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Venture punt turns sour

By Deborah Hill Cone

Friday 4th April 2003

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A $29 million joint venture between Caltech Capital Partners and investment giant AMP Henderson Global Investors has gone sour, with the arrangement ending up in a messy court case.

Caltech did a deal four years ago, at the height of the dotcom frenzy, for AMP to take a punt on its hand-picked technology companies and for Caltech to manage the investment.

Caltech was paid an annual management fee of $360,000 and also had shares in the companies.

As part of the agreement AMP put $10 million into flat-panel speaker company Slab, $5 million into web firm Netlogic, $2 million into building software company IBS, $5 million into print industry supplier Prism Group and $7.5 million into call centre technology developer Zeacom.

But AMP later fell out with Caltech and gave notice it would terminate the relationship from this week. That prompted Caltech to go to the High Court at Auckland to ask for an injunction to force AMP to let Caltech continue in its management role.

Caltech argued that venture capital investments were by their nature long term and that Caltech's most important source of return was not its annual fee but its share on profits or gains in the investment at the time of ultimate realisation (when the investment is sold).

Barrister David Hurd for Caltech argued that it was normal practice for a manager to look after the investment until the investor made its exit.

But Bill Wilson QC, for AMP, claimed Caltech was in default of its obligations under the agreement, which entitled AMP to terminate the arrangement.

Justice Peter Salmon, hearing the application, observed AMP had lost faith in Caltech's ability to manage the investments satisfactory.

He said the courts would not generally enforce a contract requiring the performance of personal services and declined to grant the injunction.

"Whereas in this case, the relationship has broken down ... forcing the parties to work together would be likely to lead to constant disputes," Justice Salmon said.

But he ordered that a date be set down for a five-week substantive hearing for the proceedings over the contract issue.

Caltech is run by former Buttle Wilson analyst Douglas Paul, psychologist-turned-strategic adviser Paul Gregory and former Futures and Options exchange manager Wendie Hall. Its chairman is former Fernz Corporation executive John Cunningham.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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