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UK fund's A$200M investment commitment validates Powerhouse

UK fund's A$200M investment commitment validates Powerhouse model, chairman says

By Jonathan Underhill

July 19 (BusinessDesk) - London Stock Exchange-listed IP Group's decision to invest A$200 million over 10 years in commercialising scientific innovations from universities Down Under validates the business model of ASX-listed tech incubator Powerhouse Ventures, says its new chairman Russell Yardley.

Powerhouse has a portfolio of 19 companies developing intellectual property spun out of New Zealand research institutions with a combined enterprise value of about $112 million, including CropLogic, an agricultural technology company that published a prospectus this month to raise A$8 million and list on the ASX.

But Christchurch-based Powerhouse, which counts Canterbury Development Corp (CDC) as its biggest shareholder, has faced the wrong kind of publicity recently, with the departure of former chairman Blair Bryant after it became public that he failed to disclose his bankruptcy in the US in 2007. Due diligence by Powerhouse's board didn't uncover the omission and Yardley says the board has since changed its appointment processes.

Yardley, who was appointed chair last month, has been on a charm offensive with the message that it was a one-off blip. His boardroom roles include being chairman of the National Collaboration Tools and Resources project (Nectar), an Australian government funded body based at Melbourne University that provides "an online infrastructure that supports researchers to connect with colleagues in Australia and around the world," along with Nectar Virtual Labs and Nectar Cloud. He is also chair of ASX-listed cyber-security firm Tesserent.

"Powerhouse is in a pretty exciting place. Our mantra is to find great science, build great companies," he says. "Powerhouse needs to win the confidence of the investment community."

Not every investment will be a winner - that's the nature of early-stage investments, he said. When it hits on a winner it would look to sell down its holding, ideally in about two years. It sold a 1.5 percent stake in Christchurch-based gas analysis firm Syft Technologies in May for $996,900, after making a $99,000 investment in 2013. But that doesn't mean it is like a private equity firm, Yardley said.

"They (PE firms) are there for as long as it takes to get above their IRR (internal rate of return)," he said. "That's not our mission. We're looking at universities to build great companies. We can stay there for a long ride. If you think you're on a unicorn you don't sell out."

In May, the UK's IP Group signed an agreement with eight Australian universities plus Auckland University to invest at least A$200 million over 10 years in finding and developing companies involved in disruptive innovation in fields such as digital medicine, new medical therapies and quantum computing. Yardley said the fund "does pretty much what Powerhouse does. I think IP Group coming to Australia validates the Powerhouse model."

Powerhouse shares last traded on the ASX this week at 64 Australian cents, a 40 percent decline from the A$1.07 price in its initial public offering that raised A$10.2 million last October.

Yardley said the company needs to set up a process to raise capital every year, with the next funding round likely to be "approaching A$20 million. We want to build a substantial company to invest in New Zealand science."

It is the largest of three technology incubators that get operational funding, pre-incubation grants, and repayable loans for startups they co-fund through government innovation funding agency Callaghan Innovation. It has investment managers assigned to each New Zealand university and aims to make five-to-10 new investments a year through what it calls a "patient capital investment model". Patient capital is also the mantra of IP Group.

Callaghan has said its relationship with the company "remains unchanged" with the departure of Blair Bryant. Powerhouse is holding its July board meeting in Auckland and will hold the August meeting in Christchurch, where Yardley says he will be sitting down with shareholder CDC.

"They tell me they are comfortable" with their investment, he says.

(BusinessDesk receives funding from Callaghan Innovation to assist coverage of the commercialisation of innovation)


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