SciBlogs

Posts Tagged Angel investment

Should you bother with venture capital funding…the numbers suggest no? Peter Kerr Aug 20

1 Comment

The scramble that many startups make to secure venture capital funding may be detrimental to the budding business’s health.

In fact John Mullins, writing in Havard Business Review’s blogs, makes the point that the vast majority of successful entrepreneurs never take any venture capital (his italics). Mullins is an associate professor at London Business School.

He gives examples from around the world, but the observations are almost undoubtedly true about New Zealand too.

He quotes venture capital investor Fred Wilson of Union Square Ventures.

“The fact is that the amount of money startups raise in their seed and Series A rounds is inversely correlated with success. Yes, I mean that. Less money raised leads to more success. That is the data I stare at all the time.”

Wilson’s observation demonstrates there are a number of serious downsides in raising capital too early, and that these drawbacks have profound implications at all stages of the investment cycle. I’ve summarised the five drawbacks to VC funding made by Mullins, who also provides some interesting links supporting these arguments.

1. Pandering to VCs is a distraction.

Raising capital demands a lot of time and energy, when an entrepreneur is better off convincing prospective customers to buy – or perhaps learning why they won’t.

2. Terms sheets and shareholder agreements can burden you.

To protect their own downside risk, investors will require what are often seen by entrepreneurs as onerous terms.

3. The advice that VCs give isn’t always that good.

Unfortunately, entrepreneurs will be very likely obliged to follow the VC’s sage ‘advice’.

4. The stake you keep is small – and tends to get smaller

If money is raised later in the entrepreneurial journey, with customer traction in hand, the startup owner is in the driver’s seat, and is much more likely to find a queue of investors outside their door.

5. The odds are against you

In the VC game the very few winners pay for the losers, so most VCs are playing a high-stakes all-or-nothing game. Such odds make it extremely questionable whether entrepreneurs should put their own business into such a play.

Mullins’ take home point is that especially in the early stages, a startup business is much better off being funded and grown entirely by its customers’ cash.

Outside funding is not the be all and end all – though it can quite easily be the unintended end of the startup.

The article also has some excellent comments (as you’d expect for a HBR type article which add further insights to Mullins’ observations).


Branding’s dark arts leans to build, measure, learn Peter Kerr Jun 18

No Comments

The dark arts of branding received an illumination when Brant Cooper spoke to a packed house at Wellington’s Lightning Lab.

The ‘Lean Entrepreneur’ co-author from San Diego popped in on invitation on his way to Australia, and talked about how startup businesses should also take a lean approach to branding – from day one.

This lean build, measure and learn approach to branding (also taken for the product creation and validation) – is defined as a two-way relationship that creates value for a customer.

“You’re in a relationship from the moment a customer is aware of you,” says Brant.

“By putting off branding, you’re already branding, and affecting that relationship.”

Along with Jeremiah Gardner, Brant’s writing a new book, ‘The Lean Brand’. The pair crowd funded its publishing, with 441 pre-orders, obtaining $23,020 from a target of $12,500.

Brant says the Madison Avenue types of branding consultants and experts traditionally concentrate on the artifacts of a brand, such as a logo, tagline and mission statement.

Where brand meets lean is working out what elements of your brand are needed to create value for your customer. This is done through validated learning – moving unknowns to knowns as is carried out for product development.

More so says Brant because initially, startups don’t know the value they’re creating, or for who they’re creating it. With customers comes the opportunity to learn what aspects of brand you should be concentrating on.

Ultimately, Brant says a business is after passionate customers. The aspirations that a business shares with a customer are its brand.

All this is encompassed in a story he says.

This startup story starts with questions such as:

  • Who are you?
  • Why do you exist?
  • Why should I care?
  • What is your rallying point?
  • What is your shared aspiration?

A brand can grow out of answering these questions, as a startup build, measures and learns, and uncovers the elements that provide an emotional resonance with a customer. In other words, experiment to discovering the emotional value of a startup product – hypothesis testing to validate learning.

Brant says startups should own their own brand design and not send this side of the business out to an agency.

