Capital Education video resources
So, Dave what are you seeing in the market in terms of how you’re seeing investors behave
In your part of the world
Generally, I think they're still pretty positive about investment in companies
I think there's a reset that people are starting to now consider, and I think people are also
say, people are more cautious, cautiously proceeding with some sort of excitement. I think
in the background is this sort of Warren Buffett in all of us that says, you know, in times like
this is actually an interesting investment opportunity.
But for us I suppose where do we look now, we saw, say, does the investment opportunity
still make sense. has the market changed? and you know, the big thing now is if you are an
looking at an investment, is there is that a sufficient investment for the next 24 months,
we probably would have previously said you know can the company keep on going for 12
months, we probably extended that out, and so there's probably a little bit more
realism or conservatism in in the planning process now.
So we're generally still actively looking at investments, but with those are the caveats
now I suppose.
What about yourself what are you seeing.
So yeah, I've been doing the rounds of all the angel networks in the last week or so
and even just come off the back of a meeting with some of our most active angels at Angel
HQ and one of the guys asked how many of you are gonna stop investing, put your hand up
you are, and there were 20 plus people on the call, no hands went up.
So, and that reflects the conversations I've been hearing to.
People are certainly intending to go on investing, and we know intent and action
and reality are slightly different things, so that said the rhetoric has been slightly more
cautious so people are very, there's a really clear theme about I'm going to be supporting my
existing portfolio, you know a little bit more rigorous about new deals.
But like you, very very clear that this is, you know, this will inevitably throw up a really great vintage of companies
that a resilient, agile and supermarket focused so yeah,
I think people have kind of got that, it's just the extent to which their heads
will overrule their hearts, and the reality in those emotions is fair severe, obviously
bubbling away they go.
Yeah, yeah I think similarly a couple of comments that we noticed from GFC days which we
We lived through and actually made some really significant investments, [unclear] empowered by
were some of our key investments off the GFC in 2009-2010, and they've gone on to huge
successes. What we found was the investors who are really passionate about this space,
kind of double down and really get into it, people who probably have a wider portfolio I'd say,
maybe some [family offers], maybe some other people who maybe get a bit scared off from
the venture capital space, because you know the risks are there, I think this is a
stark realisation to them that, you know this is a risky space some corporate
venturing kind of gets a little bit deterred, but the hard core venture investors and angels I
think are really understand this is a great opportunity to get some great innovation
companies, different people thinking about different ways to solve a new set
of problems which have emerged and have progressed from there.
Yeah, and I think what some of the research too shows that angel investing is less impacted
by recessions then the venture, kind of side, of things and definitely, you know, angels are
motivated by things beyond the financial returns so all of that stuff around creating jobs,
keeping people and good jobs creating aspiration in your economy, it's you know it’s writ large at the moment.
How do you see, from if you're talking to is the impact and what time frames you know
people talk about near-term, medium-term, long-term, what does that mean to you and
how do you think that affects the investment horizon in those near, medium and long terms?
Yeah, I mean, that's a really something that's to the fall with most people I'm speaking to, it’s
just revisiting those capital strategies to make sure that they still stack up and definitely
making sure that the runway is at least 12 months, and preferably 18 months that's that's a
very common theme. And a lot of, kind of, people feeling a bit, sort of, conflicted by the fact
that they don't know what the scenario is gonna look like and yet preparing for the worst but
yet not sure if the worst is actually gonna happen.
And that's a difficult place to be, and and a lot of trying to protect jobs and talent, you know
that's a really clear theme as well amongst a lot of investee companies and the investors,
directors who are talking to those companies.
How long this is gonna last? I mean a lot of people talk about near-term being one to
three months and medium term three to six, and long term six plus months.
I mean I get a real view from the global sort of perspective that this this isn't
going to go away in six months, this is a 36-month sort of process and, so for me
near-term is probably, the adjustments are going to take probably three to six
months and then we're going to kind of steep right out exactly how we can grow
out of that over the next six to twelve months and then over to thirty six months is is going to
be a whole new regime in which we can grow with different solutions and new innovations.
Yeah, and there's obviously the big reset in terms of adjusting your expenses to meet
what the future may hold in front of it.
