|
|||||
New Zealand Engineering 1998 June Total Metering - the Story of a New Zealand Style Start-up Peter King reports
One of the loudest complaints voiced by engineers in New Zealand is that there is no venture capital market. Certainly there is no venture market of the kind any Californian might recognise as such. But this is the story of two engineers who quit their jobs, developed a box, raised venture capital and are about to commence manufacturing, all in Wellington - one of New Zealand's least well-endowed industrial centres. It's a story about two people who actually made it happen. Dean Gowans could not stand it any more. The 33-year-old power company project manager had switched from Capital Power to Energy Direct hoping to escape the bureaucracy and the slow pace of decision-making, only to find he was encountering the same thing all over again. Since the early 90s he'd been working on technology and SCADA projects and at Energy Direct he was managing a customer metering project, but the stress levels produced by the slow pace of change were driving him up the wall. "There was a lot of talk about the need to be innovative but when they had to spend some money nothing happened. One day I couldn't stand it any more so I rang Regan and asked him what he thought about developing our own technology and starting up a company." Regan Ryan, then 23, had joined Mr Gowans's project group at Capital Power while studying computer science and psychology at Victoria University. Over the years his part-time job had evolved into a full-time position, but with backgrounds in electronics neither Mr Gowans nor Mr Ryan found the big power culture easy to stomach. So they quit. Mr Gowans talks about making the leap: "We had a fair amount of confidence and we were offered some contract work. It wasn't enough to feed you but it gave us an income. You don't know what's around the corner but then you never really do. You could be hit by a bus tomorrow." They named their new company Embryium and at first it consisted of a very small room in the Colonial Motor Company building in Courtenay Place with Dean and Regan in it. To keep themselves afloat they did some consultancy work while at the same time developing a prepayment metering product for Energy Direct. They also got some help from the government's Business Development Grants scheme to develop a new type of metering which was ultimately to lead them towards Total Metering. The first product they developed was an extension to an overseas prepayment metering system. They were the contracted to develop a communications failsafe device called "Safelink" which redirects data through a cellular connection in the event that a land-line fails. The prepayment extension product was trialled by Power Direct, and more importantly, taken up by Plessey in South Africa. The system has since become the most successful of its kind in New Zealand with over 3,000 customers using it. Safelink has also had slow and steady success and is recognised as the leading security backup product of its kind available. It was in South Africa that Mr Gowans first came across new thinking in metering technology. "They were getting into all sorts of new ideas over there. A lot of it was prepayment systems and tokens. The government was driving a lot of new electrification projects but the problem was paying for it. If you sent meter readers into the townships they didn't come out again." Even at this early stage Mr Gowans saw the point of taking equity in innovative developments. "You don't have to have cash but you have to be in a position to invest time and effort in a new development in return for a share of the benefits." Brian Tolley
After their experience in South Africa Embryium started work on metering
technology. It was about this time (early 1996) that the Wellington City
Council, having noted Embryium's survival, provided the company with a
business mentor and it was this mentor who introduced the pair to Brian
Tolley. Brian Tolley has been involved in the electricity industry in New
Zealand, in his own words, "since forever". Cable and switchgear manufacturers Tolley Holdings, established in 1961
had, by 1985 when it was sold to ABB and Dunlop Pacific, grown to a $100
million annual turnover business employing 500 staff. Since selling up
Mr Tolley has acted as a consultant to the industry. But, importantly,
Mr Tolley shared Mr Gowans's and Mr Regan's frustrations with the way the
electricity supply industry operated. "People in the industry don't understand the importance of metering.
It's every bit as important as the transmission and distribution but because
there hasn't been the technology to carry out proper metering it's been
left out. If you go to Europe you'll hear people describe the electricity
business as a mature industry simply because it's been around a long time.
The fact is it isn't. It has yet to embrace the power of the integrated
circuit and the whole notion of customer choice driven by sophisticated
metering." Having a background in metering going all the way back to his early
days in the 50s working for Bedford and Zug in Switzerland, Mr Tolley quickly
saw that the prototype Embryium was developing was exactly the kind of
metering system that would be required in a fully deregulated and competitive
market. So, what is so special about this meter? Most importantly it stores
a month's worth of data in sixty minute averaged draw values. This means
that the customer is able to present the supplier with a usage profile
which can be planned for and priced accordingly. Next most importantly
it can be read remotely. The meter can either be linked on a multidrop
line with a single telecommunications entry point or be fitted with its
own internal modem. A month's data can be transmitted in thirty seconds.
An anti-tampering mounting and detection system is also included. In effect this means that where power and line supplier businesses are
separated, as is the Government's intention under the reforms unveiled
by Energy Minister Max Bradford in March, customers with such a meter could
pick and choose from different power suppliers, matching their own profiles
with the best deals on offer. The result would be to revolutionise the
electricity supply industry. It was not long before Embryium and Mr Tolley's vehicle, Brian Tolley
Corporation, had become partners in a new company: Total Metering Ltd.
