Two leaked reports have caused a major conflict inside NZ’s tech sector, with All Blacks, big name investors and multiple government agencies caught in the blast zone. Duncan Greive investigates.
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Update, December 5 2022: CNZ just picked embattled agency We Are Indigo for a $5m+ digital arts platform
Two highly contentious due diligence reports into the operations of star-studded New Zealand start-up We Are Indigo have been leaked to The Spinoff. They contain a lengthy list of troubling allegations involving both small startup founders and major figures within our innovation sector. The reports have been subject to multiple Official Information Act requests, all turned down by Callaghan Innovation, the government agency which commissioned the reports into applicants to major RFPs earlier this year, citing commercial sensitivity and legal advice.
The saga ultimately led to the resignation over the weekend of Rachel Kelly, a Callaghan board member and tech founder, who said in a LinkedIn post that she was quitting due to having “experienced serious conflict over my values and the decisions made by the board, namely regarding the things we learned during recent due diligence activities and subsequent OIAs”.
Despite only being founded midway through 2019, We Are Indigo has become a significant player within the sector, winning a number of large government contracts. These collectively total over $5m from at least five different government entities.
The due diligence reports include statements from an array of prominent players within New Zealand’s tech and innovation sector. We were contacted by a King’s Counsel prior to publication, so this story does not quote from the reports but instead describes many of the relevant interactions based on other reporting. This includes more than 50 emails and documents supplied to The Spinoff, along with conversations with multiple sources privy to the events described. We had on-the-record interviews with the key antagonists – entrepreneur Robett Hollis and We Are Indigo’s leader Patrick MacFie, along with Kelly and Borland, the investigator behind the reports. He discussed his methodology and background, rather than what he found. Collectively it all shows how an outwardly innocuous compliance procedure has become a business and political storm which shows no signs of abating.
The gap between the public image of We Are Indigo and the alleged contents of the reports has become deeply contentious within the innovation sector – it has already led to Kelly’s resignation and is unlikely to end there.
For its part, We Are Indigo has strongly rejected the allegations contained in the reports, saying, “The simple truth is that [the] claims are not true nor are they fair. We do not take advantage of start-up founders or business partners, and we certainly don’t do so as a business practice. We are not unethical, nor do we embrace or tolerate unethical business practices. We have not engaged in fraud or other criminal conduct. We are not bullies.”
The story only exists because of the peculiar dynamics of the innovation sector – a catch-all phrase which covers investors, technology companies and startups working at many different scales and stages. It has produced some of our biggest and most dynamic successes, companies like Xero and Trade Me, household names which have made some incredibly wealthy. But it also has a very high level of government intervention, with agencies like Callaghan tasked with creating physical and digital spaces in which young companies can grow.
This has led to a large number of people who work in and around government while also interfacing with the private sector, creating education programmes, mentoring and being paid to help them grow. It’s this strange brew which ultimately birthed the chaotic circumstances surrounding We Are Indigo.
Average daily fist bumps = 43
All this ultimately began with success. We Are Indigo describes itself as “an innovation company arming you in the fight against the status quo”. Its website projects an image of hustle culture and heady aspiration, listing 43 “daily fist bumps” and describing its banter as “Fire”. It was co-founded in 2019 by boxer, league player and former Warriors captain Monty Betham and ex-Xero exec Patrick MacFie. The pair were joined by former Icehouse CEO Andy Hamilton, who is also a shareholder and whose job title is listed as partner.
The trio have succeeded in attracting a large number of prominent investors into their orbit, including All Blacks Ardie Savea and Roger Tuivasa-Sheck, along with The Warehouse founder Stephen Tindall. All have shareholdings in We Are Indigo.
It has launched or been affiliated with a number of sub-brands or initiatives that have helped refine its position as “committed to supporting New Zealand small businesses since the height of lockdown in March 2020”. These include Chooice, a retail platform which grew out of a popular Facebook group, and Manaaki.io, an online platform “providing content, information, and instant, free access to over 300 business experts to answer forum questions”.
Those goals were perfectly aligned with an all-of-government push to support small business during the chaos of the early pandemic. The fact that We Are indigo was led by Māori and Pacific entrepreneurs would have made it highly attractive to government agencies looking to procure in a more equitable way, particularly after the international racial reckoning that followed the murder of George Floyd in May 2020. We Are Indigo quickly became a preferred supplier to government departments and agencies with the worthy goal of helping Māori, Pacific and minority-owned businesses, and encouraging more entrepreneurship from those communities during a period of extreme economic instability.
We Are Indigo or its subsidiaries were engaged by a broad range of departments and agencies as the government grappled with the spiralling complexity of the pandemic. Those who tapped it for work include the business ministry, MBIE; the Ministry for Social Development; the Ministry for Pacific Peoples; the Māori development ministry Te Puni Kōkiri, and Creative NZ, the government agency tasked with supporting the creative sector.