I mean from what we are sort of seeing is I also say if you're a young company
looking for capital over the next twelve months, it should still be pretty good I also say that a
lot of people still have a lot of dry powder as we call in our business over sitting for 2020
from a. From a venture capital point of view where we have a fund structure, it probably will
get a little bit more difficult next year than this year. Key reason for that is funds will start to
use up its free cash in terms of investing it on the opportunities through this year and I
think the new funds will be slowly or will be a lot slower in uptake, so with a lower cadence
and new funds coming in there might be a bit of a squeeze into next year,
so my advice for companies that are looking for capital now is keep on going, keep on going
strong, don't take your foot off the the metal and keep on and do everything
you can, to try and raise the capital this year.
I think that’s one of the sorts of characteristics of New Zealand venture, and our founders
particularly that they're very careful with cash, and they do a lot with a little.
We are very efficient when it comes to that and same sort of message to founders
from us as well. Be really clear about what you're raising how much you're raising for what
and be very, be really clear about what your value proposition is.
We are really being clear with investors to make value-based decisions in a New Zealand
context that has some extra layers which I actually think it's going to serve us really well
in terms of sustainability and that really powerful value proposition.
You know and you're right I mean New Zealanders have always been frugal with
its cash and I think that position as well, these types of market conditions.
The other thing I think also that’s, you know if you're a company now and looking
at how you pay yourself going forward for the next 12 and 24 months is, you know
innovation absolutely screams out when market conditions are so volatile, it was just a
heap of new opportunities that generally can solve new problems.
This whole areas around, you know, how do we interface and interact and run
businesses in a contactless environment. There's going to be a whole bunch of innovation
around you know with federal restrictions both nationally and internationally, how do we
conduct business going forward from there. These are all great opportunities for innovation.
The other thing I find which I encourage young companies and small companies is they can
adapt and change reasonably quickly, larger companies have lot more baggage that it
doesn't allow them to necessary transfer to new ways of doing things fast.
And if you can innovate and change fast, you can often get the jump on large companies.
I was going to say innovating and changing fast kind of speaks to you know [embassy] and
being really canny to what the market needs. And I think that sort of, that authentic
kind of connection that works with markets and it also works with investors
so just making sure that you really do your research on who you're gonna
approach for capital and why and making sure that you you do that in a really
kind of sincere way. I think that's gonna have a lot more traction than
in the past when you could just front with a pretty smooth deck and a pretty
smooth pitch and and be guaranteed to getting some money, that's less the case
Yeah, and it’s about, you know, as you said earlier
consolidating, getting your cash flows sorted out but never lose sight of the longer-term
picture, there's also opportunities because you know in generally, we found post GFC,
there was a lot less noise in the market, so you know if you're doing things like Google Ads
for your marketing the spend that you have on Google ads just went right down.
There's lots of companies out there you put a just stop on all their spending around
marketing and that just created a whole new opportunity where you could get more
bang for your buck around the marketing dollars that you do and are willing to
Again, that advantages small companies who want to use their dollars wisely but
still get market share. So, you know. we've also found that with less noise greater
speed tp adapt, you should actually look at this as a really great opportunity to cut
through some of the bureaucracy some of the complacency that you've often had
trying to be a struggling startup and growing market share, really great opportunity now just
keeping a positive attitude about what you're trying to do and keep focus.
This is about laser focus I think.
Yeah laser focus, and that whole kind of thing around retention and
value and retaining, you know, the other thing that's really great in today's market is, somebody put it which was a slightly harsh way to put it, but there's a lot of talent liquidity.
So, you know, unfortunately some businesses with some incredible talent
are going to not crack it.
So keeping an eye out for those kinds of people who are available to help you
and also being a little bit more creative with your use of employee share ownership plans
as a way of attracting that talent and keeping and retaining talent, I think that's
another opportunity for companies in today's world.
what are you seeing around valuations is that something, are you seeing that you know
investors are really putting the pressure on founders and deals to kind of reset that
and what are the implications of that.
