Methodology
Powerhouse has developed a proprietary approach to the systematic commercialisation of intellectual property. This involves four main processes:
- shaping of deal-flow;
- attracting entrepreneurs;
- application of capital; and
- support through incubation.
Through these, Powerhouse has been able to build a successful programme for commercialising science-based innovation.
Its systems and processes are evolving with the scale and complexity of the business.
Deal-flow
Investment opportunities are screened to ensure a strong intellectual property position and to confirm freedom to operate. Powerhouse Investment Managers then shape the opportunities to meet specific investment criteria.
Powerhouse’s current investment criteria includes:
- being able to place a product in the hands of a customer within 12 months– this requires the technology to be sufficiently developed from the research stage;
- an Australasian market existing of around $2m to $3m – with this, Investee Companies are able to test the new technology locally and also generate sufficient revenue so that capital-raising is not essential;
- identifying a forgiving customer – initial industries and customers are selected carefully to ensure that the problem being tackled isn’t overly-reliant on the immediate performance of the technology; and,
- having a credible value hypothesis – Powerhouse has a method for predicting the value that a customer will gain from new technology, even when that technology is applied in a disruptive way.
Entrepreneurs
Powerhouse’s objective is to recruit the best team possible, avoiding the pitfalls that can arise from founder-based businesses.
Powerhouse-appointed entrepreneurs are motivated and aligned with the interests of investors via performance-based equity. To support our entrepreneurs, Powerhouse seeks experienced boards to provide industry-insight, business-growth experience and mentoring.
Powerhouse’s model has proved to be successful with many entrepreneurs having won national or international awards for the work they have done in taking high-value intellectual property and generating high-growth, internationally-competitive businesses.
Capital
Investment at the Pre-seed stage funds proof-of-concept activities. These investments typically receive less than $300,000 of investment from Powerhouse alongside a further $600,000 of government-sourced capital.
Investments are tranched so that the areas of highest uncertainty are examined first. Shareholdings are typically in preference shares and through these Powerhouse would aim to hold or control approximately 40% of the company.
At the Seed stage, Investee Companies typically raise between $1m and $2m.
Capital will include investment from Powerhouse’s Co-investment Partners and possibly capital from the company’s industry sector – either from individuals with relevant experience or from strategic investors.
Investment at the Post-seed stage is between $2m and $5m. Powerhouse aims to maintain approximately a 40% shareholding following this round. The introduction of new investors provides external validation of a company’s valuation.
The Co-investors for this round may be sourced from outside New Zealand. Powerhouse has useful links to international venture capital firms and other investors in key technology sectors.
Incubation
At the Pre-seed stage, Powerhouse confirms the assumptions made during the Shaping process, in particular confirming that the technology’s performance matches the customers’ requirements. Key at this stage is to recruit a team capable of getting the technology assessed and used successfully by target customers.
Powerhouse uses a lean approach, aiming to test and experiment before committing to full product development. Powerhouse’s approach of “investing a little and learning a lot” often produces a meaningful change in the direction of the company. Powerhouse considers this adaptability to be a significant contributor to its, and the ventures’ successes.
Companies at the Seed stage will aim to generate early revenues from target customers. Powerhouse seeks validation of the compelling value Investee Companies are building for target customers. Powerhouse also looks to confirm the Investee Companies’ competitive advantage.
At this stage, the investee companies’ growth plans begin to take shape and are developed by engaging with international markets and forming strategic partnerships, often using a trial-customer approach.
Having raised investment capital, Investee Companies are able to implement their growth plan. This plan may focus on enabling them to capture international market-share or on building the company’s Intellectual Property portfolio. Often a company’s positioning at this stage generates opportunities for strategic partnerships, mergers or acquisitions.
Powerhouse seeks growth and potential divestment opportunities. Exits may include listing investee companies on the stock exchange or strategic acquisition by trade sale.