“Entrepreneurs can and should own their brand creation,” he says.

“A brand development is not a black box to be owned by others.”

This self-effacing American, who got plenty of laughs during his presentation, will be doing no great favours for branding experts when The Lean Brand Book is published.

But, since under lean, brand is much more than its logo, such disruptive thinking will mean startups start branding right from the get go.

 


Lightning Lab II grows up – will its offspring make it to adolescence? Peter Kerr Jun 03

No Comments

 

Anyone that’s been around young children will appreciate there’s a heck of a difference between a one year old and a two year old.

A similar comparison is valid with Lightning Lab II, which last week had nine of its 10 starters from three months ago pitch to about 250 would-be investors, and a number of others who mostly filled Te Papa’s main theatre last Wednesday.

As LL itself says, it is modeling the way it works off TechStars and other USA originated accelerator initiatives.

But there’s a New Zealandness to how it is done.

So, as well as the added degree of presentation polish, one of the more notable aspects was, apart from three business asking for just under $500k each, the other six businesses were relatively low in how much money they were asking for.

This partly reflects there’s still more market validation and proof required, and also the New Zealand environment.

Often overseas startup accelerator businesses have already obtained some money (from friends, family and fools) before they begin the three month intensive mentoring and ‘is there a business here’ questioning process.

New Zealand accelerator startups at this LL tend to be less mature, and the degree of realism in the money pitch in bringing new investors onboard was one of the features this time round.

Naturally, since many of the pitches are as much about selling the sizzle as the sausage, there is a touch of scepticism required in the growth projections put forward.

But, without any due diligence, all the pitches sounded like they could – with the right combination of expertise, clear direction and luck – gear themselves up to grow.

And, rather than attempting to break down each businesses’ prospects myself, I’ll repeat Nicolai Thomson’s speculation. Nicolai, (Twitter handle, @nicolaithomson) is the founder of Lendyour.co.nz. Here are some of his, and some of his colleagues’ thoughts about the business propositions put forward at LL Demo Day.

He raises some interesting points, that investors too will no doubt explore as they look under the hood of these potential part-purchases.

In Nicolai’s words:

I don’t rate Twingl’s business model though I would totally use their product. They need to look at alternative monetisation and in the last 18 months I’ve heard their CEO twice and don’t rate his ability to spot a future trend, change and win fast enough when established companies jump on their un-patented mapping.

MishGuru, too reliant on Snapchat being a fad today, and limited audience using it. Snapchat will pass and be dead in 3 years. Their subscription plan is also fundamentally wrong as their target market is enterprise paying $10 a month. Every company will start on that level with little incentive to move to more expensive plans which would assure MishGuru can pay their bills.

Floc has a great concept but little future. Using Telco data is not going to be given to a brand new team with no reputation, and would be revoked the moment a controversial CEO or diplomat was tracked leaving their building after someone eyeballed then and identified their dot after hacking in to Floc systems. Never-mind the fact restaurants have legal obligations when it comes to employment and cancelling shifts before or on the day won’t fly for long in the name of saving the owner some dollars. Staff would likely leave and cause unnecessary headaches.

Coach Seek will be a safe bet, no spectacular exit so ideal for the risk averse of those investing. I like the product though maybe a touch too expensive starting at $49USD a month.

Cloud Cannon were my top pick, followed by CommonLedger.

CommonLedger will have a competition issue and will probably be best to position themselves to be bought out quickly. They will be overtaken by deeper pockets if their concept starts to take off. Their CEO gave the impression they are going to build a global giant and may miss a good return which some investors could be spooked by.

Cloud Cannon though probably have the closest disruptive product but I spoke to a designer friend last night and there are major concerns with SEO ability if you get quite messy code that it would deliver the site through. There is no comparison to original source code being indexed. This service cuts out the core web developers who provide the framework/CMS which is why WordPress has been so popular. If they can get SEO to be great, then it’s a winner. Again, won’t take long for others with resources to reverse engineer. Great business model though.