I think what you're starting to see is, there's less extremes in valuation now than
they were probably six months ago, partly that's because the people who are investing now
have always been sort of base evaluations on key metrics and that's not really changed from
from this six months ago to now, so from a founder or a company’s perspective I'd say the
valuations have got a little bit more realistic and mainly because without this, the safest
strategic investors or family offers coming into to enter the play then essentially is
probably at the same set of valuation going across all sorts of investors so I think
it’ll start moving towards a very narrow set of valuations going forward, however that
variation will start going down I mean there's no hiding the fact that revenues have gone
down, as revenues go down and growth goes down multiples go down, so I think companies
have to expect that as the multiples go down, then they're gonna they're going to have
some valuation pressure. That’s not to say that they won't recover and it's
really a case of and getting the recovery and the time frame, but
hopefully you will have a bit of a shock to the valuation, but they’ll get back up pretty quick.
It all depends on how fast and how quickly you can get back into market and regain your
revenue streams. What about yourself?
You know it’s the same kind of thing. The valuation discussion always fraught one,
and you know it doesn't stop being a [unclear] just because we're in a recession and so
the advice we've been giving is that you just need to be even clearer about what your value
proposition is and have a really pithy understanding of your capital strategy and where and who
you're going to raise from next at what valuation, above and beyond the one that you're
pitching for now. And I guess, sort of, in that kind of context we've been giving a little bit
of advice about terms and that if you need to kind of make your deal or your
opportunity more attractive be more inclined to give on economic terms in the current climate
then control rights because you are still the person who knows your business best and so
just be wary of that kind of pressure when it comes to doing deals. And yeah, and just a
flip back  to round out on that valuation discussion, you know we are, sort of, hearing you
know things like twenty five percent forty percent you know sort of contraction and valuations
I'd be really wary of pressure being brought to bear on you as a founder, you know, with that
kind of redirect without you having a really, kind of, clearer and deeper
explanation for why they’re putting that kind of pressure on you.
Yeah I mean, at the end of the day, valuations are heavily correlated with growth and you
know if you are retracting in growth then you have to expect that. I think your point is quite,
it’s that sometimes it's about getting enough money and passion to the business
that you can then move out of that current growth points, stagnation point
that we're at the moment to get to a higher one and then that proves to all the
investors that you are with a higher value, so timing is quite important on
this you know in some respects, whilst everybody is still consolidating
you know, unless you're in a process of seeking capital, thenI think valuations will
struggle in this really next couple of months, but if you're starting a capital
race process you probably will close in next two or three months and hopefully
we should be over not so much over, not so much over the worst, but at least understand
what the worst looks like, and I think they'll be less panic valuations going through if we want
to call it that.
When you’re going in into rasing your first round of investment as a business, you need to
think about the capital strategy that will play out over the next three to five years.
Key points you need to think about is: Only take investment from people you know you can
work with. The second key point is to think aboiut the valuation of the busines very carefully,
not just now, but how it will play out over the next three rounds of fund raising. Make sure
that you founders have enough skin in the game after the next three, four raises, that they
are still motivated to do the work to get the business to exit.
Mistake we see founders making is that they think about raising capital in terms of just
this round of capital, this first round or this follow on round, and I can’t stress how important
it is that you think beyond the first round and on to how this is going to play out. Because in
these early-stage investment, the investors are looking for something different from when
they invest money in shares on the stock exchange or invest money in a company that’s
going to pay a dividend in the future. What the early-stage investors in the startup sector is
looking for is a company that can use this investment to really accelerate their growth, to the
point that the payback comes multiple of the investment, rather than just gives a percentage
return each year. So, what we look for is, your investors will tell you that you kind of need a
10x exit, and essentially what they’re saying is what plan for me to get my money out
multiplied, if I put money in now. And so at the very least, when you’re raising your first
round, you need to plan out what your capital strategy is going to be because it’s very
unusual for a company that is growing fast and does have global potential to actually only
need one round of investment. And that’s important because you should think about it in
terms of how much equity you’re keeping in the founder pool, that is for the people who
are actually going to do all the hard yards to make the company fly.
It doesn’t matter in essence whether you retain control or not, in fact, with early-stage
investment you pretty much give up control as soon as you take on your first investor dollar.
But the important is that if you plan out through two or three or more, depending on what
sector you’re in, capital raises along the way, say over the next five years, how much equity
are you going to have at the end of that, in the founder pool? Are we still going to have
someone in the company who is massively motivated to do the eighty-hour weeks that
might be required at that point to actually make this company a true global success.
