http://nzh.tw/11595558

Cyber attacks becoming new normal, writes Tim McCready

Cyber risk rated as insurers’ top concern over the next two or three years in a survey released last year by PwC and CSFI. That was up from 13th place in 2013, and 11th in 2011.

Among New Zealand insurers, natural catastrophes remain the biggest risk, but cyber risk — at fourth place — rated as a major concern.

The amount of data about clients that insurers keep on their systems — including credit card information, medical details and underwriting information — makes them prime targets for cyber-attack. For that reason, there is a high level of anxiety among insurers towards cyber risk, particularly software failure and data security breaches.

One Australian respondent acknowledged the level of the cyber risk. “We repel more than 20 serious attacks every day. Half of those we suspect are state-sponsored attacks.”

As cyber attacks grow in number, scale and exposure, they are becoming a new normal for companies right across the spectrum. With that comes an increase in the number of cyber insurance policies issued globally. PwC estimates annual gross written premiums will increase from US$2.5 billion ($3.7 billion) today to US$7.5 billion by 2020.

The nature of cyber attacks means the geographical isolation that protects New Zealand’s biodiversity is no barrier to cyber-related crime. Although the uptake of cyber insurance in New Zealand is rising, it is still low by global standards.

PwC’s Global State of Information Security Survey showed that only 37 per cent of New Zealand respondents have cyber insurance, compared with 59 per cent globally, 56 per cent in Australia, and 70 per cent in China. Of those New Zealand organisations with cyber insurance, 25 per cent made a claim in the past year — compared with 50 per cent globally.

It is estimated cyber crime has cost our economy $257 million in the past year, although any figure is likely to be conservative as businesses are often reluctant to disclose a cyber breach, and it is notoriously difficult to assess the true cost of an attack.

In the United States, the Target retail chain reported costs of US$162 million, after insurance payments, from a 2013 attack in which hackers stole data from as many as 40 million credit and debit cards.

To provide protection, insurers need to be confident their clients have appropriate internal defence systems to mitigate the risk of attack. Yet SMEs have traditionally been poorly equipped and lacking the resources and awareness to put the necessary security measures in place to protect their IT infrastructure.

Tim Grafton, chief executive of the Insurance Council of New Zealand, says “the problem in New Zealand is that the vast majority of businesses are SMEs that lack sufficient risk management processes within their governance structures to identify the need for cyber cover. Having said that, brokers are playing and can play more of a role in offering cyber as an add-on to the suite of offerings.”

The Government is trying to address the lack of awareness and strength of cyber security through the Connect Smart partnership, a public-private collaboration launched in 2014, and its new Cyber Security Strategy.

The cost to a business from a cyber-attack can vary enormously depending on the industry and type of data breach. Costs may include a degradation of network performance, theft of physical devices, disruption of business, defacing a company website, forensic investigations, credit monitoring, legal fees, and even penalties for breaches of privacy as a result of not having sufficient protection in place.

Other less tangible costs including reputation and brand damage and the loss of privacy, intellectual property or classified data mean that how to establish the cost of a cyber-attack is still largely unknown.

This uncertainty and the immaturity of insurance offerings mean insurers hold major concerns about underwriting risk for cyber security, and could be exposing themselves to massive losses.

Insurers lack the data required to understand how likely an attack is, or what it will cost when it happens. Attacks are quickly becoming more advanced, and risks increase as companies rely on cloud services to keep their data backed up.

Stroz Friedberg, a global leader in investigations, intelligence and risk management, has predicted that constantly evolving cyber threats, immature risk models, and an underdeveloped reinsurance market will cause premiums to increase over the next year. This is particularly relevant for companies operating in sectors considered high risk, including retailers, healthcare and finance.

This has been seen recently in the US, where an increase in the number of cyber attacks on companies has begun prompting insurers to hike premiums, raise deductibles and cap the amount of coverage available. This is forcing some high-risk firms to scramble for insurance cover.

AIG NZ financial lines manager Katie Young says, “We live and work in a time of constant innovation and increased connectivity, with a resulting increase in the complexity of networks and supply chains.

“At AIG, we’ve seen a growing awareness by businesses in respect of cyber exposures and this has increased demand for our cyber insurance policy. While we’ve been covering cyber risks for more than a decade globally, it is still a relatively new market for insurers overall.

“As claims data develops, adjustments to premiums and coverage could follow.”

Grafton notes that a key point about insurance markets is that “premiums generally rise as the underwriting risk increases”.

“In the context of cyber security, that will differ from insured to insured, but the exponential rise in connectivity and devices linked to the internet of Things does raise the overall risk profile.

“Insurers, though, can cap their exposure through the use of limiting the sum insured, deductibles, exclusions etc.”

With something so unpredictable as cyber security, the only certainty is that a proactive approach to protecting against cyber attacks is essential. After all, cyber insurance will only help recoup the costs incurred after an attack. Preventing a security breach — and recovering from one after it occurs — rests squarely on the shoulders of the business.

• US$2.5b
Global cyber insurance premiums today

• US$7.5b
Predicted cyber insurance premiums by the end of the decade

http://nzh.tw/11595565

Cyber risk creates a real opportunity for New Zealand, Kordia chief executive Scott Bartlett tells Tim McCready

New Zealand businesses are starting to show a real mindset shift when it comes to cyber security, agrees Kordia’s chief executive Scott Bartlett.

