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When 42 Below floated in 2003, stockbrokers and analysts scoffed and advised New Zealanders to invest in something safe instead (finance companies, perhaps). in this condensed extract from Every Bastard Says No, Justine Troy recalls how she and husband Geoff Ross swallowed their pride and tapped a new kind of Kiwi investor.

When 42 Below floated on the NZX in 2003, stockbrokers and analysts scoffed and advised New Zealanders to invest in something safe instead (finance companies, perhaps). In this condensed extract from Every Bastard Says No, Justine Troy recalls how she and husband Geoff Ross swallowed their pride and tapped a new kind of Kiwi investor

Every Bastard Says No

Every Bastard Says No ($45) hits bookshelves mid-April and is published by Random House

Make no mistake: asking your countrymen for money takes guts. Double the courage is needed when most of your national business community is jeering at you from the soft seats.

The short history of 42 Below to date had been punctuated with do-or-die moments. Listing on the NZX was perhaps the single most death-defying act yet. The idea initially came from Grant Baker, by this time heavily involved in the day-to-day running of the business.

Grant had long ago outlined his expectations that the brand had a global focus—a proper goal. Geoff defined this as “to be the most sought-after super-premium vodka in the world”.

To reach this goal they could raise private capital or go into debt with the bank. The former was ruled out because private investors try to rip your arms off, driving the valuation down when they invest. Private investors also have the annoying habit of telling you how to run your business on a daily basis. Bank debt was an equally unappetising option. Grant regarded the third option, listing on the stock exchange, as a great professional challenge.

If it is possible for a company to be in good shape with a negative cashflow then 42 Below was in great shape. Sales were growing; the product continued winning worldwide taste awards. The brand had buzz. So Grant ran the idea of listing past Geoff.

Help came in the form of Mark Weldon. He’d swum for New Zealand at the 1992 Olympics; he has a stack of degrees, among them a Juris Doctor degree from Columbia Law School; he has social skills—and in 2002 he had come home from New York, in his thirties, to run the NZX.

Grant and Geoff were immediately impressed with Mark. He understood 42 Below. He had seen the bottles selling for $400 in the New York clubs. He understood that the difference between vodka selling for $25 and $400 was brand.

Mark spoke of northern Italy, which ten years earlier had sent water, pasta and olive oil to the world in bulk commodity forms. Huge sacks of pasta had sold for $10 but, today, the same pasta sold at the same price in just a tiny brown bag with a cool star on it. Same pasta: sexier branding, much higher margin. The opportunities for New Zealand were clear: we could turn our commodities into brands and generate wealth.

Those early investors were the smiles and warm hands on our shoulders. ten-year-old cousin blair sold his cows to invest. geoff’s nana was very suspicious of the new ‘plonk’ but found a few grand

Proving this to the financial services sector was a miserable task. Investment bankers, brokers and fund managers delight in a ten-year trading history and regular dividends. Slow and steady with average growth. In New Zealand those types of so-called ‘blue chip’ or ‘safe’ companies can turn to crap anyway. Telecom, Vertex, Feltex—whoops. When 42 Below showed up, the A-type financial advisors clung to the old rules like toddlers behind their mothers’ skirts.

A growth company without a long positive trading history using the capital markets for … growth capital was considered outrageous in our ultra-conservative financial services sector. Overseas, they seem to understand that growth companies are essential to a healthy economy. In New Zealand there is a different mindset. You have to prove yourself before you’re entitled to growth capital, a paradox every entrepreneur must face.

42 Below had enormous global potential. It had a stellar team behind it who were experienced in managing rapid growth and building brands, but it was heartbreakingly undercapitalised.

Going into the IPO, the last financial year showed generated revenue of $504,000 and a loss of $589,000. The traditionalists had trouble getting their heads around this and 42 Below always acknowledged that it was a big ask.

Truth is, we had no idea what we were getting into. ‘IPO’ sounded like a cruise line and a ‘warrant’ (an option to buy further shares) was something your car needed. There is an intellectual snobbishness in the private world of financial services but once we got the lingo it wasn’t that hard. As Geoff said, “Running your own business is a shitload harder than figuring out how that industry works.”

Throughout the months to the 42 Below listing day, analysts from various institutions would frequently parade their ignorance about it on national television or let the business press quote their tut-tuts.

It’s astonishing what can pass for analysis in New Zealand’s financial services community: a cursory look at top-level numbers, resulting in a public flogging for bleeding cash and having an excessive valuation. Business commentators attacked the IPO too. One, particularly well known, told me he didn’t have time to look at the depth and breadth of the business. It was the first IPO in some time so perhaps he’d forgotten how to adequately review a first offer for the public or perhaps this opportunity was too far into unknown waters. We felt advisors needed to start making their analysis relevant to modern economies, and in particular creative industries. That they needed to look holistically at companies, at founders and at the structure and dynamics of market forces and individual business models.

