The Naked Venture Capitalist

By Deborah Hill Cone

Friday 20th February 2004

In some ways, Robin Johannink doesn't do himself any favours in the credibility stakes. He has the verbal tics of a salesman who has been to a lot of motivational workshops every sentence ends with a rhetorical question as taught by Tony Robbins or some other closing-the-deal guru.

One of his most frequently used is "that sort of style, right, hmmm?" the salesman's version of "knowarrimean?" Mr Johannink will talk about a serious topic but mid-sentence break out in a reassuring smile which is unnervingly quite at odds with what he is saying, like something out of Glengarry GlenRoss, David Mamet's play about a group of competing salesmen.

The matte-black and shiny-black striped Versace suit, statement-making glasses and blonde highlights in his 47-year-old hair don't help either. All in all, it makes you wonder whether you will soon find you have signed up to buy an expensive vacuum cleaner.

Perhaps that's how Stephen Tindall, Chris Alpe and Murray Haszard felt.

They invested millions in companies promoted by Johannink Vortec, Ilion, Virionyx, Diatranz and were among investors who felt miffed when the companies' share prices tanked or, in the case of Vortec, collapsed entirely.

Smaller shareholders were not exactly thrilled either and, as The National Business Review reported, questioned Mr Johannink's management fees and what they saw as his Porsche-driving exorbitant lifestyle.

Last year NBR revealed Mr Johannink's dispute over unpaid rent at his high rise offices in Auckland's Vero Centre and scrutiny over the cut his company Phoenix Management took of the money raised.

If shareholders were judging Mr Johannink on the usual investment criteria that old-fashioned idea of putting in money and expecting a return they were bound to be cross and look for someone to blame.

But when it comes to venture capital, Mr Johannink argues you have to suspend your usual judgment because it's a totally different ball game and it's all about raising money.

"I would work double shifts because of the time difference. You're just running on adrenalin. I didn't sleep because if I didn't raise the money the whole thing was going to collapse."

Some words commonly used by everyday businesspeople: costs, boosting revenue and trying to turn a profit.

Some words commonly used by Mr Johannink: vision, taking risks, burning cash, closing the deal.

But it's the very persuasiveness of Mr Johannink's salesman patter that enabled him to do whatever he had to do to close the next deal and raise more money to keep the companies afloat.

"If I walked into a meeting with someone and they did not invest they knew damn well I was going to get someone else to. Because of my enthusiasm and passion I will find someone. There are very few people who have got that."

This is the extreme sport of business all adrenalin and sweat and the white knuckle ride of knowing if you can't raise the money the company will fail.

You get the feeling he loves this and it may be partly in his genes.

Robin Johannink grew up in the working class West Auckland suburb of Te Atatu, the son of a penniless Dutch immigrant who came here with nothing and started the successful T&T Childrenswear chain.

His first business venture was T&T Jeanager, a chain of jean boutiques set up with a $400 loan from the bank and some retail space from his father.

He did a deal with the then trendy brand Amco, outfitted the shop with fruit crates, denim and silver insulation paper and sold a lot of flares but said he was ripped off by staff and sold the business.

"I learned a lot about cash controls it was a good way for me to learn."

At that stage, Mr Johannink said, he was motivated solely by making money.

'I was bought up in a family where a lot of your value was judged by your chequebook. That was a bad thing. You would choose deals where you could make money rather than figure out why you were doing it."

But Mr Johannink has experienced the highs and the lows of making a fortune and losing it long before he got into the venture capital business.

Some of his early business ventures include:

* Real Value Weekly, a free newspaper backed by Stirling Sports' Colin Taylor, supermarket tycoon Tom Ah Chee, retailer David Levene and others disgruntled by their treatment by the Auckland Star. Mr Johannink claims the freebie sucked millions of dollars of advertising away from the Star. It was eventually bought by INL and incorporated into its suburban papers;

* Clubman Apparel, the Levin-based manufacturer of Bob Charles shirts, and Professional Uniforms, another manufacturing company; and

* Clubcard, a credit card concept started by Mr Johannink and his then business partner David Colvin. Mr Johannink said the company went from nothing to $50 million in a few years "We were just two young kids." When the finance company backing the venture, Marac, got jittery, they sold it to BNZ for $2 million (a transaction that ended in legal proceedings).