“It’s in the papers a lot more, there is a real narrative going on in the business community around business obligations, endless surveys where CEOs say it is a top five issue — a real groundswell happening.”

But Bartlett admits that while this increased awareness is something to take notice of, it is just the beginning.

The next question companies must ask themselves is what they can do to make themselves safe. Businesses need to create a strategy — and then monitor it.

Bartlett sees organisations at different stages in addressing cyber security. “We have seen a lot of public sector departments and agencies jump on that maturity curve sooner than some others. And there are some standout examples among the business community.”

The challenge is that the issue, opportunity, and the subject of cyber security is universal — those instigating attacks don’t discriminate. “The reality is that you will get hacked, and you may not know that you have been,” says Bartlett.

“That is the attitude you must go into this with.”

Over the next year, Bartlett sees external threats increasing.

“We are going to see far more automation of attacks, and the tools are only getting better. Over the course of the next couple of years we are going to see the impact of these attacks worsen.”

One of the major challenges for businesses is legacy code that has been iteratively added to over the past 10 years.

“Find an organisation where all the web systems are new — they don’t exist,” Bartlett says.

“You are probably still vulnerable to things that came two years ago.” For external threats, raising the hygiene factor is critical. But they will always exist regardless of what a company does. Internal threats, on the other hand, depend on culture.

“There is a tendency to think of cyber security as a technical problem. But you can have all the policies, procedures, and firewalls in place you want, but if your people don’t understand the risk that comes with picking up a USB stick and throwing it into a computer, or doing commercially sensitive work on public hotel Wi-Fi, then the bad guys will get around your systems.”

Kordia’s mission is to be New Zealand’s leading business-critical technology company — “you can’t be in the business-critical game without cyber security.” In line with this, Kordia announced the expansion of its cyber security offering with the acquisition of Aura Information Security for $10.02 million in November last year.

Before the acquisition, Kordia already provided security products to customers, but Bartlett describes bringing Aura into the portfolio as Kordia’s “secret sauce”.

Fifty per cent of their business is in telecommunications, and roughly half of that in New Zealand is now security services.

Aura has about 300 customers, most of which are New Zealand’s largest organisations, including government departments, banks, and large insurers. They are also increasingly working with medium sized businesses.

Bartlett stresses that the biggest requirement in cyber security is to do a terrific job for customers — “if you drop the ball once, you are done”.

It is that requirement that makes Kordia acutely conscious of responsibly managing the growth of its cyber security consulting services. Although growth can be alluring, Bartlett insists that serving existing customers first is the priority.

“While we have experienced CIOs and technical folk in New Zealand, cyber security is specialist.

New Zealand’s pitch to attract people here isn’t bad, but Bartlett admits that the world is competing for the same talent. We need to have a combination of “grow our own” as well as attracting the best, he says.

For Kordia, this means making sure their cyber security team of 30 spends more than a fifth of their time on R&D — research that interests them. It’s a huge investment for Kordia, but things are changing rapidly — “if you’re not doing research, you’re falling behind.”

As opposed to Aura’s consultancy services, Kordia’s security product is very scalable.

RedShield provides defence for websites and web applications, and is currently shielding most of the Government and large businesses. It has the potential to go truly global, beyond current deployment in Australia and the UK.

It is obvious that Bartlett has a real passion for the opportunity cyber security can offer both Kordia and New Zealand.

“Exporting IP is fantastic and it is definitely part of the plan,” he says. “Products like RedShield will be key for New Zealand’s economic future — weightless and scalable. With fair wind and a lot of smart people it could become a big opportunity for New Zealand.”

Bartlett notes that the Government plays a leading role in informing and educating. The establishment of a CERT — a computer emergency response team — provides businesses a first port of call for advice, and allows knowledge sharing from the global community and within New Zealand.

This will ultimately help to lift awareness.

But the Government can’t do it alone.

Bartlett has been surprised at how much desire there has been across the spectrum to make the country safer, and how willing people are to contribute to it.

“We are a small country, and should be able to become a cyber security paradise,” he says. “If we can make New Zealand a cyber safe country — the world’s first — that would give New Zealand an enormous competitive advantage.”

http://nzh.tw/11481422

Tim McCready

Sheep milk products may become a Holy Grail as the agricultural industry continues to diversify, writes Tim McCready.
Dairy diversification is a very New Zealand preoccupation, and with good reason. Dairy prices are not becoming any more predictable, an uncertainty that feeds constant rhetoric about the need to diversify away from dairy.

It is true that diversification into technology and intellectual property exports offers New Zealand an exciting future, but it overlooks the potential for diversification within dairy. This can offer New Zealand significant opportunity, new markets and potentially less environmental damage.

Though dairy is still dominated by industry giants, this has not crowded out smaller innovative players. The “alternative dairy” industry has already had success in New Zealand.

Hamilton-based Dairy Goat Cooperative developed the world’s first goat milk-based infant products in 1988. Focusing only on the premium market, Dairy Goat’s turnover in 2014 exceeded $150 million. They show no signs of slowing, with a $70 million spray dryer opening last year.

