Around the same time that Xero listed on the NZX, fellow tech company Diligent Board Books did also.

Diligent is a web enabled service that provides board members with all the information they require, while still meeting all the requirements of Sarbanes Oxley in terms of record keeping and audit. I told the tale of Diligent a few months ago.

While if truth be told it’s reasonable to say that neither IPO set the world on fire (Xero is hovering around a $0.75 shareprice, Diligent way down to $0.15) – Xero shareholders for the more part have been realistic and understood that it takes time to build a business – there have been no grumbles (or not many) and no large scale sell offs.

Diligent however has been a tale of woe. Their case wasn’t helped when it was discovered that CEP Brian Henry had failed to disclose his involvement with failed 1980s company Energycorp.

Now shareholders are considering a class action suit against Diligent, claiming that the failure to disclose Henry’s past had a substantive effect on the Diligent shareprice.

Not surprisingly a vulture law firm, Wakefield Associates, is spearheading the action. They’re working on a “no win, no fee” basis but…. they’ll charge double their usual fee if the action ultimately proves successful.

The broker who headed the IPO, McDouall Stuart, has come back saying of the letter to shareholders from the Wakefield Associates;

In its letter, Wakefield Associates has incorrectly highlighted the substantial loss of principal suffered by the IPO subscribers as being as a direct consequence of the failure of the offer document to disclose Brian Henry’s past association with Energycorp.

However, in our view, the current equity market turmoil is more likely to be found to be a more significant contributor to the difficulties Diligent has had in meeting its forecasts

Which is bollocks – sure the equity markets are falling but

a)Diligent has underperformed since day one, before the current crisis and

b)other IPOs from around the same time have held their pricing much better than DIligent

Surprisingly, and in something of a case of shooting themselves in the foot, Wakefield Associates have stated that;

When you look at the forecasts, and the complete failure to come anywhere near them, it makes me think they really weren’t ready for their public debut

Ain’t that the truth. A bunch of excitable guys, steeped in the 80s high flying era. Some hugely optimistic sales forecasts and some dumb investment decisions are to blame for this – not the fact that Henry has a pretty murky past.

Caveat Emptor in my opinion.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

7 Comments
  • Ben as my libertarian view (again I have highlighted that point here at your blog before) I don’t blame the entrepreneurs. The blame should be solely directed at themselves (the investors). It is personal responsibility and no one else should be blamed for that. It is ridiculous to blame the entrepreneurs. Anyone who had invested in this company (Diligent) on the basis of their management team’s past history, is a sucker if they blame that the management team’s past weren’t disclose to them at IPO.

    See, fund management such as the local star Fisher Funds (by Carmell Fisher) had taken a hit (decreased portfolio value) within the last 12 months. Investors in Fisher Funds can definitely point the finger or blame Carmell for the loss of value in their portfolio, but Carmell didn’t come with a gun and force those investors to invest with her. But again, the reason I suspect that investors flock to invest in Fisher Fund, was because it has been widely circulated in our local newsmedia purporting her to be God in fund management, ie, she can make profits for investors regardless of market movements and therefore investors flocked to put money into her Fisher Funds.

    Fingers should be pointed at investors themselves and not entrepreneurs.

  • Agreed. Buyer (investor) beware!

    If you can’t afford to lose it, don’t invest it!

  • Question. Why would anyone invest in a listed company selling “nice to have” software to a niche market? A phrase including the words Barge Pole comes to mind.

  • @Paul – we don’t agree often but this time…..

  • You have to wonder about the mentality of The Market sometimes. Xero gets NAB on board, takes the new VAT rate in its stride AND partners up with the NZICA all in the space of a week. What happens? Share price drops 4 cents…..

  • Paul – you’re micro following there. Share prices are affected by a gazillion things, from time to time even the performance of the business itself.

    Looking at your points in turn;
    1) Yup – NAB is real good
    2) The other SaaS accounting vendors are VAT ready as well
    3) NZICA – well if you’re dubious about Xero’s go to market strategies then the NZICA thing won’t make any real difference to you methinks

    no?

  • Don’t get me wrong Ben. To some, an irrational, uninformed, fearful market is not necessarily a bad thing 🙂

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