Tech incubator Powerhouse revalues portfolio pre-ASX listing

Tuesday 19th July 2016

Technology incubator Powerhouse Ventures has recorded a $7.7 million increase in the fair value of its investments in early stage start-ups in just six months as it readies itself for a listing on the Australian Securities Exchange this year.

Christchurch-based Powerhouse takes technology in New Zealand’s universities and research institutes to market through a portfolio of start-ups. It is yet to make any divestments since it started investing in 2010, though it has written off two failed ventures.

The revaluation to $20.9 million has been helped by a flurry of capital-raising by some of its portfolio companies, a couple of which – Hydroworks and CropLogic - are planning initial public offerings themselves on the ASX.

The incubator can lift the value of its stake in various start-ups, which in turn lifts its internal rate of return, under fair valuation methodologies to the price of each company’s last capital raising, or the next capital raising providing it happens within that calendar year.

Powerhouse is one of three technology incubators which accesses operational funding, pre-incubation grants, and repayable loans for start-ups they co-fund through government innovation funding agency Callaghan Innovation.

As a precursor to a planned A$20 million listing in the next two months on the ASX, the incubator sought to raise $15 million in capital. Managing director Stephen Hampson said it had secured around a third of that, including $1.76 million raised in a February equity crowdfunding offer. “We have enough to get through an IPO so we’re going straight to that,” he said.

Edison Research valued Powerhouse's portfolio for the crowdfunding offer at $17.2 million, with a carrying value of $12.15 million on the 18 companies in which it had investments at the time. Powerhouse’s internal rate of return per annum was stated as 29 percent.

Its interim financial accounts showed it posted a $2.26 million net profit for the nine months to March 31, 2016, following a $5.8 million net change in the fair value of its investments, compared to a $526,000 loss for the same period the prior year when it had no change in fair valuation.

Quarterly portfolio reports show in the October 2015 quarter it had 18 companies with a fair value of $13.2 million from an investment of $8 million. By the December quarter, the portfolio had risen to $14.5 million and 19 companies from a total investment of $8.7 million. There was a big bump up in the March 2016 quarter with 21 companies (two are inactive) and a fair value of $20.9 million from a $9.9 million investment.

Hampson said it often happened that a bunch of companies needed capital at the same time.

“We’re going up by 35 percent in fair value each year, which is about right," he said. That increase was helpful to Powerhouse, in that it showed the improving performance of the companies it had backed.

Hydroworks, which makes hydropower turbines for electricity generation, sought $4 million ahead of a planned IPO on the ASX in the next six to nine months. It raised $1.6 million through current shareholders and related parties and then a further $1.44 million through an equity crowdfunding capital raise at $57 per share. Powerhouse also committed to investing a further $200,000. Edison valued the company at between $24 million and $40 million in August last year. Powerhouse’s fair value investment in Hydroworks moved from $4.24 million for a 22.8 percent stake in the October 2015 quarter to $4.4 million for a 24.3 percent holding in the March quarter.

Agricultural technology company CropLogic sought to raise $1 million ahead of its planned ASX listing. It raised $512,200 at $60 per share in an equity crowdfunding offer after Edison valued the company at $30.7 million. Powerhouse’s valuation of CropLogic has risen from $1.26 million for a 31.6 percent stake in the October quarter to $3.4 million for a 32.5 percent share in the March quarter.

Invert Robotics has developed a novel climbing robot system for remote inspection services in the dairy and food processing sectors. It recently raised $740,394 of $1 million sought at $16.50 per share in an equity crowdfunding offer. The fair valuation of Powerhouse’s investment has risen from $670,000 for a 43.2 percent stake in October to $3.9 million for a 39.8 percent holding in March.

Mobile software technology company Motim raised $558,464 in an equity crowdfunding offer in November. Powerhouse’s fair valuation of its stake changed from $1.5 million for a 45.6 percent holding in the October quarter to $2.2 million for a 41.8 percent stake in the March quarter.

(BusinessDesk receives assistance from Callaghan Innovation to cover the commercialisation of innovation).

BusinessDesk.co.nz

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