The new frontier in banking is tech companies – two entities that haven’t traditionally co-existed. In the third of our four-part podcast series, Emile Donovan talks to BNZ's Tim Wixon about betting on the future, and how to help companies with big dreams get out into the universe.
Backing the tech sector is not for the faint of heart.
The entrepreneurs who come up with the big-dream schemes face a huge amount of risk and uncertainty for a huge amount of opportunity, and squeezing backing out of a bank under those circumstances isn’t always easy.
Head of Technology Industries, BNZ, Tim Wixon, says that’s what captures the imagination.
“It’s a delicate balancing act,” he tells Emile Donovan on today’s podcast, “but it’s super interesting from a banker’s lens”.
“From a banker’s perspective you buy into the dream, buy into the story, buy into what they’re trying to achieve. And then you’re just trying to help whichever way you can.”
The Productivity Commission has said New Zealand doesn’t have enough frontier firms – companies from which you can build a sector.
Wixon says he’d love to see more of them.
“One of the best examples of a large company that’s been founded and grown to scale in (and out of) the New Zealand economy is Xero. A huge fintech company, and the things that have flowed from it … it’s captured the imagination of NZX, it’s captured the imagination of shareholders ... of their staff. The capital that’s gone through and been returned to shareholders has been reinvested in other companies.
This helps the next generation of tech founders and companies.
“Then you look at this burgeoning fintech market, lots has been enabled by what Xero has done, but also being able to integrate into Xero’s business.
“Imagine if there were a range of other Xeros – RocketLab is probably another example, in the aerospace industry, which is – excuse the pun – going to the moon from New Zealand’s perspective. There’s a huge amount of opportunity in aerospace. It is, from some stats, larger than the wine industry from a GDP contribution already.
“Those frontier companies create a whole range of founders with the imagination to go and do other things.
“But (also) there’s only so many resources, people and staff available in the New Zealand economy that you can scale to a really large company within New Zealand. So, Xero employs a whole range of people offshore. RocketLab are the same. And, some other companies ….. will hit that point where it makes more sense, potentially, to sell to a strategic buyer (rather than list) … or make an obvious exit offshore (i.e. timing or opportunity-wise) … and then start to do something else.
“We’re starting to see that recycling of talent coming back through the New Zealand market, which is amazing to see.”
In today’s podcast Wixon talks about pushing into the US, and how to approach the global market.
“You need to be an inch wide and a mile deep,” he says.
“You have to have a super-narrow value proposition that really solves a problem, and know everything about that to really solve (it) for your clients.”
Understanding the sheer scalability of tech companies is another factor.
“It’s borderless, you can sell from anywhere; it’s super-high gross profit margin; you can attract investment funds.”
So what are the things firms do wrong that lead to their downfall?
“All sorts.
“The first I’d say is relationship breakdowns, breakdowns between founders. I see a lot of that – more than I’d like to see.
“Breakdowns between shareholders.
“Running out of cash is another.
That last one is topical, as Wixon notes equity funding has been harder to come by recently, across the board..
“Because equity markets have been all over the show over the last six to 12 months, particularly for tech companies, that equity has slowed down.”
Wixon says BNZ started funding tech companies about eight years ago when that wasn’t a thing.
“Banking and tech companies definitely didn’t go together. If you didn’t have assets that you could see, feel and touch, it was very hard to go past that.”
Find out in today’s podcast how it started by his “accidental” funding of a company.
BNZ’s recently released Revenue Based Financing proposition for software as a service tech companies, is the bank’s first ever explicit mandate to fund into pre-profit companies.
“The idea is to try to be more helpful, sharpen up the equity invested from other (non-BNZ) sources of capital markets and provide some actual meaningful funding early.”
Wixon also has tips for beginners when tech wizards want to run with a world-beating idea.
“My personal view is that having someone with strong commercial, financial and business acumen as early as possible is very important …. someone to present the business out to investors.
"When you go from a handful of staff to a hundred, it gets harder to manage the culture. You need processes and procedures… a bureaucracy."
From BNZ’s point of view, it’s important to have a lot of good advice and support from a very early stage.
Wixon says when it’s looking to back a company, the bank looks for character – who the team is and their skill sets; cashflow – that they’re tracking revenue growth and momentum; and collateral – do the company founders understand the key recipe and/or ingredients to growing the value in their business? (And, as importantly, do they own and control that recipe or the key ingredients.)
“If you’re not organised with the answers to those big three Cs, then there’s a whole range of uncertainty.
Uncertainty is not BNZ’s playing field, notes Wixon.
“If you do have the answers,” he says, “that’s for us.”
BNZ is a partner of Newsroom.
This content is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser. No party, including BNZ, is liable for direct or indirect loss or damage resulting from the content of this article. Any opinions in this article are not necessarily shared by BNZ or anyone else.