The National Business Review’s Maria Slade reported that the funding received by the companies through these contracts totalled over $5.5m. For this it was expected to deliver a broad variety of services, from training to digital creative to encouraging small businesses to digitise their operations. We Are Indigo was only founded mid-2019, but within three short years had become a clear favourite to reach Māori and Pacific small businesses, an association which also helped bring in meaty collaborations with major private sector organisations like Kiwibank and Xero, both of which partnered with its subsidiary Manaaki during 2021.
Outwardly this was the system operating as it was meant to. A new business starts with multiple credentialed founders, operating in an area and time of immense need, and scales quickly to meet demand. Behind the scenes, though, We Are Indigo was starting to wobble. As Slade has reported, it became embroiled in an acrimonious dispute with Chooice’s Sāmoan New Zealander founder, Sarah Colcord, about ownership and control of the platform. Chooice grew out of a wildly successful Facebook page Colcord started to connect small businesses with customers keen to support them. This was meant to be the page going pro, with help from sophisticated startup operators like Hamilton.
The relationship eventually broke down entirely, with troubles which escalated during a dispute over $50,000 in gift cards during a Xero-funded promotion called “Small Business Day”, which Colcord says were never supplied. MacFie disputes this, saying “every individual that won a gift card through the Small Business Day promotion was supplied with a gift card to the prescribed value as outlined in the promotion”. Regardless, his ultimately led to Colcord pulling Chooice out of the initiative.
A place for Manaaki
The startup and technology space in New Zealand is relatively small and gossipy, particularly the spaces closest to government money – a complex web threaded through multiple different entities. Along with Callaghan Innovation, there is the export agency NZTE, both of which interact with a large number of business agencies run by various councils.
During the pandemic, this network greatly expanded, with a large number of departments and agencies tasked with creating economic opportunity, regardless of whether they had a particular background in that work. This meant an elevated volume of requests for proposal (RFPs) were sent out, which is partly how We Are Indigo were able to take on so many contracts in a relatively short period of time.
Inevitably, when a new agency has a run of successful bids on RFPs, those who miss out will be disappointed, and curious about a new entrant attracting such a large amount of funding. Where there is a dispute, this goes double. Colcord’s situation became widely discussed in certain quarters. Situations like hers are particularly sensitive for the sector, which is acutely conscious of the impact a male-dominated and often macho scene has had on founders, particularly those from under-represented groups like Māori, Pacific and women.
At the same time as We Are Indigo was pivoting to meet this surge in government contracts, Callaghan Innovation was preparing a pair of large RFPs that would significantly expand its work with the startup sector. The first was the 2022 Founder Incubator and Accelerator Programme, set up to give “mentorship and training, and grow the number of tech startups in NZ”.
Following the tragic death of Unfiltered founder Jake Millar a year ago, the tech sector went through a period of reflection about the strain put on its participants, with Callaghan concerned with how best to protect those who interacted with its various programmes. In the aftermath, there were persistent rumours circulating about the quality of work and behaviour by some participants in the industry. As a result, Callaghan added an extra layer to its procurement requirements – a seemingly routine piece of compliance which would ultimately set off a major disturbance within the whole innovation sector.
Callaghan demanded that as a condition of applying, applicants must agree to undergo an external due diligence process should they be shortlisted for the contracts. They also agreed that the findings of these reports could be shared with the whole of government. The agency’s thinking was that should any issues be raised, it was appropriate that other departments and agencies be made aware of them, and take that into account with any future procurement. It should have served as a warning to those who had issues to be circumspect about applying – but We Are Indigo was confident enough to submit a proposal.
An Australian cop enters the chat
Callaghan selected John Borland to conduct the due diligence reports. Borland is a former detective senior constable with the Queensland Police who worked in the field of intelligence and counter-terrorism, before moving to Auckland in 2017 to found Isacorp, a “boutique risk service” that works with a range of clients across insurance, legal and other industries. In 2018 he was named International Insurance Investigator of the Year due to his work in recovering over $250,000 in luxury vehicles for the insurer QBE.
I spoke with Borland about the reports, and he said he ran the same process on all six organisations shortlisted. Along with We Are Indigo, there were familiar industry names like Hamilton’s former employers at Icehouse, Wellington’s Creative HQ (formerly run by new Callaghan CEO Stefan Korn) and Māori startup accelerator Kōkiri. The other entities passed without raising any flags, but there were a number of issues raised when Borland came to We Are Indigo.
Borland used what he describes as open-source intelligence or physical inquiries, meaning conducting research in public forums, or contacting those relevant to the due diligence. In We Are Indigo’s case, that meant researching and speaking to organisations cited within its own application as evidence of its suitability to be included in the programme.