Auckland-based health product provider New Image Group has partnered with Oete Farms, and plans to increase goat milk products, particularly due to a strong response from China, Southeast Asia and the Middle East. Even Hawke’s Bay’s regional economic development agency is spearheading a project to capture the value chain for the region’s goat industry — from breeding through to processing and exporting.

Yet it is New Zealand’s sheep that may provide the next exciting opportunity for diversification within the dairy industry.

The global market for sheep dairy is large and growing, driven largely by health, tradition, and fashion. Sheep milk has considerably more milk solids than cow’s milk, almost double the protein, more calcium, high levels of key vitamins, and a creamier texture. It is also reported to be more easily digested than cow’s milk, making it attractive to the Asian market.

The New Zealand government has recognised this potential. The Ministry of Business, Innovation & Employment, tasked with helping businesses to become more productive and internationally competitive, is running a six-year programme to boost exports of New Zealand’s emerging dairy sheep industry.

Their research, involving AgResearch scientists from across New Zealand, aims to grow our dairy sheep industry to become an international leader by better understanding sheep milk composition and function, boosting production and value, and ensuring the environmental footprint of the industry is sustainable.

New Zealand’s dairy sheep industry is already reasonably established, with five commercial operations, but there are signs it can expand and innovate further still.

AntaraAg, New Zealand’s largest producer, has around 20,000 stock units and produces cheese and milk powder, mostly for export. Earlier this year AntaraAg’s predecessor, Blue River Dairy, sold its processing plant and brand to Chinese company Blueriver Nutrition HK — a necessary step for expansion into Asia after a year of unsuccessful negotiation to have Blue River Dairy’s infant formula certified in China.

On top of this, New Zealand’s sixth commercial sheep dairy operation was announced last month. Spring Sheep Dairy is a 50/50 partnership of SLC Group and State-owned enterprise Landcorp, and has ambitions to lead this field.

The partners aim to make Spring Sheep a leading dairy operation in terms of innovation, on-farm best practice, sustainability, product safety and quality, and product and brand development.

Landcorp is one of New Zealand’s leading agribusiness organisations and aims to improve the productivity, profitability, and sustainability of farming. Besides holding New Zealand’s largest dairy cow herd, it is also considered a world leader in sheep farming, genetics and research.

SLC Group is a boutique investment company that provides strategic support to turn New Zealand’s small and medium enterprises into brands that are attractive to a global market and to multinationals, with particular expertise in selling high quality New Zealand products into Asia.

Spring Sheep’s initial operation will be based on 400ha of farmland at Reporoa in the Bay of Plenty. They are converting the farm to milk 3000 East Friesian ewes and ultimately expect to milk 3500 sheep and produce one million litres of milk annually.

Though sheep milk is typically associated with feta, Spring Sheep sees this as a European dominated product and not maximising New Zealand’s added value potential. Spring Sheep is also steering clear of infant formula, which has historically been difficult to capture value from. Instead, they expect to start with ice cream, with the aim to expand their product range into senior and sport nutrition products. They will initially target Taiwan and Korea.

Lucy Griffiths, a 2014 New Zealand Nuffield scholar, spent a significant amount of time last year travelling to meet and work with sheep milk farmers around the world, and has arguably become one of New Zealand’s leaders in the industry.

Her report provides a business plan for New Zealand sheep dairy to become a billion dollar industry in 10 years’ time.

Griffiths can see the sheep industry offering New Zealand massive opportunity. “When I met with leading industry experts in the Middle East, Afimilk, they pointed out that the return on investment for sheep dairy is five years on average, versus 20 years for dairy cows. Sheep dairy could also provide a more viable return for the land and reduce the environmental impact at the same time.”

But Griffiths noted: “If New Zealand wants to position itself as a leader, we must be market-led and offer a point of difference from other large global producers.”

Korean reunification – Bonanza or Bust? (NZ INC)

Tim McCready

This year marks the 70th anniversary of the end of World War II, and also the 70th anniversary of Korea’s division into North and South. Last month the World Journalists Conference was held throughout South Korea under the theme ‘the 70th anniversary of the division of Korea: Thinking about unification on the Korean Peninsula’.

Na Kyung-won, Chairperson of the Foreign Affairs and Unification Committee of the National Assembly, posed the question: What is North Korea for South Korea? Her response – “On the one hand, a serious security threat, but on the other hand, a partner with which we have to work together on the way leading to the unification of Korea.” This stance isn’t surprising – the requirement to seek peaceful unification is included in the South Korean Constitution.

South Korea established a Ministry of Reunification in 1998, which works to establish North Korean policy, coordinate inter-Korean dialogue, pursue inter-Korean cooperation, and educate the public on unification. In Korea there is an old saying, ‘ten years can change even the rivers and the mountains.’ However any progress on reunification to date has been largely non-existent.

From 2000 until 2008 liberal governments in South Korea put in place the Sunshine Policy under the leadership of President Kim Dae Jung. The policy resulted in greater political contact between the two countries, two Korean summit meetings in Pyongyang, several business ventures and brief meetings of some Korean families separated by the Korean War.

