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Time out

By Fiona Rotherham

Monday 1st July 2002

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Controversial venture capitalist Robin Johannink has found himself out of a job. Having raised around $80 million from investors, many of them high-profile, his start-up companies have either failed or ousted him from the board. Was it bad luck or bad management? Fiona Rotherham reports

Robin Johannink is packing his bags when we phone. The venture capitalist and his family are heading out of town, beginning a six-month "sabbatical" while he ponders his future. The move follows setbacks for Johannink and the four technology ventures he heavily promoted to investors through his company Phoenix Management.

Johannink was recently replaced as chief executive and chairman of a company he founded, troubled lithium battery developer Ilion Technology (formerly Pacific Lithium). Last year another of his ventures, drug research company Virionyx, ended his management contract early. After shutting its doors last year, his cash-strapped wind turbine company Vortec was on-sold to Manson Venture Capital. And since June, Johannink is no longer involved with management of biotech company Diatranz.

Shareholder, yes. Boss, no. Of his four technology investments, one was on-sold at a huge loss to investors, two are struggling, and one is doing well without him. Did he fail or, as he claims, were other factors to blame?

Take Ilion.

Johannink's plan for Ilion was to get it to a Nasdaq listing, then exit the investment. He was quoted in an October 2000 newspaper story that if all went well on New York's Nasdaq stock exchange next year he would make more New Zealanders into millionaires that anyone before him. It didn't happen.

The Nasdaq crashed and Ilion's planned $US120 million listing went down the gurgler. This eventually killed a planned merger with US-based lithium battery developer Lithium Technology Corporation, which Ilion had sunk a lot of money into.

Since start-up, Johannink has raised around $64 million for Ilion. Big-fry investors included well-to-do New Zealanders like The Warehouse founder Stephen Tindall and Ghost developer Murray Haszard, who owns a 10% stake from a $17 million investment. He also pulled in the Singapore Government, Nissho Iwai Corporation and the Massachusetts Institute of Technology. But it wasn't enough. The company ran out of money after burning through its capital. Ilion's accounts for the nine months ending December 2000 show expenses of nearly $5.9 million, including more than $1 million for the failed IPO. Johannink (who says he owns about 10% of Ilion, including his son's shares) tried a rights issue, but that failed. He was unable to raise new funds and partners in the US fell over.

Earlier this year Ilion shareholders went to the board demanding his replacement. They were apparently unhappy at his fundraising efforts and the fact he'd failed to prune the company back when the climate for tech companies changed so dramatically. Johannink believes his ousting was undeserved. "I have put seven to eight years of my life into this thing. I believe we're going in the right direction. If someone else believes they can do it better, go out there." Supporters like shareholder Bruce Sheppard, long-time accountant to the Johannink family, point out that the Ilion board (with Johannink as chairman) concurred with all his decisions.

Haszard, Ilion's new chairman, says the company has good technology, but success now depends on finding an outside backer to help fund production and distribution. Could the problems with Ilion and Johannink's other investments have been avoided?

Hot on vision

Johannink has an entrepreneurial background. His career started in the family retail business, T&T Childrenswear. In 1979 he launched an Auckland giveaway advertising publication, on-sold three years later to INL. Next, he set up the Club Card discount-shopping scheme in 1982, on-sold to the BNZ. He then launched national weekly tabloid The New Zealand Advertiser in 1993. A number of Ilion and Vortec investors were contacts he made in these business ventures.

There is no doubt Johannink is charming. He has the gift of the gab and skills at drawing people in. He brags the amount he raised for Ilion was the highest ever achieved in New Zealand for a venture capital project. But other venture capitalists criticise him for failing to deliver on detail. Diatranz's Bob Elliott says Phoenix's management contract was cancelled in June last year because it raised only $2 million of a promised $5 million. Johannink himself accepts he hates the nitty-gritty of capital raising. "It's constant hard work, knocking on doors. I'm a visionary. I like to put the vision down and make things happen."

Virionyx chairman Peter Sullivan says Johannink was good at providing a vision and motivating people on long-term strategy. However, he disputes Johannink's claims he raised $15 million. Sullivan says a total of $11 million in capital was raised during the 18 months of Phoenix's management, but only a small proportion of that was directly attributable to Johannink.

Rivals also claim he over-hyped his projects. Could that be a factor? Johannink accepts there have been problems with the four technology investments he's promoted, but rejects any blame. The rule of thumb with venture capital projects is that only one in 10 succeed, and the tech wreck hasn't helped, he says. "Every single investor I ever brought in I told them this was venture investment, don't invest unless you're prepared to lose money."

Fees, fees, fees

Another criticism of Phoenix is the level of its management fees. Under the traditional model, a venture capitalist investing in a start-up company is involved in mentoring management. Under Johannink's model, Phoenix initially provided the management team and charged the companies a mark-up for that service, as well as other fees.

Vortec's financial accounts for the year ending March 2001 show Johannink was paid $124,400 that year. In addition, Phoenix received nearly $676,000 in management fees and an extra $127,848 for a proportion of general office, property and IT costs.

Virionyx's financial accounts for the 10 months ending March 2001 reveal that Phoenix charged $432,556, and also received two million Virionyx shares and two million options for management and equity-raising services. In August last year Virionyx opted to end the management contract early, removing Johannink as managing director and directly employing three other staff Phoenix had provided.

Johannink defends Phoenix's management fees, saying they simply recovered costs such as printing. The mark-up on staff was "less than 10%".

Onwards and ...

Where to now? True to form, Johannink has a positive spin.

"Although being somewhat daunted at this major change in lifestyle, I am also excited at the prospect of reviewing my life and creating some balance therein, so that my return to the workforce will be even more powerful and effective," he wrote to Ilion shareholders last month.

Johannink reckons he has 10 new projects on the table that people are "hounding me to back". He's considering promoting one in particular on his return. He also says he has agreements with Diatranz and Virionyx to help with future capital raising, although the companies see it differently.

Virionyx says it has no contract with him, but wouldn't turn away any investors he provides. Diatranz says its agreement for further fundraising is with New York-based Colebrook Capital. Johannink has been contracted as a local agent by the merchant bank.

Will his track record deter investors? "I think there are two camps. There are those who got upset with Vortec and will say, 'No'. And there's another camp of people that will still follow, providing I lead with my own cash," Johannink says. "It will definitely be harder."

He has learnt from his experiences. On his next venture capital project he'll seek fewer investors with more money. It's too hard keeping hundreds of share-holders happy, he complains. "The smaller the investor, the bigger the problem." Tell that to Murray Haszard.

Johannink's dynasty

Anyone who covered English history at school may have learnt this useful ditty for remembering King Henry VIII's wives: divorced, beheaded, died, divorced, beheaded, survived. We tried it with Johannink's Phoenix investments

Divorced: Ilion

Johannink and the lithium battery producer parted company earlier this year in terms of management, although Johannink is still a shareholder.

Beheaded: Diatranz

Run by Johannink until June last year, the company's progress has been stymied by the government banning trials of its diabetes treatment in New Zealand. It is applying to do trials in Italy, Australia and the US, and hasn't given up on the Cook Islands.

Died: Vortec

After shutting up shop last year, the company has been on-sold. Shareholders accepted just four cents a share, for shares they bought for between 60 cents and $5.

Divorced: Virionyx

Johannink and the AIDS cure development company parted company last year, after the Phoenix contract was terminated early.

Beheaded: Johannink

The Phoenix boss is pondering his future after finding himself without any start-ups to manage.

Survived: Johannink

Watch this space.

Fiona Rotherham

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