While it comfortably passed most sections, Borland’s inquiries surfaced the dispute with Colcord, which was freely available as a press release on Scoop. Further discussions with Colcord prompted her to share an unspecified “data breach issue”.
Borland also spoke to Kale Panoho (Ngāpuhi) of K&J Growth Partners, which Manaaki subcontracted work to during MBIE’s Digital Boost. The scheme had launched in 2020 as part of a government drive to “support more small business owners to digitally transform their operating models”, and was led by Mindlab, the highly-regarded digital education provider founded by Frances Valintine. Panoho spoke of a difficult work engagement, later backed up by evidence from other witnesses, and a lengthy failure to pay an invoice which only ended after K&J engaged lawyers to recover the final $160,000 invoice from Manaaki.
We Are Indignant
The report set off alarm bells at Callaghan, and an online meeting was held with representatives from We Are Indigo on May 25. During that meeting Callaghan put the findings of the report to MacFie, Hamilton, Betham and Rachel Adams, GM of Manaaki. They essentially denied all the allegations raised in the report.
Despite this, Callaghan remained of the opinion that the report disqualified We Are Indigo from both its current RFPs. However, as a courtesy, it told We Are Indigo it would commission Borland to do a second round of due diligence. Its scope would be expanded to include further witnesses, including prominent tech personalities like Mindlab’s Valintine and Craig Hudson, Xero’s then-GM for New Zealand.
It also included Robett Hollis, a New Zealand entrepreneur and business commentator who We Are Indigo identified as hostile to them. All were approached on the basis that work with those organisations was listed as part of We Are Indigo’s credentials in its application, or having been referenced in communications by Hamilton, who made persistent approaches to Callaghan through this period.
Two weeks later, Slade’s NBR story came out, featuring revelations about Colcord’s experiences with Chooice, the K&J invoice dispute, and suggested that We Are Indigo’s relationship with Mindlab’s Valintine had not ended well.
The second due diligence report arrived a week later, on June 15. It contained evidence suggesting a privacy breach involving sellers on the Chooice platform which resulted in at least one seller having private information made available on the public internet – a situation which should have prompted escalation to the Privacy Commissioner, and cited by Kelly in her resignation email as part of what had vexed her while on Callaghan’s board. MacFie acknowledges the breach, but chalks it up to naivety. “In the course of operating Chooice, there was a data breach when we were transitioning to a new platform with a new contractor. Based on the information, we acted to correct as soon as we were aware, and we did not think at the time that we needed to report this,” he says. “We have learnt from that.”
The report also contained a statement from Hollis that Hamilton had contacted his employers at MediaWorks and made allegations about him. Callaghan was sufficiently concerned by the reports, and Slade’s NBR story, to escalate the reports to its board, and the decision was made to alert the procurement team at MBIE. Under government procurement rules dating to 2019, the We Are Indigo application was considered to have failed under four separate headings:
- Serious performance issues
- Professional misconduct in the form of unethical behaviour
- Offences against the New Zealand Government Procurement Code of Conduct
- Issues that led to materially diminished trust and confidence
Callaghan passed the second report on to MBIE, but from there it became caught in the murk of a leadership changeover, Callaghan CEO Vic Crone having previously resigned. Her last day in charge was June 30 and Callaghan’s chief product officer Stefan Korn took over on an interim basis, eventually being appointed CEO in September. While multiple organisations, including The Spinoff, requested the reports, Callaghan sought advice and ultimately decided against it on commercial sensitivity grounds. This would grow into a sticking point with the board, but for some weeks the issue went quiet.
A one-man campaign
The reports might have faded from view after this, lost in the interminable delays associated with OIAs and the complexity of the interface between government agencies and the fractious startup sector, were it not for the consistent and very public lobbying of Hollis. The entrepreneur runs a Substack popular within the sector and is highly active on LinkedIn. He continued to beat the drum for the release of the reports. Hollis (Ngāti Porou) was interviewed for the second due diligence report, entirely because Hamilton perceived his advocacy as the origins of We Are Indigo’s issues with Callaghan.
Hollis’s consistent writing and posting eventually caught the attention of Sir Ian Taylor, one of the founding fathers of the NZ tech scene and a staunch advocate for Māori entrepreneurship. He made multiple pointed posts on LinkedIn asking why the reports had not been released.
For its part, We Are Indigo was equally concerned that the reports should stay private. In a statement released to The Spinoff, the firm laid out its position, saying it was the victim of a “social media campaign” orchestrated by Hollis in relation to its disputes with Chooice and K&J. The statement acknowledges We Are Indigo “made mistakes in the course of these partnerships, and that we needed to improve our processes and performance”, but “there was no bad intention on our part”.