Kim Dae Jung was awarded the Nobel Peace Prize in 2000 for his successful implementation of the Sunshine Policy. However, following nuclear and missile tests and the shooting of a South Korean tourist at the Mount Kumgang Tourist Region, the Sunshine Policy was deemed a failure and wound up in 2010. The Sunshine Policy is dead, and so are the key players on both sides.

Sadly there are an estimated 6,700 people from separated families living in South Korea. The tragedy of the division is most prominently seen through those people who have not seen, spoken to, or even sent letters to their family members. Those people with the closest ties to the North are getting very old. Koreans, who are extremely family-centric, are very conscious of the fact that there is not much time left. The older generation passionately long for reunification, and believe it is imminent. Younger Korean’s seem to be agnostic about the prospect and worry about the economic cost.

Aside from reuniting disrupted families, South Korean government officials frequently spoke about ‘hitting the jackpot’, or the ‘bonanza’ that would come with reunification. The Korean Peninsula would be thrust into the role of an Asian hub. China, the world’s second largest economy lies to the West. Japan to the East is the world’s third largest. The virtual island of South Korea that is so evident from nighttime satellite photos would become connected through rail, road, and pipelines through to Eurasia.

South Korea’s population of 50 million combined with 25 million in the North would develop an entirely new market. North Korea has 20% more space geographically than South Korea and an abundance of natural resources including coal, iron ore, gold, rare earths, hydroelectric and seafood. South Korea would suddenly become resource rich, and South Korean companies would gain access to a pool of hardworking, inexpensive North Korean labour.

On the flipside, Andrew Salmon, an author and high-profile journalist based in Seoul had a more pessimistic stance. He noted that if you look at North Korea through only the lens of the leadership, nothing much has changed. His view is that the most exciting and underreported story in Asia is that North Korea is becoming a de facto capitalist state.

During the 1990s North Korea suffered from horrific famine. The State distribution system imploded and North Korea had no choice but to go across the border to China, start trading, and run primitive markets. These markets have not gone away and have instead expanded nationwide to the extent that you can now buy almost anything – food, consumer goods, even electronics. Instead of North Korean currency the traders use international currencies and communicate with each other to set exchange rates. While it may be primitive and unofficial, for the first time in history change is coming from the bottom up.

Salmon believes there are rewards just ahead. Under Kim Jong-un, we have seen incentives and autonomy for factories, agricultural and fishing industries. A real estate market is becoming established in Pyongyang and even a venture capital market is becoming established.

The Kaesong Industrial Zone was established and is run by the South Koreans. While it has been open for ten years, there are only 123 small South Korean companies operating there and is unlikely to get any bigger. The original plan was for this to be the first step for South Korea’s economic recolonisation.

On the flipside, North Korea are establishing additional special economic zones. They are seeking foreign trade and investment, with China moving in very aggressively. The Rason special economic zone is in the far northeast bordering Russia and China and serves as a warm-water port for both countries. Foreign currency is permitted, and there are no poor people there.

Salmon’s view is that there is some hope in the future. But it doesn’t lie in the hands of the generals, the politicians, or the diplomats. It is up to business leaders. The Sunshine Policy wasn’t instigated by a politician, but by Chung Ju-yung – the founder of Hyundai conglomerate. Salmon argued that South Korea needs to get rid of sanctions that prevent any trade or investment in the North outside the artificial Kaesong Industrial Zone and stop the incessant focus on denuclearization – because it won’t happen. He argued that we should instead separate business from politics so that we can all have a stake in the North Korean economy.

As a country that assisted in the Korean War, I was invited to take part in a panel discussion on reunification, and share lessons that could be learnt from a New Zealand perspective. With speakers from powerful economies of Russia, China, the UK and South Korea, this was formidable, but the Korean’s were interested in hearing about New Zealand’s much admired strong relationships with nations around the world.

Reflecting on Korean reunification from a New Zealand perspective, our close partnership with Australia in particular offers a number of lessons instructive to prospects for such a future partnership between North and South Korea.

Despite our entwined history and combined military efforts, it would be fair to say that our relationship with Australia has remained strong due to our successful economic and trading partnership. Although the countries have their differences – cultural, political, nuclear, and commercial – they both represent an important trading partner to the other, supported by what is often referred to as “the world’s most comprehensive, effective, and mutually compatible free trade agreement”.

New Zealand’s close relationship has endured with Australia because we are stronger together. If New Zealand can share something with the world, it is that careful navigation of trade issues is something that can strengthen relationships, and over time build trust.

Word from the officials is that unification will be a jackpot not only in Korea, but for the rest of the world. Whether that is right or wrong, a divided Korea is a very sad reality. Progress has been slow, but ultimately the key to resolving conflict and division on the Korean Peninsula will come down to demonstrating that the interest in reunification is mutual and that benefits long term will extend the potential – for both economies.

Tips from the best – Raising capital in Los Angeles (NZ INC)

Tim McCready

Panel discussion: Investor Guidance for Raising Money in Los Angeles

  • Mr Bruce Stein, Principal, Westridge Consulting, LLC
  • Mr Robert Perille, Partner, Shamrock Capital Advisors
  • Mr Craig Cooper CCP, LLC
  • Chance Barnett, CEO, Crowdfunder
  • Moderator: Mr Mitchell Berman, Managing Partner Zen Media Entertainment Group

People in the private equity space are miserable at the moment because they are finding valuations at a record high. That means that there really couldn’t be a better time than now for venture funding – for the entrepreneur. There is no shortage of capital in Los Angeles or the United States, but there is a shortage of really good ideas.