Justine Troy & Geoff Ross

One investment banker and ‘beverage specialist’ went out of his way to slag off 42 Below. How can you call yourself a specialist in beverages without understanding the power and potential of brand? It’s like being an ear, nose and throat specialist who flunked the ‘throat’ part.

Some sharebrokers, young and old, seemed almost to resent Geoff and Grant for having the audacity to try raising capital using their clients’ money. Trader websites ridiculed the offer. But we were heartened by stories of advisors trying to dissuade their clients from investing in 42 Below only to face determined New Zealanders saying, “Just buy me the stock.”

One of the most amusing reasons business commentators offer their readers for not supporting an IPO is ‘generous returns to owners’ resulting from the listing. Our nation’s business commentators don’t want the public investing with capitalists, just in case anybody makes money. And to top it off they don’t want anybody rewarded for vision and hard work along the way.

When the listing press release went out the New Zealand business press indulged 42 Below for a heartbeat, with stories on page one, page three and a feature on our marketing activity. There was novelty value and the journalists didn’t need to think too hard to sell newspapers. A maverick Kiwi upstart with plans to take on the world was introduced.

New Zealanders loved the story; they wanted to believe in 42 Below. They thought, “These guys seem cool. Our wine, our fashion and our movies are kicking arse overseas—why not vodka from New Zealand?” In a business environment of sceptics we got through to a public of believers.

Inside every office high-rise someone in a suit is looking for an excuse to loosen their tie. 42 Below gave them a reason. The company had to take its intentions on tour. In September 2003 the 42 Below listing team held meetings around the country, presenting the offer to brokers and to potential investors. They were held in the best bars in New Zealand and the loyal bars—places like Wellington’s Matterhorn with its broody, cavernous interior and world-class bartenders.

To boost momentum the team all agreed to flog allocated shares to friends and family. This was no different from the public offering. The hook was that the friends and family allocation at this early stage could be guaranteed. If the offer was oversubscribed they would not be diluted or, worse, miss out.

Geoff and I come from hard-working middle-class families; we have never mixed with or even known really rich folk. I was horrified at the idea of asking our friends and family for money. No matter how breezy, nonchalant and open-ended the approach, it boiled down to a request for their money. Any response in the negative could only be construed as a lack of faith in us.

We sat one night on the big brown suede couch that was our meeting place and stared at each other. I told Geoff it was shameless. He told me with manufactured confidence why friends and family should be pleased to have the opportunity. I asked him if he knew what a scrounge was. He quoted Grant Dalton at me: “Take a hard pill and get it done.”

In the end we just made the sodding phone calls, and of course every one of our friends and family heard us out. They asked intelligent questions and one by one they put their hands up to be counted. It didn’t matter how much; it was humbling and inspiring. This capitalised show of solidarity was also a driver our detractors didn’t count on. With the skin of people they loved in the game, the leaders at 42 Below were driven harder than ever.

None of these early investors was particularly wealthy. A senior investment banker once implied that the offer succeeded because we had rich friends. I don’t think he knew where Papakura was and, frankly, we still don’t have rich friends.

To us those early investors were the smiles and warm hands on our shoulders. Ten-year-old cousin Blair sold his cows to invest. Old Aunty Jean put in her precious savings (and later paid for cancer surgery with her profit). Geoff’s parents, sister and her husband likewise invested. Family members Darren and Tracey made a sizeable investment; until then like true grafters they had only invested in their own sweat to make a buck. Geoff’s nana was very suspicious about the ‘plonk’ but she found a few grand. Dave Dewar, the father of an old girlfriend, made our business his sport—he watched every move and attended every shareholder meeting. His wry face grinning at us from the crowd always gave me heart. Our friends Dave and Rae Poole became the largest private investors in 42 Below.

The first two weeks went brilliantly. Kiwi investors nationwide were behind us. First-time investors were suddenly interested in the sharemarket. Then leading business columnist Brian Gaynor slammed the offer. Other journalists followed suit. People started to write ridiculous things, inaccurate things, ignorant and badly researched things. Suddenly we had a media crowd chanting NO!

It was hard not to take this personally. People who had never spoken to us were able to influence the public. They were telling the world we didn’t deserve the capital to carry on. At the halfway point the offer was almost fully subscribed but when the media laid into us things dried up. Disillusioned people called to say they wanted their cheques back. Grant Baker would take these calls and say, “Sure, there is plenty of demand, we are happy to send it back.” At which point the person would pause, think about it and agree to stay in.

The offer was oversubscribed—just. We scraped in with three late cheques taking us over $15 million. The offer closed five days before we went live on the NZX. The money was in the bank but our hearts were in our mouths and the faith of hundreds of New Zealanders was in our hands.