Mr Johannink also had a stint as a currency trader and invested in property in fringe Auckland buildings.

He estimates he was worth $10 million in the late 1980s but said he came a cropper through a combination of property investment and the receivership of his clothing business.

The way he tells it, the business, Professional Uniforms, was on the verge of being sold to Deane Apparel, but at that point his bank, NZI Bank, decided it was pulling out of the country and the deal fell apart.

"I just about lost my shirt. I had my back against the wall ... but I learned the lesson that you have to be streetwise in how you structure deals."

Mr Johannink was in the process of building a white Hollywood-style mansion with underground squash court and helipad across three sections on the corner of Herne Bay Rd and Upton St in Auckland's Herne Bay. He sold the unfinished house at the depths of the property depression in the early 1990s for $1.2 million, despite having poured $3.2 million into it.

"I was left with no house and still had a mortgage," Mr Johannink recalled.

As his family moved into a dingy rented house, Mr Johannink did a lot of soul-searching and had a bit of an epiphany.

"One thing I learned through that whole experience was to never work purely for money there had to be a bigger purpose."

He started another advertising publication, New Zealand Advertiser, but "I hated every minute of it the last page determines if you are going to eat or not eat." He sold the publication to Retail Media.

About that time he met scientist John Broome, the boffin behind Pacific Lithium, and his career trajectory led him into the world of venture capital.

"He was so passionate about it it wasn't just Lithium to him, it was just a means to an end and I could really see the purpose in what he was trying to achieve."

Pacific Lithium, now known as Ilion, started life as a plan to extract lithium (used in batteries for cellphones and laptops) from seawater but then changed direction to become a producer of a new grey powder used in lithium batteries.

Mr Johannink's other venture capital projects included:

* Virionyx, a biotech company (formerly Probe Pharmaceuticals) moving into the second stage of its Food and Drug Administration (FDA) trials of its anti-HIV drug HRG214;

* Vortec, a company that owned the rights to wind generation technology, then went into liquidation; and

* Diatranz, which aimed to commercialise diabetes research by Professor Bob Elliott and has since listed on the Newcastle Stock Exchange in Australia and changed its name to Living Cell Technology.

Mr Johannink also helped to raise the first angel funding in 2000 for bus tracking technology company Connexionz.

For a while the companies all looked highly promising. For example, Ilion was in the final stages of preparing to list on the Nasdaq when the 2001 tech wreck happened.

But Vortec set off the domino effect that saw Mr Johannink ousted from the companies he had been instrumental in getting off the ground.

Vortec collapsed after problems were found with its wind technology while worldwide the price of windpower generation was plunging.

Virionyx and Ilion told Mr Johannink having his name associated with the company would hinder them.

"My name was tainted with Vortec they said it would inhibit their ability to raise capital."

Mr Johannink still has shareholdings, some of them substantial, but feels he has been unfairly treated and points out he personally has poured at least $2 million of his own cash into the businesses.

"I have never cheated anyone. I've never been dishonest. That's how they know I have spent too much there was nothing hidden," he said.

He is upfront about having taken a cut of money raised sometimes up to 6% but claims no one else could manage to close the deals and raise the cash, so that was a reasonable price to pay.

Murray Haszard, now the controlling shareholder in Ilion, agrees his company doesn't raise money anymore in the "Johannink way."

"In a sense he did raise a lot more money than we have raised subsequently, but that did not really help us that much [as] a lot of that money went on ventures that never went anywhere. Essentially when Robin left we took steps to cut the cash burn rate," Mr Haszard said.

He acknowledged if it had not been for Mr Johannink, Ilion may not have existed, but pointed out if he had not saved it by putting more of his own money in, the company would certainly have collapsed.

"It boils down to style and substance and there is a time to have a good business front," Mr Haszard said, while admitting he was personally "swept along a bit by Robin's enthusiasm."

And Mr Johannink is prepared to admit he could have done some things differently. He concedes he was too optimistic in his forecasts and expectations.

"I was over-optimistic, out of naivete, thinking things were going to be a lot easier or simpler than they were. But I tempered that with the belief that things don't happen, you make things happen. No one ever exceeded their own sales targets."

He also accepts he took on too much.

