No 8 means spadework

Jenny Morel

Chances are Jenny Morel wasn't watching the debut of New Zealand's version of Dragons' Den this week.

You might think the show, where aspiring entrepreneurs seek financial backing from some of New Zealand's highest-profile and most opinionated businesspeople, would be a must-see for the managing director of pioneering venture capital fund No 8 Ventures.

But she plays tennis on Thursday evenings, when the programme screens.

In fact, the show's producers approached Morel to be one of the "dragons".

But it wasn't tennis that prevented her participation. Since Morel established No 8 in 1998, she has invested more than $60 million in early-stage, technology-based businesses, but that's been on behalf of the Government's New Zealand Venture Investment Fund, institutional investors including the ACC and wealthy individuals.

On Dragons' Den, "you have to be punting your own money".

Besides, Morel prefers to know a little more about a business idea before committing cash to it.

"When we invest we don't go 'Oh, I like that. Here's some money.' We do this enormous amount of tedious work checking competitors, investigating the market, looking at market entry strategies. All of that due diligence you can't do on Dragons' Den. We can't invest other people's money in that way."

No 8's investments, by their nature, offer potentially high returns but carry relatively high risk.

"The role of the venture capitalist is to aggressively manage down that risk," says Morel.

That's done through the rigorous pre-investment due diligence and by being "a very active mentor for the companies' management".

Morel's work in assisting the development of the kind of technology-based companies the Government hopes will increasingly power the economy in years to come earned her a gong in the last New Year's honours.

At the time, she was surprised her work with No 8 had been recognised so quickly.

"We think we're building some great companies but we haven't got them through to an exit which gives returns to our investors. Some of the companies we've been in for a long time I think are going to do well but their returns aren't realised yet."

Among the companies she thinks will pay off are telco billing systems supplier Argent Networks, early-stage cancer therapeutics company Proacta, industrial scale composting company VCU Technology and 3D graphics outfit Right Hemisphere.

Although No 8's speciality is technology-based companies, Morel doesn't see it as being in the role of helping companies commercialise intellectual property (IP).

"If you just think about supply and demand in markets, the model that someone develops some nice IP and somebody else marches it out into the market is a very supply-side view of the world that doesn't really fit with our experience of how business works," says the former economist.

"The way most companies get formed is that people see a market opportunity and then reach for some IP to fill that opportunity."

Entrepreneurial talent and know-how is far more important than IP for the success of technology-based companies, she believes.

And that's what New Zealand lacks - as tax-structure distortions tend to push entrepreneurs into property speculation.

Meanwhile, the pool of businesspeople who have experience in building up a company of any size is relatively small.

"How many great new growth companies have we had in the last 30 years?" she asks.

"Those who have done well - such as Neville Jordan with Mas Technology, Peter Maire with Navman or the Robinson family with Rakon - have taken quite a while to do so.

"You will have now some people coming out of those companies. But by the time they've done one 15-year journey, how many more are they going to do? One of our missions is by applying money to try and help shorten those journeys. Ideally, we'd like get a 15-year journey down to five, but if we can get it down to seven we'll be doing quite well."

The nature of the companies No 8 works with means that journey will, at some stage, involve a move overseas.

But with the steady stream of departures from New Zealand's equity market, surely investors would jump at the chance to invest in local technology companies with great growth prospects?

"We don't have a problem listing in New Zealand," says Morel.

"It depends on the company. The listing of Rakon was fantastic and I also think it achieved about the same price-to-earnings multiple they would have achieved on the Nasdaq.

"But Rakon is a well-established company. It's very different from our tentative early-stage companies.

"Some of our companies could list in New Zealand but others won't be able to for a couple of reasons."

Firstly some, such as industrial composting technology firm VCU, are focused on overseas markets.

"People in offshore markets will know those companies better than people in New Zealand. More particularly, some of them are in quite arcane technical areas. Without specialist analysts or investors in New Zealand, it would be hard to establish a market.

"The ones that we can list here are basically the ones that people can understand."

Meanwhile, rather than appearing on television this week, Morel's efforts to further the cause of fledgling enterprises took her to the far less glamorous environment of Parliament's finance and expenditure select committee.

There, she presented her suggestions as to how the controversial changes to tax on overseas investments might be amended so as not to effectively lock developing companies out of overseas capital markets.

The threat of the new tax regime is already holding up some of No 8's companies from taking their necessary next step.

Morel has suggested an exemption based on the nature of the company rather than its investors, and says Inland Revenue officials showed interest in the approach.

Aside from dealing with frustrations like the unintended consequences of complex tax legislation, Morel says her job is mostly enjoyable.

"It's also exciting; you get to work with some high-energy people who are passionate about what they're doing and, when you get something right, it's pretty exhilarating."


The CV

Jenny Morel

Born: Napier, 1951.

Married: To Reserve Bank Governor Allan Bollard.

Two sons: Albert and Lewis.

Educated: Auckland University.

Career: Economist with Treasury.

Freelance journalist and photographer based in New Caledonia.

Economist with the OECD in Paris and the National Institute of Economic and Social Research in London.

Investment banker with Saudi International Bank in London.

Returned to NZ 1984.

Stints with Renouf & Co and Elders.

Freelance corporate finance, various directorships including NZ Rail from 1985 until it was privatised.

1996: Formed investment bank Morel & Co.

1998: Formed No 8 Ventures. No 8 means spadework