What I didn’t see from any of the teams though is a disruptive produce that carves out a niche which cannot simply be reversed engineered, or copied by teams with deeper pockets, more experience and crucially an existing customer base to test, and get faster feedback from. There were a couple of self-proclaimed engineers and maths geeks, however no one stated their competitive advantage was an algorithm that is one of the few things not easily replicated.

 

 

 


Lightning Lab grows up, gets into its groove Peter Kerr Apr 30

No Comments

The Lightning Lab’s demo day had some quite fascinating works in progress…bring on Demo (to investors) Day on May 28 at Te Papa.

The team behind LL are also, as you’d hope, a year wiser, further along a path with the aim of rapidly ramping up verified/proven businesses.

It also isn’t surprising to see the LL accelerator (now there’s a nice rhyme/assonance) expanding to Auckland next year and Christchurch.

The nine, mostly two or three man teams (and a question asked why so few females?), have had assumptions challenged, hard questions posed – as teams are forced to think about building a business as opposed to creating a product.

There is also wider value beyond the incubation itself, as Ken Erskine, director of startups at The Icehouse, (as appears in Stuff), puts it perfectly

He says research showed successful startup accelerators provided a network of highly experienced and committed mentors and investors, an active alumni network and, most importanly, connections to future capital.

Together, we have a phenomenal combined network of mentors, investors and startup entrepreneurs to help ensure the success of the nationwide accelerator programme.”

At the demo, with a small d, day on April 23, one of the three month intensive’s more interesting pivots was the horse guy.

The original pitch was to do something to make horse shoeing more easy. But the team lead by Ashok is now looking to create a tool so that businesses can run campaigns on SnapChat (the instant appear/disappear photo app).

The guys looking to build a tool to automate translating accounting figures from say Xero, MYOB or QuickBooks to an accountant’s own chart of accounts has already got strong traction and demand.

One of the startups wants to capture, retain and effectively distribute that deep institutional knowledge longertime employees have about a company and how it works.

There’s an app to help the hospitality industry manage its staff/flow requirements, and software for managing shared expenses – as in flatmate situations. An easy, no-bugs way to get a web design quickly going live and updateable, a water tank monitor device, management software for sports coaches, and an app that uses social networks as a way to connect offline – say a quick game of tennis – were explained, and a brief lessons learned given by all.

Finally, and this will be interesting to see if they can get it right – a map that shows where you’ve been on web searches – a way of collecting notes and creating shortcuts through the world’s knowledge.

So, obviously no shortage of ideas up for grabs.

But, as we all know, ideas are easy – it is getting them to sustain flight that’s the trick.

And, an interesting final note:- LL is a partnership between founding investor partners (who receive a percentage share of any startup’s initial offer) and MBIE, part of its accelerator funding pool.


The Kiwi innovation space is starting to look awfully crowded Peter Kerr Apr 16

2 Comments

Is it just me, or is the innovation/commercialisation space looking awfully crowded and confused these days?

Sure, we like to think we’re (NZ Inc) inventive and entrepreneurial.

But there seem to be more entities out there offering innovation (and I shudder to use the term) advice, funding and connections than there are companies with good ideas.

Wearing my taxpayer’s hat, I have no problem when private money puts their proverbial on the line and takes a punt on a startup or early stage company being the next big market success.

Therefore the angel investor community, private equity companies and even family, friends and fools are to be admired and encouraged.

But the plethora of government, university and regionally financed organisations servicing our entrepreneurs is started to look very overlapping, rather uncoordinated; and the lack of transactions by some players needs to be questioned.

A cursory list includes (I’m not sure if I should apologise for accidentally missing some!):

NZVIF

Callaghan Innovation

MBIE (well, parts of it)

KiwiNet (and the individual university commercialisation units that are part of it)

Icehouse

SODA

BBC

CreativeHQ

powerHouse

Sparkbox

In fact this blog was inspired by the recent announcement that there is to be a merger between Wellington-based Kerasi Ltd, and powerHouse – though Kerasi’s website states it is a powerHouse partner so decide for yourself who the kingpin.

powerHouse has also recently announced a merger with Dunedin incubator Upstart.

Then there’s a new body I’d never heard of – Innovation Council NZ.