The counter to that is companies that we see that don’t think about their capital planning
along the way, and end up with founders who are diluted down to five or ten percent of the
business, by the time they’ve done a series B or series C. And at that point, the investment
becomes less attractive because, as I say, we’re going to have someone in the business
who’s truly motivated to make it fly. And when I look at first round investment, I always look
for that plan of what’s the capital plan and if we got to five years down the track and the plan
had to play out , which of course it never does play out as you expect. But let’s, for example,
say the plan plays out you’ve done a pre-series A round and a big 50 million series A round,
five years down the track. At that point, how much would you have to sell the business for,
for me to get ten times the money I put in, the first round?
I'd like to talk to you about capitalisation tables or cap tables as they are commonly known in
the industry. A cap table is simply a list of your existing shareholders which sets out their
names, a bit like your share register, and the number of shares they have, and most
importantly it's the proportion of the company that they hold, so the percentage shareholding
of each shareholder. Now the importance of the cap table is that you add to the cap table to
include the investment of your investors that are coming in on your round, and so that you
can see the number of shares that the investor will be issued when they invest their
investment amount and you can see the effect of that investment on the rest of these
shareholders. There's a whole set of mathematics that go with determining how many
shares an investor is to be issued when they invest their investment amount, and that can be
worked out through your cap table. It's really important to get your cap table agreed up front
with your investor. You would be surprised at the number of times we get to finalisin
documents and then questions arise as to the cap table, and of course that's fundamental
because the cap table sets out the number of shares and the price per share and, as I say,
the percentage shareholding so if there's a lack of agreement as to those figures there can
be a fundamental misunderstanding about the commercial details of the deal it's also
important in your cap table to think about whether you want to reflect your employees share
option plan if you have one. Usually, very commonly, a cap table is calculated on the basis
that it's fully diluted, fully diluted means taking into account all options or other rights over
shares that you have issued.
So the key thing to remember about your cap table is that it's simply a spread which sits out
your shareholders the number of shares and their proportionate share holdings that sits out
the number of shares and the price per share and the proportion of shareholding of your
Capital-raising covers both debt and equity, today we’re goning to be looking at the mistakes
that people make in equity capital raising.
The first mistake we see is not understanding what investors are looking for.
Investors are looking to make financial return on their investment, and companies need to
understand this going into the process. The simple answer to understanding whether your
company or opportunity is interesting to investors is:
Is the opportunity big enough, where if you are successful the financial returns will be
substantial for all those parties involved.
The second mistake we see is not effectively presenting the capital raising opportunity to
investors. You need to have nailed down your narrative, the story behind the company, you
also need to have your financial and operating metrics well-organized. Don't get too caught
up in capital raising projections, the only thing you can guarantee about this capital raising
projections are: they'll be wrong.
The capital raising projections are there to show that you understand the total addressable
market, you understand your unit economics and you understand your growth story.
Three, not approaching investors in the right way. Investors want to see opportunities but
they want to see the right ones. Show them that you understand their requirements and your
opportunity matches what they are looking for. Investors also see a lot of opportunities, so
first impressions count, and they can last. In a capital raising process you need to be
persistent but you also need to maintain a tight deadline. In the capital raising markets we
have a saying: ”Capital raisings are like fish they go off”.
Fourth, making mistakes and deal negotiation. In negotiation with investors,
deal terms are very important and you should get proper legal advice.
We have a saying around capital raising negotiations: “You set the price I'll
set the terms”, the terms are that important. All entrepreneurs are focused on the final
price or valuation where external capital comes in, but be careful choosing the right investor
with good quality terms is more important than the final price.
When investors come into the business, they almost always require you to have a
governance board, so to appoint directors to govern the company.
Now when we think about that early-stage board, we often find that founders and
management teams have very confused views about the difference between advisory
boards and governance boards so we'll see a company that says yeah we've got a board
don't worry we've got all these people advising us and, you know, that we get together every
month or two and we have a board meeting. Unless those people are actually appointed
directors of the company, they're not a governance board. A board of advisors works for the
management team, works for the business and very valuable for a company to
have relevant advisors. Your board of advisers has people who have deep domain
knowledge in the things that are important to this business maybe you have a scientific
adviser, maybe you have a logistics adviser, those people can give you specific domain
advice in helping you build this business.
