Selling off the start-up
History shows Taranaki entrepreneurs can succeed on the world stage but it means the business usually ends up leaving New Zealand’s shores. Deena Coster investigates what drives the people behind our successful start-ups and their decisions to sell up.
Richard Shearer likens the feeling of being a business high-flyer to an addict who is after their next fix.
‘‘If you’re a genuine entrepreneur then the thrill’s in the chase and that thrill’s like a drug,’’ the Taranaki businessman says.
‘‘It’s amazing when you’ve got a fast growing company. It’s a buzz you want again and again and you don’t want it to stop.’’
It’s a feeling which courses through his veins each day, as he continues to look for ways to grow his New Plymouth based business Quality Performers (QP) Sports.
Shearer bought the niche business, which exports a range of protective shields and sports bras to the world (its biggest market being in Europe) in 2005, a deal made possible through his hard yakka as an entrepreneur.
In 1997, he and business partner Craig St George founded website hosting company WebFarm and its associated domain name registration business FreeParking.
The duo lived and breathed the start-up venture for nine years, pulling all-nighters in the office when required.
‘‘It’s hard work. You literally do burn midnight oil,’’ Shearer says.
The pair sold the business in 2005 for an undisclosed sum to New Zealand based internet service company Iconz. It recently left its hands with a price tag of more than $20 million. Unlike WebFarm, many of Taranaki’s successful companies have been sold to parties from off-shore.
In January this year, Australian-based company Mercury Capital Investments bought the majority of shares in the digital venture International Volunteer HQ (IVHQ), the brainchild of Daniel Radcliffe. He launched the venture from his family’s farm in Urutı¯, North Taranaki, with $40,000.
While it is unknown how much money changed hands, the Australian investor has a track record of only investing in businesses which are valued between $50m to $200m. But selling to overseas interests is part of the game.
‘‘The world is your market,’’ Shearer says.
‘‘If we’re aiming to become a provincial town that attracts innovative entrepreneurial people who create globally successful businesses then we better get used to the fact it gets sold.’’
Shearer says more often than not, success from a venture is then pumped into creating a new one.
‘‘People need to remember that these entrepreneurs and newly minted millionaires become investors in their own right and start growing new companies.’’
Kirk Hope, chief executive of BusinessNZ, says any preoccupation with trying to keep New Zealand born businesses in the country is redundant.
‘‘The reality is you shouldn’t really care where you get your capital from,’’ he says.
Companies shouldn’t worry about ‘‘outgrowing’’ Taranaki, Auckland or even New Zealand.
‘‘That actually should be the goal,’’ Hope says.
He believes the ‘‘nirvana’’ for New Zealand ventures is when they can team up with global players to produce increased capital, scale and production but the deals allow for the intellectual property connected to the business to remain here.
The biggest stumbling block for New Zealand investors is finding the capital to be competitive with their global counterparts and their deeper pockets.
‘‘It can be quite challenging.’’ When New Plymouth’s Philip Brown started fielding offers for Tenderlink, the online tender advertisement business which began in his garage, only one had an affiliation to New Zealand.
It lost out to Fairfax Australia in the end and the $21.6 million deal struck in 2010 made Brown a wealthy man.
Brown knew Tenderlink was ‘‘always going to be on the radar of media companies’’ and it was a strategic move on Fairfax Australia’s part to snap it up.
In Tenderlink’s case, about 90 per cent of its revenue was generated in Australia, so it was part of its attraction to a TransTasman operator. ‘‘It was seen as an Australian company even though it was New Zealand-based.’’
Selling off the business was always on the cards for Brown.
‘‘When I started Tenderlink I was always focussed on how I would exit the business.’’
But he wanted to make sure his shareholders would receive a good deal, along with his employees, who helped him to build the business to the point which made it desirable to buy. ‘‘I have to say one of the conditions we placed on the transaction is that the business had to stay in New Plymouth for a period of time.’’
The e-commerce business remains in the city, but has since changed hands after Fairfax Australia sold it to Dun & Bradstreet in 2016. Brown says the ‘‘investment appetite’’ can come from New Zealand based institutions but there are limits to what they can offer.
‘‘Generally we are the small brother so when it comes to acquiring businesses we sometimes don’t have the capital or the investment ability to do it from New Zealand,’’ he says.
Brown says he wasn’t surprised by the news of Radcliffe’s recent success as he believed he had the necessary ingredients to rise to the top of the entrepreneurial crop – a great idea, being the first to take it to the market and doing a stand up job of developing the business.
‘‘You’ve got to be unique. You’ve got to have something that no one else has got,’’ he says.
Dr Bill Kirkley, senior lecturer in the School of Management at Massey University in Albany, agrees and says if there is no value in a business, nobody will buy it.
‘‘Everybody’s got lots of ideas, but it’s how you create the idea into an opportunity,’’ he says.
Kirkley says the difficulties of breaking into the global market can be a barrier to growth.
‘‘The opportunity to pitch from a local business to the world market is extremely difficult,’’ he says.
So more often than not, New Zealand businesses are shoulder-tapped by global interests with an offer.
Kirkley says the biggest attraction for buyers is the innovation an existing business can offer them as research and development is not necessarily something bigger corporations do very well on their own.
He believes there is enough venture capitalists or Angel investors in New Zealand, along with input from crowd-funding, to support and encourage people who will follow in the footsteps of homegrown entrepreneurial talent who have left their mark. For Shearer, the 2005 sale of WebFarm/FreeParking gave him the financial freedom to chase his new dreams with QP Sports.
‘‘I love it. I think it’s the best job in the world. I love the idea of it being a global business in Taranaki,’’ he says.
The financial trappings of his entrepreneurial success are truly an afterthought for him.
‘‘That was always talked about – the bach, the BMW and the boat – but what you really want is the best thing for the business,’’ he says. ‘‘You’re not an entrepreneur if you’re not intensely interested in growing your business and making things better for customers.’’
Therefore the decision to cut your ties with a venture you have dedicated a decent chunk of your life to is not made lightly.
‘‘It’s like the alignment of the planets. A lot of things have to be right about the deal,’’ he says.
Shearer says an injection of new capital can be key to helping the venture go on and realise its full potential, even if it means leaving behind the entrepreneur who gave the business idea life.