It goes on to allege that Hollis hired Borland to look into We Are Indigo, and suggests this is a “clear conflict of interest”. Both Borland and Hollis strongly deny ever having any commercial or contractual relationship, and Borland and others point to EY having cleared him of any conflict after being asked for an opinion by the board. MacFie believes that EY has done nothing of the sort, and that Callaghan made its scope deliberately narrow to protect its own interests.
The We Are Indigo statement continues: “we know Robett from mutual work in the small business sector. We have reached out to him on several occasions to find resolution, sadly without success. Instead, he has escalated his attacks on us, and seems set to continue until Indigo and Manaaki and its founders’ business and reputations are destroyed. We have therefore no choice but to take legal advice on our options for legal redress.”
For We Are Indigo’s MacFie, the whole due diligence process was poisoned from the start. He views the fact Hollis recommended Borland to Callaghan CEO Crone as evidence of “tampering with a government procurement process”.
For his part, Hollis says that he has only ever been motivated by wanting to stick up for founders he believes have been wronged by We Are Indigo. “I genuinely feel honoured to be in a position where other founders, many whom I have never met before, have felt safe enough to approach me directly to try and help,” he wrote in a statement.
“If the cost of me taking this public stand for multiple innocent Kiwi founders means Manaaki continuing to commercially gaslight me publicly and trying to defame my name, my integrity or my mana – I am more than confident in my position – both morally, ethically and legally.”
When the board breaks
While Hollis continued to push the situation in public, Callaghan board member Rachel Kelly privately agonised over her position. She loved the work Callaghan did, but was deeply concerned about what might happen to other entrepreneurs who came into contact with We Are Indigo were these reports not made public. Her background in health tech also made her extremely sensitive to issues around data sovereignty, and she was troubled at the lack of clear progress around the potential for a data breach identified in the reports.
She says she spent months pushing the board to take more seriously the potential impact of behaviour described in the reports on vulnerable founders, but felt she was unable to progress the issue. At the same time as Hollis and Taylor’s public statements drew huge attention on LinkedIn, she decided her position was no longer tenable, and ultimately resigned on Saturday morning. She emailed Callaghan’s board chair, longtime Labour cabinet minister Pete Hodgson, along with his deputy Jennifer Kerr and CEO Korn. Kelly made reference to “serious conflict over my ethical code and the decisions made by the board”.
“I can’t stay on the board knowing what I know and I can’t unsee our inactions,” she wrote in her resignation letter, “particularly when it comes to the topic of startup ecosystem bullying, unethical behaviour [and] potential privacy breaches… It shouldn’t take an Ombudsman request to make the right choice here.”
Callaghan released a statement yesterday which addressed the discussion which has been rife on LinkedIn, explaining the tension which restrained it from releasing the reports. “Much of the social media speculation is wrong,” the statement reads. “Some commentary, though considered and based on shared values, is made without regard to the legal context. Callaghan Innovation is obliged to follow the law. The organisation has been guided from the outset by expert legal and probity advisors.” It noted that the decision to withhold the reports was now with the Ombudsman.
Thus the saga seems by no means to be over. Despite MBIE being informed of the issues with We Are Indigo in June, a month later it was successful as part of an RFP to Creative NZ, the government’s arts and culture agency.
Kelly’s resignation starts to give it a political dimension, as do a pair of pointed written questions from National’s Simeon Brown, which suggest the opposition is following the situation. Stuart Nash, the minister responsible for that part of MBIE, has clearly been following it, though a recent comment on a post by Taylor suggests he may not believe the situation deserves to generate as much heat as it has. “I will take a look at this,” he wrote. “All I have seen so far is people cast aspersions and act in ways that generate more questions than answers.”
His office said he had not been provided with the reports and that his reply to Taylor was in reference to the social media posts. A spokesperson told The Spinoff that “the Minister had no role in Callaghan Innovation’s procurement process or decisions, any details about these activities are a matter for the Callaghan Innovation Board who are responsible for operational matters”.
The spectre of a Māori and Pacific-owned business becoming a political football is grim, but many of the operators who testified to Borland are Māori or Pacific too. This is what has exercised so many of those who won’t let this go – their feeling that We Are Indigo is negatively impacting an already small and vulnerable group of founders.
MacFie views it all very differently. He acknowledges that his company made mistakes, but says “we resolved all of them”. He says We Are Indigo has been profoundly impacted by the episode. “Your business is people,” he says. “And the impact on our people has been massive. Our reputation, our physical and mental health. In every possible way you can imagine we might be affected, we’ve been affected.” To others within the sector, that is a natural consequence of We Are Indigo’s actions. As of now, there is mamae all around, and little to suggest it will be healed any time soon.