Investing used to just happen in boardrooms. Now it can happen online. The floodgates have opened for people to advertise – it is an entirely new industry and crowdfunding allows you to get yourself in front of potentially thousands of investors. Last year saw $14B in crowdfunding. The estimate for 2015 is $34B. Crowdfunding doesn’t have to come at the expense of angel and VC funding. There are a host of investors that are using the internet to find funding opportunities.

Investors are now looking for those businesses that have had some traction. That may mean they have established themselves, have customers, or are experiencing some kind of growth. They don’t have to be profitable but it has to be a profitable business model that makes sense.

Investors like to invest in people that have an unfair advantage. It could be that you have a PhD in a very specific area that no one else would ever know about.

Richard Branson is very candid about not taking much credit for his wins – he chalks some of them up to being in the right place at the right time. In saying that, the team is critical to any investor. An investment decision is generally made 80 percent on the team and 20 percent on an idea. A great team can make a mediocre idea work – but a bad team will kill a fabulous idea.

To get the attention of an investor, try to teach them something. If you are solely pitching for investment, your pitch may or may not be heard. But if you teach someone something, they will take notice of you.

When you are pitching, make sure you are able to deliver it so that someone can understand the core idea immediately. You don’t want to ask someone to delve deeply into a topic area they don’t understand. You will get a false negative if your presentation material is poor. Equally, flooding a pitch with keywords like ‘big data’ will never count for anything if it isn’t clear what your business does.

LA investors will be looking for something that is not a provincial application. This is a risk coming from New Zealand. Your product must be immediately globally applicable. If you don’t have a platform to leverage and build on then you will have a very difficult time to gain the attention of the investment community.

Be persistent and resilient. At seed and early stage it is hard to differentiate people from one another. Investors hear a lot of pitches all the time and they tend to blur together. It is a very competitive market. A big mistake is to not be persistent in follow up. More people lose opportunities because they fail to follow up until someone says no. It is a huge differentiator if you’re kindly persistent to the investor. It demonstrates resilience and that you are more organised than most other people are.

NZ INC. traveled with the Auckland business delegation to the tripartite summit in Los Angeles. Representatives from 43 Auckland businesses took part in the inaugural Tripartite Economic Alliance Summit in Los Angeles. This follows the signing in November 2014 of an alliance designed to boost economic co-operation between Auckland, Guangzhou and Los Angeles. Len Brown and councillors Bill Cashmore and Denise Krum led the delegation. Auckland Council organised it with the support of Auckland Tourism, Events and Economic Development (ATEED), NZTE and MFAT.

Media contact at Auckland Council: Glyn Jones 021 475897
ATEED (Auckland Tourism Events & Economic Development)
NZTE (New Zealand Trade & Enterprise)

Living and working in Los Angeles – the reality (NZ INC)

Tim McCready

Through no fault of their own, New Zealand (and even different parts of America) have a cartoonish view of cities in the United States. People tend to think of Los Angeles solely as Hollywood and made up of “fake” people. New Zealand companies – particularly those involved in technology, think of San Francisco or Silicon Valley as their default launchpad.

The United States is a very large country – a market of markets – and it is very important to consider that it may be Austin, Seattle, or Los Angeles could offer the best opportunity.

The reality is that Hollywood is highly visible, but makes up only a fraction of LA’s economy. The vast majority of marketing money for Los Angeles goes into tourism. The tourism dollar for the city is so valuable that it has made it difficult for the start-up community to shine.

LA is the third largest tech ecosystem in the United States (behind Los Angeles and New York), but it is the fastest growing. 12% of early-stage start-ups are located in Los Angeles, and there is now a large number of companies including Snapchat ($10B), SpaceX ($5B), Beats ($3B and aquired by Apple) and Oculus ($2B and acquired by Facebook) that were built in Los Angeles.

Los Angeles is the largest manufacturing centre in the United States, and a hub for aerospace, logistics, clean technology and innovation. Los Angeles port is the largest seaport in the western hemisphere. Southern California graduates the most engineers in the United States from some of the most prominent schools, including USC, UC San Diego, UC Santa Barbara, UCLA and others.

Los Angeles Mayor, Eric Garcetti, describes Los Angeles as ‘the western capital of North America, the northern capital of Latin America, and the eastern capital of the Pacific Rim’.

Despite all of this, there is no denying that Los Angeles is the creative capital of the United States, specialising in video content. One in seven people in LA are employed in a creative field. It is the number one metro area for art, design and media employment, and the creative industry provides more than $140B of annual economic impact to the city.

Video and content start-ups are succeeding in Los Angeles. Maker is the number one producer and distributor of online video, with 6.5 billion monthly views and 450 million subscribers. DeviantArt is the leading artist social network, and Mitu Networks is the largest online Latino video network.