Again, one of its main sponsors is government via Callaghan Innovation.

All in all, I’m afraid it means that there is quite a bit of overhead costs to be paid for by someone (us) as all and sundry scramble around looking for something to invest in.

In other words, there’s lots of pedaling by a lot of people, but without the sense of urgency that having your own money invested brings to the game.

There will be a lot of meetings though, and any number of bureaucratic hoops to jump through to make sure that ‘value’ is being delivered to the taxpayer.

And then, by the time that someone higher up that government food chain ponders the question of whether flinging a whole lot of money at innovation, and seeing what sticks, actually does work, it’ll be time for another change of policy.

But by then minister of everything Steven Joyce will probably have ditched the science and innovation part of his portfolio!


How long will it take for the Wynyard Precinct to hit its straps? Peter Kerr Mar 11

No Comments

Well, let’s see how Auckland’s new Innovation Precinct, Wynyard Precinct (it appears to have at least a couple of names) get’s up and going.

It has been one of those long time in coming projects – and now we’ll see if the deliberate talk of setting up an innovation hub to attempt to be a baby Silicon Valley can be pulled off.

Making it a digital and ICT concentration of goodness may work, but then it may not.

I don’t know enough of the psychology, come physical location, come proximinity to university relationships to guage this one yet.

That, and whether the office/laboratory rent will be in the right comfort zone for budding entrepreneurs, who, even though they’d like to be situated around other smart people, may prefer the rock-bottom payments due when operating out of garage.

With (well at least according to this NZ Herald story) hotbeds of innovation already taking place in Albany, Takapuna, Henderson, Parnell, East Tamaki and further south around Auckland Airport, how and where Wynyard fits in will be interesting over the next few years.

Wynyard’s got some solid operators, with a track record in start-ups through having The Icehouse and Auckland’s BizDojo as people to meet, greet and settle potential new firms. There’s nothing like a bit of experience and competence to help fledgling founders.

How Ateed (the Auckland development agency) and Callaghan Innovation bring the FoodBowl into the mix will be another challenge.

The Manukau-based Food Innovation Centre has had considerable investment put into it by central government.

While these ventures always take a long time (if ever) to pay themselves back, the FoodBowl’s been very much in that territory apparently.

But, that’s not to belittle Wynyard. Onwards, and hopefully upwards.

Mind you, given that it will take at least a couple of years for anything meaningful to happen, by then we’ll have forgotten what the original purpose of Wynyard was anyway.


Driver of Callaghan accelerator services to put pedal to the metal? Peter Kerr Mar 04

No Comments

We’ll make the assumption that Callaghan Innovation’s new GM of Accelerator Services isn’t there for the money.

Chris Somogyi’s come relatively unannounced to the crown entity whose role is to accelerate the commercialisation of innovation by NZ firms.

Chris Somogyi

Softly, softly is possibly how the American, recently from Seattle may do things – lie low, get a feeling for the place before making yourself known.

He’s been a venture capitalist, developed concepts into ready-made products and has a strong record in business development. He’s already been to NZ a number of times, so presumably isn’t too rose-tinted glasses about our place.

Given his interesting credentials, and presumably backstory as a biomedical engineer by training, Somogyi hopefully brings some deep connections and contacts into some of the business areas CI’s targeting.

Having been well over a year in the development, CI needs a few runs on the board, needs the accelerator pressed to the floor.

Investing in companies, having an umbrella view of industries and sectors will undoubtedly be a completely different gig to being down and dirty with would-be up-and-coming businesses within the same, and trying to help them scale quickly to significant size.

In other words, fighting in the trenches is completely different to attempting to direct from above.

Which Somogyi will undoubtedly be aware of, and hopefully up for the challenge of being part of.

From Callaghan Innovation’s point of view, they probably have little to lose.

An outsider (of NZ candidates) solves a few of those political/business bias challenges that can arise in such a pivotal, potentially game-changing position.

CI may’ve thrown a double six just found the exact person they need.

Or not.

He’s only been in the GM accelerator services role for a month or so, and Somogyi is probably doing a lot of listening while trying to make sense of the disjointed research, development, commercialisation and funding and investment scene in this country.

