Keylogix couple keep tight rein over first 'baby'

By DANIEL RIORDAN

A desire to hold on to as much of their company as they could has prompted Keylogix founders Mike and Dot Johnstone to spurn traditional venture capital funders.

Instead, the husband and wife team behind the Auckland software developer have given up just 10 per cent of their equity in return for $2 million from a group of high-net-worth individuals in New Zealand and Australia.

The money will be used to launch and market their flagship product ActiveDocs, a document creation tool that works with Microsoft Word.

The Johnstones, who founded Keylogix in 1992 to develop document automation solutions for companies that produce complex, repetitive and structured documents, were reluctant to give too much away to reach the final stage.

Certainly they were not prepared to part with the 30 to 40 per cent stake many venture capital firms wanted for the few million dollars extra the company needed to develop distribution partnerships in the United States.

"We could have done deals 10 times over with any fund in the country, but they all wanted a controlling stake," said Mr Johnstone.

"With a fully developed product, a clearly identified route to market and the largest software distributor in the world as a partner, I simply didn't need to give away anything like what those guys were offering."

The consortium of unnamed investors in Keylogix was put together by Auckland merchant banker Tony Bishop.

Mr Bishop, who owns Treasury Merchant Finance, has helped broker about a dozen deals in the past two years, bringing together high-net-worth individuals who include sharebrokers, lawyers and accountants.

He has looked at 60 to 70 transactions in just the past few months and pulled the handle on four this year, including Keylogix, with another pending.

As many as 10 investors have come in on single deals, which tend to be technology investments in companies with international potential.

Mr Bishop said larger, more structured venture capital funds were less flexible in their operations because of the requirements of their major shareholders. "There's a niche in the market for this type of investment and it will get bigger."

Contact with Keylogix was made through Keylogix chairman Chris Gedye.

In what Mr Johnstone describes as a marriage made in heaven, consortium member Chris Due (ex-Virtual Spectator) has taken one of six board seats.

Keylogix had already received two grants from the Government's Technology New Zealand, worth a combined $318,000 over the past 18 months, but needed bigger sums to step up to the next level.

The company employs about 20 staff and expects to double that very quickly.

ActiveDocs goes "live" in New Zealand on Wednesday and Microsoft is putting the product on its website a few days later.