I've been in the angel space for about a decade now, I'm executive director of the Angel
Association New Zealand but I co-founded angel HQ in Wellington about ten years ago.
And so I've literally seen dozens and dozens and dozens of people in your position who are
starting out looking to raise capital. And governance is a really critical piece of it because it's
fundamentally about getting the team around that you that you need to be able to, kind of,
give you that kind of direction and guidance as to where you're gonna best and most
neatly raise value.
We've just done a survey recently of founders and asking them what they most got from, one
of the things that they were most grateful to get from their from their board and from
their investor director and they have indicated a number of occasions that
it's the emotional support and that's where a start-up or high-growth board a
board where you're raising capital differs perhaps a little from a more
conventional corporate. It’s that sort of real, kind of, and in fact as a
colleague said, this morning on a panel I was at. that it is like a marriage you
know it really is you're you're going down this path for the long haul and a
startup space a board is your, kind of, for me as the entity that gives you the
It's your, you will be in amongst it you'll be doing the doing there will be times when you won't
be able to see the wood for the trees a board should be able to give you that, a board is your
strategic oversight, it's providing your guidance, it’s your ability to steer stuff and I think in the
angel space too we're not so much looking at risk in compliance, we're looking at risk and
reward and so that's always another really important part of governance in a board in the
space. And you're looking to, you're looking to have a board a formal kind of board,
perhaps not necessarily when you first raise that very early seed or pre-seed round so I'm
talking anything from, sort of, a hundred thousand through to maybe two, three hundred,
perhaps tops four or five hundred thousand. But beyond that when you're raising an
angel round or you're raising any kind of formal capital, which is you know 500K through to,
could be anywhere, up to sort of two or three million that's probably, it'll be around about
500K to 1.5 million, at that point you will need to have a board to have credibility and give
your investors confidence that you are willing to have other advice and take on that advice
, and the governance piece, too, gives this follow-on investors confidence that you
understand what it takes to scale, that you're going to need more than just you.
Nobody does this stuff alone and the board is the first kind of formal recognition, one of the
first, formal bits of recognition that nobody does this alone.
And ideally, a board for a start up, a high-growth startup, it won't be any more than at the
most five, and our American colleagues sometimes think we're over-engineering it to have
five, that sometimes New Zealand startups are over-governed, but having, sort of, having
three is probably okay as well. But it's really getting your first board in place too is also kind
of getting the foundation right in the structure right so that when you scale fast, you've got
people around you who can help you do that. And your board will have a range of different
skills on it primarily around the vertical, or the area that your startup is involved in,
somebody who's maybe done it before. Other aspects of the board are that you
will need someone who is perhaps well connected, connections, people, nobody you
know, if we often talk about the fact that when you're raising money, it's not really, it’s the
money that you're raising, it's the people that you're buying, it's the connections that you're
buying that's a really critical piece.
I think the really important thing is that when you are looking for that board member, that you
go two or three deep and once you've done that you'll have a really clear sense of whether
or not that person is the right person to be on your board. Don't forget to do that.
Finding the right investors, there are many early stage investors in the New Zealand
ecosystem. You need to think about your product, your service, your target market and look
for the right kind of investors. For example, at CureKids Ventures we are a
healthcare-specific investor, so if someone comes and pitches a FinTech idea, then it won't
fall within our mandate. So research your investors, know what their mandates are, know
what their interests are, because chances are the investors that would want to invest
in your company are experts in your industry or have a passion in your industry and would
want to come with you on that journey. Also realise that anyone who wants to invest in your
company all the investors that are looking at your company, look at them more than just a
cheque book, they're not just about the money. They’re are people who have succeeded in
your industry, who have held senior positions whether New Zealand, in New Zealand or
globally, that are widely connected. Their connections can be very meaningful and can help
accelerate your company. So look for the right kind of investors.
So why am I talking about mental health and well-being of founders, well there's some data
out of the U.S that says that founders are two times more likely to have major depression,
and three times more likely to succumb to drug abuse.
There's also a Harvard Business School study that says that about 8 percent of
startups fail because of founder burnout.
So what are the three things that you can do to put yourself in the best position to run your
startup and and ensure that you have the energy and the ability to grow your business.
