Lessons to learn from Wynyard Group failure
There are lessons for both investors and entrepreneurs from the failure of Wynyard Group.
The tech company was placed into voluntary administration on Tuesday.
The company had earlier been placed in a trading halt while it looked at various options including raising additional capital, or drawing on a $10 million loan from major shareholder, Skipton Building Society.
But in a statement yesterday the board announced that KordaMentha partners, Neale Jackson and Grant Graham, had been appointed as administrators of the company.
Wynyard Group had been been trying to sell its security software to global customers. It is a challenging market and while the company's costs were growing, but revenue was not.
The company struggled to meet its own forecasts and the share price had fallen 88 percent this year.
The shares last traded at 21.5 cents, giving the company a valuation of $38.5 million. That compares to a valuation of $118 million when Wynyard listed in 2013, with a debut price of $1.15. At its peak in early 2014 the company's share price traded around $3.30.
The company raised around $172 million from investors in its initial public offering and subsequent capital raisings.
The administrators are now exploring "all options," but how much the company might be sold for is unknown.
The failure of Wynyard Group is a reminder that investors need to be diversified.
You get instant diversification if you are in a managed fund, like KiwiSaver.
Some professional fund managers were invested in Wynyard Group. But Wynyard will not have been a big part of their overall portfolio. Those managers won't be pleased to have lost money on Wynyard, but nor should it be a crippling blow to their funds.
If you are buying individual stocks you need to make sure that you are invested across a range of industries and companies.
Smaller companies that are yet to make a profit should not dominate an investor's portfolio.
The lesson for entrepreneurs - and their boards of directors - is that you have to control costs.
Wynyard's costs were growing as it tried to develop new products and find new customers. But revenue was going the other way.
That should be a red flag to any company's directors and investors.
If there is a silver lining to the Wynyard story it is that the company's approximately 300 staff should be able to find new work with many of New Zealand's other tech businesses. But all those companies should view Wynyard as a cautionary tale.