Thursday, 20 September 2012

OPINION: How far are we prepared to compromise?

by  Charles Abraham and Monica McEntyre 

 

We thought as representatives of the capital markets we should offer some comments on parts of Derek Onley's wide-ranging opinion piece last month (September, p.24).

 

In his piece Derek was critical of Windflow Technology and its involvement with General Dynamics as a way of raising much needed capital, and argued that an absolute line could and should be drawn about dealing with a company that had a connection with the military.  As consumers we can try to avoid supporting companies whose activities don't meet with our own personal beliefs. Sometimes it's clear. We can avoid smoking or consuming alcohol; but not always. How far do we dig into a company's other business activities before we buy a product?  For example, one of Korea's major car manufacturers also produces the main battle tank for the Korean Army.  Does this mean we shouldn't own a Korean car?  Do we boycott all Japanese companies because of whaling?  

 

Windflow Technology has followed a pathway familiar to many emerging companies in New Zealand, and indeed around the world, with need for capital to get a product from a bright idea to market. Derek has rightly asked about alternative approaches. Ultimately they all come down to someone prepared to put their hand in their pocket and back the idea.  Whether it is by way of a loan or a stake in the enterprise someone still has to facilitate the process. The capitalist system has flaws and can be abused, but generally works very well in matching those with free capital to those who need it. Yes, Windflow had a $7 million loss for the last financial year and needed to raise urgent working capital or otherwise face the real prospect of receivership.  Windflow's ability to raise the level of capital required cannot be correlated to the ability of someone on the median wage – quoted as $27,500 p.a.; the median income for Otago households is $66,000 p.a., slightly lower than the New Zealand household income of $75,000 p.a.   Windflow's, or for that matter any company's, ability to raise capital is not like an individual household trying to save.

 

Incidentally, New Zealanders currently hold $105 billion in deposits with the New Zealand banking system.  Perhaps raising $2 million from New Zealanders would not have been a big ask, except that New Zealanders seem all too reluctant to take a long-term view of their own companies.  All too often an investment is sold at the first indication of a capital gain.

 

Windflow has licensed its technology to a third party in an attempt to solve the problem that many other New Zealand manufacturers face, and that is the tyranny of distance.  It is simply beyond New Zealand companies to make big-box items, ship them round the world, and still be competitive.  A company that licenses its technology and exports it to the world does so for the survival of the company, to provide security for its staff, and ultimately for the benefit of the New Zealand economy.

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