Welcome to New Zealand Chris.


Today Wellington…tomorrow the world for ‘toys’ lending site? Peter Kerr Jan 28

No Comments

 LendYour has been start-upping its way to life in a next door office to me.

A bit like a nosy neighbour, I’ve been keeping an eye on the Wellington Startup Weekend 2013 inspired web play (with an app to come) whose proposition is to ‘rent what someone else owns’.

In that same neighbourly way, I’ve also had the occasional kitchen conversation with co-founder Nicolai Thomson, who currently works for a business-oriented mobile phone company.

It has been interesting watching and hearing of the tribulations and triumphs of putting together a website and backend that firstly enables the owners of big ticket items such as motorhomes, boats and holiday homes to register their items, and then for a borrower to do so.

And though (inevitably) the commercial motorhome rental industry will see LendYour as competition, Nicolai feels the owner-oriented site has a couple of advantages beyond around 30% cheaper for the renter.

“Firstly, we have greater accessibility than the national companies,” he says. “There may be a motorhome in your home town, and you’re not restricted to taking onboard the amount of baggage you can take on a plane. Secondly, there’s a lot more character and individualisation of an owner’s motorhome, and that will appeal to a great number of people.”

Building the LendYour infrastructure to do so has taken a group of global developers/partners a number of months (though Nicolai’s originally British and is tapping into his contacts).

LendYour has had its first five paying customers, and Nicolai’s intention is to go worldwide with the site – though tailoring it for individual countries.

Unlike some competing temporary lend/borrow sites, LendYour is starting with expensive holiday-type ‘toys’, as this provides a better margin on which to build the business. Eventually, other, smaller, lower rental items will be included – essentially to flesh out LendYour’s total offer.

LendYour’s revenue model is based on owner members receiving 92% of the total charge for accommodation, and 70% for a motorhome.

One interesting feature of the site’s development has been both the learning exercise and partnering up for insuring items.

Nicolai says LendYour has obtained premiums through CamperCare that are usually much better than those available through traditional insurance companies. This premium insures both the motorhome itself and its contents.

Getting this liability/protection aspect of the business sorted out has been one of the solved headaches for the team, as up till now motorhome owners have had no way of insuring their vehicle when lending it out to a third party.

The full site is due to go live in February, and will eventually include the ability for hirers to add map-based travel information and photos – creating LendYour specific content which in itself creates more reasons for site visits. Initially this will be through static information and photos, with dynamic maps to be added later on.

The business is also up for inclusion as one of the Lightning Lab 2014 teams to be announced this coming Friday (31 Jan).

As well as the $18,000 ‘living costs’ (and commensurate acquisition of equity by the Lightning Lab investors), Nicolai sees the process would be extremely valuable for quickly learning more quickly on how to grow what has already been developed.

Using the neighbour analogy, it has been extremely interesting observing a type of toddler moving from crawling to now walking.

Whether the baby develops into a fully-fledged adult sprinting for all its worth – time will tell – and though I’ll no longer be a neighbour, I’ll watch with interest.


A hidden gem in Callaghan Innovation’s business case? Peter Kerr Jan 21

1 Comment

Callaghan Innovation’s business case came out a week before Christmas among a flurry of keep it under the radar government documents released about the same time.

(Ironically, the business case appeared a couple of hours after sticK commented that it hadn’t turned up…though I’m not claiming any credit!).

As a some people commented, it wasn’t much different from CI’s Statement of Intent delivered in late July.

But, delving among the entrails is the first new, rather than inherited, scheme put up by the Crown Agency.

A repayable grants programme. (As described in their own words on page nine of the document it is):

Repayable Grants Programme: provides grants to technology-focused incubators in order to create and nurture new businesses based on promising areas of technology. This new programme will ramp up to providing 24 grants annually of $450,000. These grants must be repaid once the new businesses begin generating revenues.

Now there’s not much flesh or other information around this RPG, but what it essentially is, is a repayable loan if and when a fledgling company starts making money.

