Not the Brightest Tool in the Shed

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Why Did They Do It

The comment this week is on two dissimilar articles. The first, the Government loan (read handout) of $8 million dollars to Right Hemisphere and secondly a new Government website called NZLive.com.

Should the Government have done, what they have done as outlined in the two articles.

Upate: Eventfinder which is mentioned in the following has gone from strength to strength. Twitter handle @eventfinder while NZLive (i think it is still alive)

It is a matter of public record both here and overseas that New Zealand businesses are not the brightest tool in the shed when it comes to doing business in the Internet Age and because of this it is difficult to obtain and retain in NZ educated and well trained people

I suppose $8 million dollars of taxpayer money will keep experienced people in New Zealand for a while before they also leave.

And a website listing cultural activities, events, festivals, heritage, exhibitions does have its place. The figure of $700,000 is mentioned in the article. The TV news reported the figure as $3,000,000. Plus there are the ongoing yearly costs, all paid by the taxpayer.

But again it keeps experienced people in New Zealand.

Maybe the Government has the right idea, trying to get NZ into the 21st century but then, they may be part of the problem. Read and make your own decisions.

It's money for nothing in a political punt

13 September 2006 By BRUCE MCKAY

The Government's announcement last week that it was going to invest (sorry, lend) US$8 million to technology company Right Hemisphere to help kick start a "product graphics management" industry in New Zealand is bad news.

It's good news for Right Hemisphere, which has managed to get some very cheap funding in lieu of a capital-raising on very soft terms. However, for the rest of us, and for the technology industry in New Zealand in general, it is bad news.

On the face of it, investing (sorry, lending) money to kick-start an industry doesn't sound like a bad idea. But then, chopping down your neighbour's trees to improve your view doesn't sound like a bad idea either.

The documents issued with the press release announcing the loan to Right Hemisphere do not show a compelling reason why the company should receive any Government funding. As some companies do each year, it has gone to the Government looking for some cash. There is nothing wrong with seeking funding from the Government; it has numerous programmes to help and assist companies to grow.

The difference is that this is a direct investment (sorry, loan) approved by Cabinet and thus has gone around the normal funding channels. In fact, it is so unusual that it needs special legislation to allow the funds to be advanced.

This has not been a contestable process, whereas other Government funding initiatives are contestable to a point. Here the Government has decided that Right Hemisphere is going to be a winner and it wants to be seen to be part of the action.

It is a purely political action: "We like you, we want to be part of your success, here is some cash to help make it happen." As we all know, government has a terrible record of picking winners; it's just the way things are.

One of the Cabinet papers made public states: "Right Hemisphere is entering the exponential growth stage and requires further additional capital to fund expansion and continued R&D efforts. The firm indicated that this capital could be readily obtained from the US market." Pardon?

The paper goes on to say that the current United States investors (venture capital funds) don't want to raise the money from New Zealand because New Zealand investors lack technical experience and US-based networks.

This is correct, but all that says is that the best place to raise money is in the US, unless, of course, the New Zealand Government can be hit up for the cash instead. In terms of cost of capital, the investment (sorry, loan) from the Government is a lot cheaper than new equity. The Treasury analysis suggests that the loss to the Government (gain to Right Hemisphere) is $3 million.

Right Hemisphere can get the money in the US if it wants. The company is for all intents and purposes a US company with a New Zealand subsidiary. It may have been started in Auckland but its future is in the US and that is where the growth is going to come from. In arriving at the figure of US$8 million it would seem that the company has worked out the costs of running its New Zealand operations for the next three years and asked for that amount.

Getting an interest-free loan, getting a value transfer of $3 million and getting a large part of the operating costs underwritten by the Government for the next three years - what a deal! Who wouldn't love to get their hands on that? Right Hemisphere has done well and it would be churlish to do anything other than wish it the best.

As for the Government - what the hell are they thinking? It may be called a loan, but in reality the Government has contributed pure equity to the company without any say over how the money is spent. According to the loan document, the money will be used for "cash flow and general corporate purposes". Translation: anything we want.