Well when it comes to mental health and well-being the keys are, you know it
sounds basic but the keys are exercise, nutrition and sleep.
So starting with exercise, this doesn't mean you've got to go to the gym it doesn't mean
every day, it doesn't mean you need to be pumping iron and going for a run every day to
keep your energy levels up. It just means getting out and about and doing 20 minutes a day
of basic walking, it's not rocket science but it's really really important, I can't emphasize that
enough. The next biggest thing actually is, so exercise is probably the biggest thing that you
can do to help your mental health and well-being. but the next biggest thing would definitely
be sleep, sleep is just crucial. The pressures of an early-stage founder are immense no
one's denying that, but you do need to set some time aside for yourself to re-energise so
that the next day you can go hard, and you can't do that on five hours sleep you can't even
do it on six, you've got to try and get that seven hours sleep that's .
recommended there's a few things you can do to help make that happen.
One is ensuring that you don't drink coffee after 6:00 p.m.\, that you don't that I get in front of
a screen for two hours before going to sleep because the blue screen, the blue light impacts
on your ability, but just to get to sleep, but if you can't get to sleep it does
impact on the quality of your sleep and your REM. So, can't emphasize enough the
importance of getting sleep. The third thing as I mentioned is nutrition, it goes without saying
exercise nutrition everyone talks about those things together, but nutrition is also incredibly
important for mental health, so there's a really strong link between gut health and mental
health and if you're eating junk food all the time, if you're going from meeting to meeting
to meeting and not really looking after your diet, then that will have an impact.
So exercise, sleep and nutrition, the three real keys to looking after yourself.
Tena koutou katoa, kia ora, my name is Michael Murphy from Callaghan Innovation, we are
driven to explore the unknown and pursue excellence with the ultimate aim of ensuring
New Zealand's best and boldest entrepreneurs are enabled to create truly world-class businesses.
World-class businesses that will go on to employ future generations of Kiwis, world-class
businesses that will underpin the social and economic development of our country, and a
critical component of achieving those goals and ensuring that New Zealand’s entrepreneurs
fulfill their dreams is to ensure that they are appropriately funded. And with that in mind I'm
delighted to introduce our Capital Education program. The purpose of the Capital Education
programme is to provide a broad overview for founders of startup and early-stage
businesses looking to embark on a capital raising process.
We’ve brought together a range of industry experts to provide their insight and wisdom into
this critical topic. I hope you get as much out of these experts as I know many founders
have done by talking to and working with them over the years. I hope you're able
to apply their advice in practical ways to help you and your business.
And most importantly I hope their advice makes a difference in helping you raise the
capital to help your business succeed. Good luck.
I'm from New Zealand Trade and Enterprise. Our job is to enable great New Zealand
companies to connect with relevant offshore investors. What we're seeing is interest in
creative technologies, B2B SaaS, FinTech of course so Xero, every technologies, and
emerging ones in space and frontier technologies. The markets that we are seeing that
interest from are Australia where we have a really active venture capital ecosystem,
Southeast Asia mainly around Singapore, and the west coast of the United States
of America. Right now the average round size that our team is helping with is around those
series A market, approximately two to five million dollars, to really support that scale or
the internationalisation of your proposition into offshore markets. Usually you would have
already some offshore customers and have great channels to scale that technology or
that offering further and deeper into that market. That's what gains the most attraction from
an investor. We're finding that the sophistication of the New Zealand entrepreneur is
increasing all the time and our goal is to really help you to understand some nuances
around the capital raising, specifically in that market that you're targeting. Today we've
also set up an education platform called InvestEd, and as a next step I love any of you that
have wanted to learn a little bit more to also jump on InvestEd website, and you get a
little bit more of a in depth, how to prepare yourself for raising predominately offshore capital.
If you'd like some more information, please go to New Zealand Trade and Enterprise
website, click on investment and then click through to InvestEd. Thank you very much.
Your pitch deck is your opportunity to take the investor on a journey of discovery.
At the end of your pitch, your investors should understand why what you're doing is
important, what it is that you're doing and how you're going to execute it, and most
importantly they should feel your passion for the project.
The very first part of your pitch is to explain the problem that you are solving.