Israel (among a number of exemplar countries) has had this model for a number of years, as mentioned in the fourth paragraph of a guest blog by Daniel Saunders in VCCafe.

From what I gather, the main advantage of such a repayable loan is it recognises that many technology focused ventures are risky; a punt.

That being the fact, if they succeed, the money’s paid back. If not, ‘deems da breaks’.

It is also relatively simple to administer – and much less influenced by a bureaucrat’s whim (apparently).

So, a bit of a thumbs up for Callaghan Innovation…some innovation of its own.

We’ll look forward to seeing how the RGP is going to work in actuality, as Callaghan Innovation works towards its stated ideal of being a small R and big D in New Zealand’s R&D (research and development) landscape.


We’re getting over our notions of shame around business failure Peter Kerr Dec 10

No Comments

I’m putting the proposition out there that we’re getting over our collective Kiwi hang-up about startup and business failure.

That is, whereas in the past we’d write somebody off for having tried, and been not successful in a new business venture – these days we’re much more inclined to encourage them to dust themselves off, and get on with something else.

From that point of view, we’re becoming much more American in our attitude to ‘failure’, and as long as it is failure for the right reasons, are inclined to regard it as experience.

This was the basis of a speech I recently had the privilege of giving to the NZ Institute of Patent Attorneys in Wellington.

Now, there’s no academic research that’s been carried out on this change in our collective attitude; not that I could find anyway.

And, in checking with Professor Sally Davenport of Victoria University’s School of Management, she doesn’t believe there’s been any study of this kind either – but being ever-entrepreneurial herself, would be keen to research the topic if some funding was available.

In talking about some of the anecdotal evidence for the proposition (see below), Sally made the following observation.

“It is how these things become normalised. We’re getting over the tipping point.”

So, and based pretty much on a gut feel, what’s some evidence that we’re collectively over a tipping point with regard to business failure.

Item 1.

Lightning Labs.

Now this Wellington (and nationwide) initiative to fast track good ideas into investor-backable businesses saw nine February startups, pitch to would be financiers in May.

Four of the startups garnered over $2 million in investment between them. Just as notably in a September press release was the unashamed dealing with and description of what the unsuccessful fund-finders were up to.

Some are still building their business model, one’s taking an amateur sports funding concept to South America, and the other teams have moved onto other ventures. But, they’ll all be back for LL II next year. To all extent and purposes, this LL press release was a recognition, if not a celebration of failure, and of its absolute value.

Item 2.

The TIN 100 report, though in this context the discussion around the report which came out in late October.

TIN 100 report founder Greg Shanahan gets to meet a fair number of the founders of these companies, including those of the TIN 100+, those smaller companies (less than $2 million annual turnover) hovering outside the main group.

“Most were baby-boomers, most were grey-haired,” says Shanahan.

What he didn’t say, but is sure to be the case is that a fair number of these CEOs will have known previous non-success.

This age group belies the notion that all entrepreneurs are in their twenties – and backs the stats that it is older people who actually begin more startups than younger (see a couple of studies, here and here).

The other ‘advantage’ of baby-boomer entrepreneurs is we’re more prepared have a go. At our age, failure is in fact NOT trying.

Item 3.

The Dead Startup Society.

A couple of years ago, the idea of getting together to commemorate a business failure would’ve been an absolute non-starter. But the packed-out attendance of this offshoot of Lean Startup Wellington on November 20 showed how cathartic people found the experience (I’ll get up next time to demonstrate my non-success).

As the Dead Startup Society said on its Meetup page:

“Many of us have been involved in startups that have failed – some quietly, some spectacularly, most somewhere in between. Come along to reflect and share our failures and the lessons we’ve learned from them.”

If there is anything that demonstrates a change in attitude, it is an ability to take the mickey out of ourselves.

Laughing about failure, after you’ve swallowed its bitter pill, takes away its stigma.

This part of our NZ tall poppy syndrome (the knocking machine) is no longer the invisible anchor preventing those of us who have failed for the right reasons, from getting out there and having another go.

Live long and prosper – as Star Trek’s Spock would say.


Network-wide options by YD - Freelance Wordpress Developer