New Zealand’s fastest growing export is IP. It grows at 10-15% each year, and has done so since the GFC. The United States is our number one intellectual property export market. Venture Capital companies in New Zealand do not have the scale of connectedness as capital that comes from the United States. It is important to think about the people behind capital – the right objective shouldn’t be to raise $5-10 million. The right objective is to find the capital provider that can help your business grow in line with its strategic objectives.

The stereotype about Los Angeles traffic is largely true, but if you can base your office near the people you want to attract for work, it is very easy to have a choice about where you base yourself. There is no one tech hub. Pasadena, Silicon Beach, USC, UCLA, Santa Monica all have significant human capital, infrastructure, and co-working spaces.

Los Angeles can offer a great lifestyle. LA is a city of cities – it offers a beach lifestyle, Hollywood, an urban downtown experience, hiking, and ski fields close by. Los Angeles has 300 days of sunshine every year and is offers more affordable living compared to other tech centres like San Francisco or New York City.

Without forgetting that California is currently facing one of the most severe droughts on record, a water metaphor was used to describe the nuances of Los Angeles which stuck with me. “New York is a river, Los Angeles is a lake”.

If you step outside in New York you will naturally go somewhere, because the city itself will take you and it is simple to navigate. In Los Angeles, to get anywhere you have to actively swim there, or you risk never getting anywhere at all. It’s a city that increasingly unfolds as you spend more time there.

But that’s what makes it so exciting.

NZ INC. traveled with the Auckland business delegation to the tripartite summit in Los Angeles. Representatives from 43 Auckland businesses took part in the inaugural Tripartite Economic Alliance Summit in Los Angeles. This follows the signing in November 2014 of an alliance designed to boost economic co-operation between Auckland, Guangzhou and Los Angeles. Len Brown and councillors Bill Cashmore and Denise Krum led the delegation. Auckland Council organised it with the support of Auckland Tourism, Events and Economic Development (ATEED), NZTE and MFAT.

Media contact at Auckland Council: Glyn Jones 021 475897
ATEED (Auckland Tourism Events & Economic Development)
NZTE (New Zealand Trade & Enterprise)

From Soju to Sauvignon blanc – Korean FTA (NZ INC)

Tim McCready

When the New Zealand – Korea free trade agreement signed in March enters into force, tariffs will be eliminated on 48% of current goods. New Zealand’s exports to Korea current attract $229 million every year in duties.

In the first year alone the free trade agreement will save an estimated $65 million in duties, and within 15 years of establishment the remaining tariffs will be largely eliminated. The industries that will see the most benefit are those exporting dairy, red meat, kiwifruit and wine.

The current tariff on wine exports to Korea is 15%, and this will be wiped immediately as the agreement enters into force. This tariff concession will provide a good boost to exporters, but despite the removal of tariffs, exporting wine to Korea remains a challenge for New Zealand.

This is largely due to the tax and distribution system. When wine arrives in Korea, a liquor tax of 30% is applied, along with an education tax of 10%. This is even before it hits the distribution networks, a value-added tax of 10%, and retailer markups.

Korea produces and consumes a large amount of liquor locally. Beer and Soju make up 86% of locally produced alcohol. Wine makes up approximately 20% of imported alcohol. Wine is considered to be a luxury product and is consumed by only a small fraction of the population. Red wine is dominating wine imports at 71%, but white wine is beginning to gain more traction.

With the removal of tariffs, New Zealand wine producers will now be placed on an equal playing field with major international competitors in the market including the US, EU, Chile and Australia. However, the rest of the taxes that make up the total cost of wine are payable whether a free trade agreement is in place or not.

The combination of taxes, high distribution costs and mark-ups can make New Zealand wine significantly more expensive in Korea than in many other countries. And because New Zealand wine is typically sold as a premium product, and tax is applied as a percentage of price rather than a cost per unit, this can increase the markup on a bottle of New Zealand wine significantly when compared to budget brands of wine. This differs to Japan where tax is applied per bottle, and education tax doesn’t exist.

In the year ending June 2014, South Korea accounted for just $2 million of New Zealand’s $1.3 billion wine export business globally. That said, New Zealand wine is increasingly becoming of more interest to South Korea. Until 2001, only one New Zealand winery had a presence in the Korean market. The number grew to 38 in just six years. Demand for New Zealand wine is growing as consumers become more aware and curious to try white wine.

But we still have a way to go.

I visited three cities during my visit to Korea, and one thing that surprised me is that I was frequently asked if New Zealand produced any alcohol. High-end restaurants had New Zealand wine on their wine list, but my experience demonstrated that the average consumer was largely unaware of our ranking in the wine world.

The free trade agreement will undoubtedly be great for New Zealand’s dairy, meat and horticultural industries. But the wine industry will be one to watch. Chile had a noticeable boost in wine exports after their free trade agreement was signed with Korea, and it is likely that New Zealand will see a similar lift.

But it could be that the free trade agreement gives New Zealand the impetus it needs to boost the recognition and acceptance of our wine brands in Korea. And if that occurs, the benefit of the free trade agreement would vastly exceed any reduction in tariffs.

http://nzh.tw/11447897

Tim McCready

Silicon Valley investment an art, not a science says expert.

A leading American venture capitalist, Bill Reichert, believes entrepreneurs and investors have a huge opportunity in New Zealand, particularly in the areas of graphics, animation and agriculture.