Explain it with passion, explain it with stories, explain it in detail. There's a famous VC in the
US that says if you have 95 minutes to pitch, 90 minutes should be your story of the
problem. Maybe that's a bit of an exaggeration but you need to develop the story in a way
that emotionally engages your investor once. You've established the problem, you need to
determine who owns the problem. This is critical because if the person who owns the
problem isn't the same as the person who pays for the solution, then you'll go-to-market
strategy is going to be fairly complicated. So understanding who owns the problem is
essential for the investor to feel engaged with the process.
Then you can tell the investor what your solution is and explain your solution in
a single sentence, and then expand on it. What validation did you do in the market before
your solution was created, what changes did you make, when you did your market validation
to prove that your solution is the right solution for the market.
Once you've established your solution, you need to give the investors some confidence in
the proof of your solution. What are the statistics on stickiness, customer feedback,
testimonials, anything that can prove to the investor that there is product-market fit for
your solution, for real customers.
Next you need to look at the market, who is your target customer specifically as
much detail as you can give and then what's the Total Addressable Market that your solution
can reach once. You've identified the market look, at who else is out there, what's the
competitor landscape? How is your product unique and different from the other competitors
in the space? How high is the barrier to entry for other players coming into the market?
And that leads straight into your IP position, have you protected your trade secrets?
Have you filed a patent? What is the price for somebody else to come in and copy take over
or repeat your product or service in the market? And it's at this point that you need to confirm
whether or not you have a freedom to operate in the markets that you're intending to
go into. Now you can bring in your financials, what's your financial model? Basically,
how are you going to make money, how much money and when? Too much financial
information at this point is not a good idea, you need high level financials in your
pitch and more financial information and a backup of the model in your due diligence kit.
Articulate your vision for the company. Where is it going to go? What do you see as the final
solution? Is this a company that's going to exit? it's going to be an IPO, it's going
to be a trade sale, or are you going to be a global company that grows and pays dividends?
Why you? Why should i as an investor trust you to deliver on your vision, to execute on your
plan? What is it about you personally that's special, that's different, what have you done
what's your experience that gives me confidence that you are the person to invest in.
And the whole way through, investors are looking for people who are self-aware and
coachable, if you can demonstrate those values during your presentation, it's a big leap in
the right direction.
Some of the options for early-stage startups in New Zealand are: angel networks around
New Zealand, active and passive funds in New Zealand and Australia looking to invest in
high-growth startups, New Zealand venture investment funds, skip fund, crowdfunding
platforms, and family and friends.
When you don't have a product and market traction, sometimes it's hard to raise investment
from early-stage investors, so the best place to start would be to find a friend or a family
member who understands the opportunity, and are willing to back you as a founder, and the
business opportunity that you present.
One of the places where early-stage startups in New Zealand can go for investment is angel
groups. There are about 11 angel groups around New Zealand, starting from top of North
island to South island, each angel group is different size but the best thing about
angel groups is they consist of individual investors with different backgrounds,
so if you're pitching for your technology, you probably find a few people who understand your
space, market technology your team, so you're getting smart money as well as
experience that comes with the group as a whole.
And then there are also other groups that manage funds so angel groups also have small
sidecar funds that they manage. The difference between the early-stage funds and angel
groups is that the funds would have set investment criterias, so before you approach them
check their website, speak to the investment manager and they'll inform you of the process
and some of the features they're looking for in a start-up to be eligible for investment.
So this could be a really good strategy for startups who are approaching the angel groups
and the funds. Both the groups can do due diligence together to fast-track the process for
you so you don't have to answer the same questions with the same people that you're
dealing with. And they're also different independent funds they usually have sector focus so
there will be funds that are focused on science and technology, there might be funds that are
might be investing in software only, there might be funds that are generalists, so some of
these funds would have investment committees that you pitch to. These are active funds and
managing your investments over time. The other types of funds that you would come
across a passive funds where the’ll make the small-sized check and they'll
just request an update from you regularly passively.
New Zealand also has a government fund that invest in early-stage sectors such as
NZVIF’s SCIF fund. Crowdfunding platforms are a great place for companies
commercialising B2C products, consumer facing products and maybe have a little bit of
revenue for seeking investment. The crowdfunding platforms can help you prepare your
information memorandum, they manage the investment process as well as post investment
reporting to investors.