If the company doesn't keep to its deal with the Government, the loan will attract a 25 per cent interest rate. But the things the company has to do are hardly tough; in fact they are very soft. For example - engage with three universities or institutions to establish research programmes using other Government programmes for funding. That is a great win for Right Hemisphere. Imagine getting the Government to pay a chunk of the research costs on new ideas and getting a university to do it for you.

Another is to make available software development kits on full commercial terms to the products graphics management "virtual cluster" members, review their work "with a view" to commercialisation via Right Hemisphere business channels. In other words, the company sells at full margin its development software and then has first right on anything that is developed. Another great win for Right Hemisphere.

There are in total 12 things that the company has to do to keep its money interest-free and none of them are by any stretch hard work.

The Treasury's advice was that "the proposed loan has a low probability of resulting in a net benefit to NZ". Further, "the proposed commitments in the draft terms of the loan fall short of what would be required to ensure that there are significant net benefits. The substantive commitments are either peripheral or time-limited".

The final point to make about this "loan" is from the Cabinet paper. In discussion of the objectives of providing the loan the paper notes that, "at the point of a trade sale or IPO, the company will enjoy a stronger position and command a higher price, more of which will accrue to NZ shareholders. A proportion of the wealth and capability generated is likely to be reinvested in early-stage NZ companies, speeding the development cycle and creating a virtuous circle". Or they could buy a yacht.

Even the most retarded lending officer in any financial institution would see this rubbish for what it was and tear it up. This is nonsense and it insults our collective intelligence to see this sort of stuff persuading the Government to go ahead.

The Government is giving a US-based company free money to do what it will in return for some very dubious outcomes. It really is money for nothing for Right Hemisphere. For the rest of us, we come out of this supposedly comforted by the knowledge that the shareholders of the company will get rich at our expense, thanks to the politically motivated stupidity of our leaders.

" Bruce McKay is a director of niche banker Saffron Capital.

Ministry copied my website, says Eventfinder

11 September 2006 By REUBEN SCHWARZ

The Culture and Heritage Ministry has dismissed claims by an Auckland businessman that it copied his website and ambushed his business model.

The centrepiece of the ministry's NZLive website, which is due to be launched officially later today, is a calendar that lists cultural events such as concerts and sporting fixtures.

The government venture has raised the ire of Michael Turner, the chief executive and major shareholder of Auckland's Eventfinder, which provides a similar service.

Mr Turner accuses the ministry of changing the scope of its project to unfairly compete against his business, which was founded in January.

Had he known about the ministry's plans, he says he would never have started Eventfinder, which is now in jeopardy because of NZLive.

"It would have been commercial suicide to start up Eventfinder if we knew that this was what the ministry was going to do.

"They can mount a marketing campaign that's just beyond compare. Private enterprise can't compete with that." The ministry's original scoping documents that were drawn up early last year and released to NZ InfoTech last week, include plans for an events calendar, originally due to be completed in June 2006.

Culture and Heritage Ministry chief executive Martin Matthews says the ministry consulted widely about its plans, and is surprised Eventfinder wasn't aware of them. "We have not changed the focus of this at all." He says the ministry only became aware of Eventfinder a few months ago.

He believes the two sites can coexist, and even cooperate. "Eventfinder has a much broader coverage than we do." The NZLive website cost about $700,000 to set up and has a $100,000 marketing budget. It was built by Wellington's 3months.com.

Mr Turner says Eventfinder was negotiating a deal to supply event information to Tourism New Zealand's website but that this fell apart the day after he met with the Culture and Heritage Ministry last month.

Tourism New Zealand spokeswoman Cas Carter says the agency had known of the ministry's project since the beginning, and backed out simply because it needed more time to choose a supplier

The two articles first appeared in www.stuff.co.nz

Then there is www.sorted.co.nz which again is funded by the taxpayer. My problem with sorted is what I would call dubious results in the loan calculation results. But that is another story.