Reichert, managing director of Garage Technology Ventures which is based in California’s Silicon Valley, says New Zealand has a unique and compelling advantage across a variety of sectors and is ripe for disruptive innovation.

He says New Zealand now has strong angel groups that have made good investments, and some have graduated to small venture-style funds. However, he feels angel resources could be more aggressively pooled so that capital is set aside for follow-on investment when companies go global. A beachhead adviser for New Zealand Trade and Enterprise (NZTE) Reichert travelled with SVForum chief executive officer Adiba Barney to Auckland and the other main centres, making presentations and meeting entrepreneurs, investors and business leaders.

They were supporting Callaghan Innovation’s incubator programme and providing local technology businesses with a connection in Silicon Valley. Barney believes New Zealand should leverage the success of technology companies like Xero — just as Sweden, her home country, has done with the likes of Skype, Spotify, Minecraft and Candy Crush. They have strengthened the Swedish innovation ecosytem.

She says Xero is a trailblazer and the network it has created will make the path easier for future companies to follow.

Reichert outlined his 10 investment myths New Zealand angel investors and innovators could learn from (below):

His parting advice was that the water separating New Zealand and Silicon Valley shouldn’t matter – there is also a lot of space between Silicon Valley and New York. New Zealand should recognise its strengths and successes, feel the pride and not be afraid to brag about it.

Myth 1: Invest in what you know.

If you have become an angel investor, what you used to know is unlikely to be relevant. Instead, you should be technology agnostic and consider all opportunities. Most winners are black swans – random opportunities where success seems obvious with the benefit of hindsight.

Myth 2: Focus on making money

You can’t look at a start-up company the way you look at the stock market. The margins and projections an inventor or CEO provide are almost always wrong. Focus on whether they are creating value, and in turn, a valuable company.

Myth 3: The key is good due diligence.

Investors often feel a robust due diligence process will result in a good decision. But you cannot capture the data required to show if there is inherent value in a start-up. Instead, you have to develop good intuition and use your heart to make decisions. This is not something that fits into a standard due diligence checklist.

Myth 4: Don’t let emotions cloud your decision.

Since start-ups can’t give you reliable data, you have to pay attention to your emotions. If, for whatever reason, you don’t like the founders, it doesn’t matter how amazing their business model is.

Myth 5: Build a consensus among a syndicate of investors.

Most investors look for consensus. But historical data shows the best investments are controversial. If an idea is obvious it is unlikely any particular company will dominate the industry.

Myth 6: Success comes from adding value.

Everyone working in investment likes to think they add value. The harder you have to work for an investment the less likely it is to succeed. Instead, invest in a team that has the technology and understands the market. Investors don’t build companies, entrepreneurs build companies.

Myth 7: Protect yourself from follow-on investment.

By including protective provisions for yourself, you will likely poison the company. If you think you need them because you don’t trust the entrepreneur, don’t invest in the company.

Myth 8: Valuation is important.

You can focus so much on valuation that you lose sight of what is important. So often after signing a deal investors go through a surprise at the first board meeting. They were buried in term sheets and negotiated from a presentation that is now long out of date.

Myth 9: It is cheap to start a company now.

This is true, but it is more expensive than ever to build a successful company. Anyone can start a company, which means there is a lot of competition. Growth costs money, and a flat open world doesn’t necessarily make things cheap.

Myth 10: Diversify your portfolio.

There is no point diversifying into arbitrary categories. Diversify your entire portfolio, but not your angel investments. Instead of chasing hot sectors, invest in ideas that are exciting and have an edge – things that could be the next black swan.

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Tim McCready looks at financing trends for innovators and entrepreneurs.

What does it take to turn a dream into a reality? The answer inevitably involves money, and usually quite a lot of it.

Many New Zealand businesses choose to grow organically, either by bootstrapping, where revenue is reinvested into the business for growth, or through small amounts of funding obtained from the bank, family, or friends.

However, a business built on innovation nearly always requires a significant injection of capital from a third party, and traditionally through venture capital or angel investment.

Aside from money, these sources of investment can bring additional spillover benefits to advance a business.

Angels and venture capitalists will typically invest in opportunities where they can add value using their networks, bring knowledge and a new perspective, or impart first-hand experience. When it comes to innovation, you cannot have enough of any of these.

New Zealand’s ‘no. 8 wire’ mantra is not just rhetoric. Over the last few years I’ve seen an increase in international funds and multinational organisations taking an interest in New Zealand.

They recognise us as a pool of largely untapped potential and are coming to see what we have to offer.

There is plenty of exciting innovation happening here, but it is probably fair to say that many businesses are not ‘investment ready’, and don’t present themselves in the best light to make an attractive funding proposition. There is some truth that money is hard to get. Not just from New Zealand, but anywhere.

Venture capitalists and angel investors hear about opportunities to spend their money continuously – it’s their job.

They want to see solid business opportunities and investment pitches that are professional, polished, and concise.

It is arguably for this latter point that many businesses unwittingly make the challenge more difficult than is necessary and struggle to get their foot in the door.

New Zealand Trade & Enterprise’s Better by Capital programme addresses this by explaining the capital raising process, allowing a business to identify and access the investment required to expand and internationalise.