"I had too many deals on the go at once ... if I am singularly focused on one project there is no way I won't succeed."

But he is less prepared to back down over the money spent on overheads, such as his smart offices, which he said created the right impression for prospective investors.

"We would not have raised the money without it. Where would you find CS First Boston or ABN Amro? I want to provide an environment where people like to come to work and feel good and proud to be there."

He is not penitent about the amount of money spent because, he said, it had to be seen in the context of what the companies were trying to achieve.

"Sure, you could have trimmed our overheads by $1 million on Ilion but that could have bought you one or two months. But with the share price going from $US5 to 10c, I think shareholders would prefer to see flash offices and see the shares up there again."

But he points out anyone who invested in the "Johannink" companies knew what they were getting into.

"There was no one I didn't look in the eye and tell them they have got to assume they have lost their money [when they invested]. You had to put the big picture in. No one was investing a dollar to make $1.50 ... you have to go and do things on a grander scale, not just a solid business."

Connexionz managing director Robert Burke has no complaints about Mr Johannink's spending. "We didn't pay him any money he just gave us a lump of money [he had raised]."

Mr Johannink had raised the initial round of angel funding for the Christchurch-based company and did it very quickly.

"He's definitely an entrepreneur. He's pretty confident about his own abilities he makes a decision and runs with it and doesn't muck around," Mr Burke said.

Virionyx chairman Peter Sullivan said Mr Johannink was very good at articulating a vision and "enrolling people in that vision," which was helpful at one point in the company's trajectory.

"Biotechs are like taking a rocket to the moon. At certain points it's appropriate to jettison your management ... and hand over to someone who can take it beyond where we can get it to."

Jens Mueller, a University of Waikato management professor who acted as adviser to the Vortec board and internal liquidator, said Mr Johannink was a visionary who had a fairly good, scoped-up plan.

"There was real substance to many of his proposals, but talking about it was one thing, doing it is another."

"Where the wheels came off is where people who are the charismatic, visionary leaders turn to other people to implement the operational side. The team who are doing it and the people whose idea it was are different," Professor Mueller said.

Vortec investors knew the company was a punt.

"He wasn't selling a bank grade mortgage. People quite clearly knew this was a high risk venture ... but if it took off it would have been awesome."

"What I liked about him was he would be able to quite clearly articulate his vision."

Professor Mueller said Virionyx, Diatranz and Ilion were still going and had fairly substantial potential according to people who were still backing it.

"One out of four going south is not bad ... but some people who lose money look for where someone can be blamed," Professor Mueller said.

Mr Sullivan said there was a lesson in the Johannink companies for New Zealand companies in general: "to be a bit more thorough in knowing what we have before marketing it to investors."

Capital raisers also needed to be more careful in articulating the risks and in what representations they made when they went out raising funds.

"It's very easy for investors to think we have got an Aids cure. New Zealand investors are relatively unsophisticated and it's easy for that position to be exploited," Mr Sullivan said. "None of this is particularly related to Robin, it's just a symptom of where the New Zealand investing community is at."

But don't expect Mr Johannink to be toning down his act anytime soon.

He's no longer raising money for venture capital companies but has set up a new business that generates ideas, researches them, builds business plans and sells ideas to large organisations.

His first idea is a loyalty scheme concept in which consumers gather points to put toward a pension plan and he has a music idea in the works.

But don't be surprised if he turns up somewhere else where there are big ideas, big money and a wild ride to be had.

"You can only have limited success if your objectives are too narrow, sort of style, hmmm, right?"

MEA CULPA
What Robin Johannink admits he got wrong:

* Being too optimistic. In making forecasts and predictions he thought everything would be easier or simpler than it was.

* Biting off more than he could chew. Focusing on one deal at a time rather than at least four might have made a difference.

* Forgetting all investors care about is the share price. When the share price is riding high they don't care about whether you have Barcelona chairs in your office.

What he got right:

* Having a vision about what could be achieved

* Being able to inspire other people to share it and work round the clock to make it happen

* Raising huge amounts of capital from offshore investors including Singapore government-owned investor Vertex Asia, MIT and Japanese giant Nissho Iwai (invested in Ilion) as well as striking a deal with Harvard Medical School (Virionyx)

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