combat spoilage are synthetically produced and in most cases are toxic and therefore must be removed before shipping. Natural alternatives have proved only up to half as effective, until now. Mycobane from Metabo-link is safe, odourless, and colourless and leaves almost no residue.

Green Loos. Green Loos designs and hires out eco-friendly portable composting toilets. This new and improved odour-free experience will have you coming back for more, and all waste is recycled into valuable end products to be contributed back into the environment. Innovation in portable toilets – try it before you judge it!

Huka Hurtle. Enjoy the adventure tourism NZ has to offer or wish you were able to? Coming soon is the next level of adrenaline. Hurtle down what centuries of force took to create on what will be the low impact ride of your life.

Team Cube Brick. Points to Change is a business model that operates like a loyalty card within retail outlets. Points earned by buying products and services promoting Points to Change are then credited into a personal online account that the consumer then passes on to charity/ies of their choice. Points that are passed on to charities are then redeemed from the company that then pays the charity, completing the donation cycle.

NTouch networks. t-logic develops software for touch-screens that display content depending on location, and type of person viewing. We specialise in visually appealing surveying, and product selecting solutions for touch-screen and web applications. Our systems have analytic functions that allow administrators to observe customer behaviour, and iterate campaigns to optimise sales, brand awareness, and customer knowledge.

BlindVision. BlindVision is a company that endeavours to help vision impaired people perceive and navigate in a sightless world. The first product for BlindVision is a head unit, which uses camera technology to understand the world around the participant. This information is portrayed to the user as sound and tactile information, so that the person can now be aware of objects that do not usually make noise.

Redlights. Red light running is a real problem. Red light cameras have been shown to reduce red light running by 40% and injury crashes by 29%2. Existing red light cameras require large vandal proof enclosures and are expensive to purchase and to install. The proposed project is to build a smaller and cheaper red light camera using advanced technology which can be deployed more easily.

Nova Eco-Tech Limited. Eco-Vhiper converts existing vehicles to gaseous fuel operation and retain petrol operation capability in less than 8 hours, with no engine modification while achieving superior performance characteristics than those of major market competitor, the sequential Gas injection, SGI.

Buy2gether. We provide an internet based solution to these woes by making shopping of broad range of items cheaper for millions of consumers around NZ.

TwoNeeds. TwoNeeds is an innovative approach to marketplaces and resource management for NGOs. Operating in diverse regions of the world, often with limited financial means, NGOs must manage their tangible and intangible goods wisely. TwoNeeds shortens supply chains for specialized goods and adds value to unused or underutilized resources and skills.

Healthy Green NZ. It doesn’t fly; it doesn’t play songs; it won’t flash pretty pictures at you; it doesn’t require batteries. It’s an ingeniously simple product that can be produced using wonderful products of the highest quality sourced solely here in New Zealand. And guess what? It makes money. Our business is based on a simple product idea that one of New Zealand’s biggest industries has been searching for – for decades: A seafood product which is easily storable and transportable, cheap to make but best of all is highly valued in a country offering an enormous market which is still growing.

Landmarker. Precision agriculture, or precision farming, is a concept involving the use of sensor technology to make better farming decisions. Precision agriculture may be used to improve crop yields, reduce environmental impacts by optimizing fertilizer use, and provide climate warnings or trends and patterns for future planning. Landmarker is a cutting edge system to supply the very latest web technology to precision agriculture industries.

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.

Spark $100k Challenge

The Spark $100k Entrepreneurial Challenge is billed as New Zealand’s premier business planning competition. This competition is open to all ventures where at least one of the team is either a staff member or a student of Auckland University. And up for grabs is $100k in cash and kind, which is a bit of a motivator!

The competition is run jointly by the University of Auckland and The ICEHOUSE. This year, close to 100 entries were received, and the 12 finalists were announced at an event at the Auckland Business School on Friday night.

The driving force behind the Spark $100k Challenge is Geoff Whitcher, Commercial Director at the University of Auckland – and a Board member and Trustee of the ICEHOUSE. Unfortunately there is only one Geoff Whitcher, because I have a feeling that if there were 100 of him spread around New Zealand, this country’s budding entrepreneurs would be taking the world by storm. That’s a big comment, but Geoff is one of those guys with seemingly limitless energy for the cause who is constantly connecting people – and inspiring those around him to move and shake a little bit harder.

So back to Spark. Spark is a bootcamp for entrepreneurs that is equal to anything I have seen, and I have spent some time in similar initiatives in Bangkok, San Francisco and Boston over the past few months. The 12 finalists in Spark are given intensive training in the practicalities of bringing a start-up to fruition – and are put in front of some smart folk with battle scars and gems of wisdom.

Out the other end of it, in October, the 12 finalists are put through their paces in a Dragon’s Den style pitching session which decides how the $100k is divvied up. Nerve wracking stuff. I know, as along with Dr Yvette Ahmad I was one of the 12 finalists in 2008 with the BrightMind LABS venture, and we were lucky enough to take the overall runner’s up prize for Spark 2008.

Spark is fantastic for New Zealand. They boast that 35 companies have been formed from the Spark ranks over the past seven years. These companies now employ 160 plus people and sell into 18 countries. That’s worthy of a boast, I would say.

Imagine the difference if we had 100 Spark Challenges operating around New Zealand?

Logo - Spark $100k Challenge

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.

Bill and Phil Show in Whangarei

Elevate CA sponsored the Bill English and Phil Heatley show in Whangarei tonight. Its not that we have a particular political agenda. Actually, if we’re honest it was more about getting our brand out there in front of 100 or so local business people. Chipping in for the beer and nibbles was a small price to pay.

So now that I have that out the way, I can say that Bill and Phil put on a good show in Whangarei tonight at the NZ Institute of Building function. I found myself agreeing with a lot of the stuff Bill English had to say around making it easier for Kiwi businesses to do business internationally.

This is something I have been banging on about for some time: As a country we need to generate wealth internationally if we want to live a first world lifestyle, because funding that lifestyle from borrowing just isn’t sustainable. So it was good to hear Bill English talking about investing in the things that will help kiwi businesses become more competitive internationally. Stuff like improving our roading infrastructure, our electricity generation and distribution, our broadband network – and reducing the pervasive burden of red tape in our business world.

The rhetoric was encouraging.

But the single obvious incentive to encourage Kiwis from “borrowing to spend” towards “saving to invest” was clearly not on Phil and Bill’s political agenda. In this country, a person will almost always do well over the long term by borrowing to invest in residential real estate. The interest and all expenses can be made tax deductible against personal income, while the ultimate capital gains are typically tax free. Nice. Why wouldn’t you do it? Especially with the 24% price increases forecast for Auckland residential property by certain economists over the next three years.

Nice for the individual investor who has the means to borrow hard. But is that productive or beneficial for the country? Hell no. It increases our indebtedness to the rest of the world, and achieves nothing that generates income for the country in the context of the world at large. The wealth generated is not real, so why is our tax system encouraging this behaviour?

How about ending the very generous tax incentives to buy and hold residential real estate in this country, and in turn target those incentives to the parts of the economy that generate real wealth for all of us. Namely entrepreneurial Kiwi businesses that can market innovative, world class products into niches internationally.

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.