Better by Capital partner with private sector specialists who have capital raising experience to help businesses get ‘investment ready’ and prepare a capital plan. NZTE’s capital team can then assist with their global investor networks to identify and access domestic and international sources of funding.

Callaghan Innovation, the government-backed innovation hub, provides more than $140 million in funding a year to businesses to use for their R&D projects to encourage innovation.

R&D Growth Grants provide 20 per cent public co-funding for R&D expenditure, capped at $5 million per annum. R&D Project Grants are targeted at businesses who are new to R&D where Callaghan provides funding for 30-50 per cent of R&D costs.

R&D Student Grants provide funding to cover the salary of a university student or graduate to work on an R&D project within a business for up to six months.

For early stage, high-growth businesses, Callaghan Innovation has an Incubator Support programme.

The incubators are privately owned businesses that can assist with all areas of innovation, including access to networks, market and technology validation, intellectual property assessment, access to capital, and advice on strategy and governance.

The introduction of this programme last year is the result of a push from the Government to get more innovation off the ground in high-tech sectors, which they rightly recognise as crucial to growing New Zealand’s economy beyond commodities.

Aside from the time required for the application process, government grants have few drawbacks and are a useful way for a business to make their cash go further.

R&D grants from Callaghan are non-dilutive, meaning that they don’t affect the ownership structure of the company. If your business is eligible, this funding should be at the top of your list.

Technology entrepreneur Sam Morgan has been known to criticise the government’s overzealousness when awarding grants, however he concedes that “it would be irresponsible not to try to get some”.

Not only does this help the balance sheet, but showing support from the New Zealand government and having access to extra cash for projects will undoubtedly help when talking to third parties about further investment.

It would be remiss to talk about capital raising and not mention crowdfunding. Equity crowdfunding is a relatively new method of raising capital, and is becoming an increasingly popular buzzword since a change in New Zealand’s securities legislation last year allowed it.

The Financial Markets Conduct Act allows a business to efficiently crowdfund up to $2 million without having to put together a costly and time consuming prospectus, prompting the launch of equity funding from PledgeMe, Equitise, and Snowball Effect. Donors pledge their support online, where their investment level can be of almost any size.

Crowdfunding relies on an opportunity reaching a large audience, which means it tends to work best if the project is something the mass public can get behind exciting technology or niche healthcare innovations have done particularly well on these platforms internationally.

As crowdfunding becomes more mainstream, having an opportunity that stands out and entices investors will inevitably become more challenging.

Finding funding for innovation is notoriously difficult and takes a significant amount of time.

But like so many things in business, funding is about networks, and you can’t do it alone. There are tools and services in place to help make it easier – you just need to know where to look.

Converge+UK: creative, business & technology abrasion

When I arrived in the UK from New Zealand I was chatting with two friends who had also recently relocated – Peter Thomson and Klaus Bravenboer, about the types of business events being held in London. We were surprised that the events we had been to tended to be very sector-specific, and that innovation, collaboration and access to capital in London didn’t seem as far ahead of New Zealand as we had expected.

We recognised that the most exciting part of working in start-ups is when people from different backgrounds come together to make something exciting happen. Aristotle was exactly right: ‘The whole is more than the sum of its parts’ (we prefer the term ‘creative abrasion’,  proposed by a little known book from the 1980’s with the same name, which postulated that genuinely new ideas emerge from the debate, disagreements and diversity that only happens when really opposing viewpoints collide).

Off the back of this conversation we created a non-profit organisation – “Converge+UK”.

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Converge+UK runs events that bring together disparate groups of people from creative, business, and technology sectors.

For the first event we partnered with Google and hosted at Google Campus. Continuing to run our events in London start-up incubators we have also held Converge+UK events in the Innovation Warehouse and at Wayra.

Over time we have refined the event to include:

  •  Three blocks of “5in5“ presentations – five slides, one minute per slide. Five minutes is enough to cover five key points of a topic, and one minute per slide is a good length for storytelling and
  • Two group exercises before breaks
  • Plenty of networking opportunities between blocks of speakers

Bringing designers, developers, entrepreneurs, scientists, angels, corporates and industry leaders together has provided the opportunity to produce remarkable solutions to extremely disparate problems. Group exercises we have run include discussing how LOCOG (the London Organising Committee of the Olympic and Paralympic Games) could have better dealt with the problem of empty sponsor seats in the Olympic stadium, and how we could use ‘creative abrasion’ to better educate the community about the problem with payday loans – an increasing problem in the UK.

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To find out more about Converge+UK, visit our website, follow us on Twitter, connect with us on facebook, or sign up to come along to our next event at Meetup.com.

“There were just so many meetups in London that it’s overwhelming, there’s something on every night, but it’s impossible to know which events are worth going to and even when you find a good event, it’s all people from the same discipline. It’s like partying in a giant echo chamber. I wanted to start something that bought people together in new ways.”

– Klaus Bravenboer

“There is a rebel spirit to most entrepreneurs that is somehow lacking in the events and support for innovation in the UK.”

– Peter Thomson

“Innovation is now so important to every sector. In every industry from supermarkets to social networks, if you don’t constantly delight your customers then two guys in a garage somewhere are coming for you.”

– Tim McCready

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