The agreement was that Mr Tolley had the experience, the contacts and some
development money, while Mr Gowans and Mr Ryan had the technical expertise
to put together a new meter. They were on their way. The trick now was
to develop the product to a finished prototype stage and raise enough money
to begin manufacturing. Raise $2m
Think about it. Your assets are one printed circuit board and some seed
finance, your mission: raise two million dollars. Go! In New Zealand that
is a very tall order. Total Metering's first try at this was to approach the utilities to
see if they were prepared to put up the necessary funds to secure a headstart
over their competitors in the already well signposted deregulated market.
They got nowhere. Mr Gowans recalls the meetings. "It's pretty hard when all you've got to show them is a PCB. They'd
say things like `how do we know you can make this work?'." Mr Tolley says
there is a confidence problem in New Zealand. "Everyone's only too keen
to get on a plane and go to the States or Europe or wherever to `research'
this sort of business technology but they just don't want to know about
the guy down the road who has come up with something that's state-of-the-art." Getting nowhere fast pursuing that avenue the Total Metering team spotted
a news story in The Dominion's Infotech Weekly about a new technology
investment company called Morel & Co. It was then that they met the
fourth member of the group of five people that have brought the Total Metering
vision to fruition: Jenny Morel. Dean Gowans talks about venture capital: "You have to be prepared to give up your equity. If you want to keep
your equity and raise money you're looking for a loan so go to a bank.
If people are going to put money into your venture you have to respect
the fact that they are risking their investment on your ability to manage
and deliver so you have to give something back. In the end it's about shares
of the pie. Better to have a small slice of a very big pie than just a
small pie." In the end Morel & Co found 47 investors for Total Metering. But
even Ms Morel says that $2 million is a lot to raise for a project of this
kind. Interestingly, even sharebroker Reuhman and Co became interested
in the project and promoted it to clients through their newsletter. In
general they were drawn to the product because of the projections of an
international need for advanced metering solutions as more and more countries
deregulate electricity supply, and the start-up model which Silicon Valley
has given the world as a means to creating a fortune. Risk
Ms Morel says investors know they are taking a risk but believe the
long-term capital growth will produce a return well in excess of even New
Zealand's high bank interest rates, which at the moment are around the
nine percent mark. She says the Total Metering people were notable in that
they had a completely realistic view of what they would have to give up
if they were prepared to attract equity investment. Just as the capital situation was looking rosier the work of Total Metering
was brought to the attention of the press and a story about the meter development
appeared in Wellington's evening newspaper, The Evening Post. That
in turn led Alcatel, based in Upper Hutt, to step forward and offer its
product manufacturing facilities. Although Alcatel charges Total Metering on a unit manufactured basis,
Mr Gowans says the effort the company put into assisting Total Metering
with refining the manufacturability of the meter means the company is certainly
considered a partner in the project. Certainly Alcatel was taking a risk
on the product by devoting space on its production line and the time of
its staff to manufacturing the Total Metering product. Alcatel NZ managing director Tone Borren says that even though the factory
is a part of the enormous French Alcatel group, individual operations have
to be every bit as entrepreneurial as independently owned operations if
they are to justify their existence. Mr Gowans says the company looked at alternative manufacturers but says
the quality of the Alcatel service plus the proximity of the plant were
clinchers in selecting a manufacturer. "Plus they are part of Alcatel. If we have to fill an enormous international
order they have the ability to transfer the manufacturing capability to
lower priced or larger capacity plants around the world. Though I'd rather
see the manufacturing stay here in New Zealand." With prototypes underway the next stage was beta testing. Here Trentham
Army Camp and Power New Zealand became involved. Power New Zealand managing
director Tom Chignall says the metering technology developed by Total Metering
will play an important part in the new deregulated electricity market and
the company plans to be a close partner. He makes the important point however,
that while the billing model of the telecommunications industry is often
advanced, telecommunications carriers can collect their billing data from
their exchange rather than by polling customers. Establishing the billing
infrastructure to support advanced metering technologies will, he warns,
not be a trivial task for power utilities. But as a postscript Total Metering is not entirely in the clear yet.
The ACT party has threatened to withdraw its support from the Government's
electricity reform package and without ACT's support the Government's majority
is on a knife-edge of one person party coalition support. There is even
the risk that the matter could become one of confidence and bring the coalition
Government down. No matter what happens however, the technology genie released
by Total Metering is now well and truly out of its bottle and it's only
a matter of time before it is applied. |
|||||
 |
|
|
|
There
are few people who don't, at some time, get the urge to quit their daily
grind, start a business and make a fortune. In New Zealand, however, few
engineers ever go much further than running a small consultancy. Perhaps
that's because the business environment in New Zealand is not kind to people
who take risks. Perhaps that's because not many make fortunes.