Inside the Matrix: a startup pitches for its life

Linc Gasking tracks the fortunes of local startup Twingl, their brush with international venture capital, and delivers a report card for New Zealand business.

twingl founders

At the first pitch, from left to right: Andy Wilkinson, his mother, Greg Signal, and Matt Kennedy. PHOTO: Chelsea Robinson

Linc Gasking tracks the fortunes of local startup Twingl, their brush with international venture capital, and delivers a report card for New Zealand business.

The venture capitalist noticed their hands were shaking. This was a good sign. Anxiety means you are serious. “Shall I introduce myself first?”, he asked.

“My name is Gilad Novik. I work for Horizons Ventures, the private investment arm of Mr Li Ka-Shing. We are based in Hong Kong and invest in early-stage companies. Investments of Horizons Ventures have included Facebook, SecondMarket, Siri and Skype. Spotify is one of ours. Waze is one of ours. We are the vehicle to create money for the Li Ka-Shing Foundation, which Mr Li calls his ‘third son’. The foundation has already given away over one billion dollars for the good of the world into healthcare and education, with more than six billion still to give.”

Novik waited for a response as Andy Wilkinson’s mum placed a breakfast plate of corn fritters and smoked salmon in front of him. At one end of the wooden kitchen table, which this morning doubled as a boardroom, perched a computer screen. At the other end of the table sat three very young guys, hair neatly combed, dressed in their Sunday best, and too nervous to touch their fritters.

These guys were the founders of Kiwi startup Twingl, and they were about to pitch for their lives.

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From Tel Aviv to Christchurch

Greg Signal, Matt Kennedy and Wilkinson came together at Startup Weekend in Wellington about six months earlier with a couple of others who have since dropped out. This was their virgin investor pitch at Twingl World Headquarters (aka Wilkinson’s parents’ house), overlooking the rolling Port Hills from the tiny satellite town of Halswell, about 30 minutes south of Christchurch. It is sufficiently remote that when Novik tried to navigate our rental car to Wilkinson’s using Waze, the app got us lost in a maze of new subdivisions now connecting the town to Christchurch.

We were saved by Google Maps, which was a notable aberration because Waze is usually better. Significantly better, that is, for Google to acquire Waze from its founders and investors (including Horizons Ventures) for over US$1 billion in 2013.

Novik scouted Waze for Horizons early in 2012. It was founded just north of his hometown of Tel Aviv, Israel; though he had since relocated to London. He fondly remembers Waze saving him from being late for a meeting in Tel Aviv when the app set him on a route driving him straight through the middle of a petrol station and onto an adjacent road. The in-the-know shortcut saved him 30 minutes of driving and he arrived right on time. The funds Li Ka-Shing’s foundation made from Waze, about US$130 million, have already been donated to Israel’s Technion University in a ceremony Novik attended in October with Horizons director Solina Chau, Li Ka-Shing and Israel’s president Shimon Peres.

“Everything you expect about Tel Aviv is wrong,” is the mantra of the city’s taxi drivers. Indeed, Tel Aviv is certainly not CNN’s Israel, by any means. High rise hotels overlook sandy beaches. The city is reminiscent of Venice Beach or Santa Monica in California, and so is its population: in 2012, Traveler’s Digest voted Tel Aviv as the city with the world’s most beautiful people. Its young and friendly population can be found in bars, gelato shops and cafes on Rothschild Boulevard with closing times listed as “last customer”.

The historic tree-lined street is also afavourite home for startups, and one of Novik’s favourite old haunts. Novik is in high demand when he returns to his hometown, and this is where he prefers to sit, at a corner cafe, waiting to meet the future, or at least one founder’s vision of it. It is the reason Novik loves his job - getting to see what is coming next around the corner to make our lives better.

The size and quantity of startup acquisitions (including another Novik discovery, Onovo, acquired in October by Facebook for a rumoured US$100-200 million) have increased in line with local property prices, particularly Rothschild Boulevard, which has gentrified since 2005 and become one of the city’s most expensive streets. Young entrepreneurs still flock to the area, and overcome the paradoxical pricing dilemma with the help of their grandparents, many of whom purchased property along the Boulevard during an earlier era of urban decay, and remain the charitable landlords of choice.

Tel Aviv’s streets are distinguished with the occasional presence of teenage Israeli soldiers carrying machine guns. Every Israeli citizen over the age of 18 must join the Israeli Defence Force (IDF), including three years for men, and two years for women. Israel’s IDF intelligence units (such as 8200) employ a type of high-tech sorting hat process which leaves Hogwarts for dead.

As a result of these units, Israel has created a continuous pipeline of talented software engineers and a world-renowned brand in cybersecurity - 8200 has developed a reputation equivalent to Stanford or MIT, thanks to alumni who have left to found startups such as Waze.

Before Waze, Novik had come across another notable opportunity one morning in London. He had read of a locally based intelligent app which automatically summarised articles. The deep technology was appealing. He telephoned the app’s well-spoken CEO, who proved knowledgeable enough for Novik to arrange a meeting to discuss an investment. It proved difficult to schedule a time as the CEO was unavailable in business hours. It seemed odd. Was he playing hard to get? When pressed for the reason, the CEO, Nick D’Aloisio, explained that he could only meet before or after school.

D’Aloisio was only 15 years old.

Novik asked D’Aloisio to bring his family along to a meeting with their executive team and, with his mother signing the documents, Horizons invested US$300,000 on the eve of D’Aloisio’s 16th birthday, making him the youngest person in the world to receive venture capital. In 2013 D’Aloisio’s venture, Summly, was acquired by Yahoo for US$30 million.

Around the time of this acquisition, our company Free Range, a New Zealand startup network and incubator, invited Novik to New Zealand. He showed interest, and requested a comprehensive national tour, including as many startups as we could find within a seven-day period.

We visited 82.

We had planned to see around half that number, but Novik was able to evaluate a startup and its founders in around 10 minutes, and we had originally booked pitches into slots of an hour.

One of those pitches was Twingl.

'Fuck Lorem Ipsum'

Late into the night before we arrived with Novik, the Twingl boys were finalising their presentation. They were pitching their startup as a platform for which other developers might create further apps.  “That’s when we realised, we don’t have enough apps to be a platform,” says Kennedy. With plenty of spare adrenaline, on the spur of the moment he decided to build another app that night to top them up. But Kennedy was a designer, not a coder. This might have caused a significant barrier, but on this particular night he managed to create the app and learn to code at the same time.

“[Xero’s head of design] Philip Fierlinger says, ‘Fuck Lorem Ipsum’, and that was our philosophy as well. If you are going to properly show a design, you better use real content,” says Wilkinson. The boys spent the rest of the night pre-populating Kennedy’s new app with real data.

Morning came, and possibly the most nervous of them all was Wilkinson’s mum. The corn fritters required perfect timing, and Wilkinson was concerned they would go soggy and be “nowhere near VC quality”.

Wilkinson read our text. Ten minutes away.

The fritters went in the oven, and the boys did a final run through to de-stress themselves.

The appearance of the anonymous rental car in the driveway was the worst, says Wilkinson. “My heart was in my throat. I was really panicky, kind of, you know, ‘the shark is coming’."

Then Novik stepped out of the car, smiled and shook Wilkinson’s hand, which immediately put him at ease. “I thought, oh, he’s just a human being, and a friendly one at that. This is going to be a nice conversation.”

During the pitch at the breakfast table, Novik became distracted, typing on his iPhone during their conversation. “It was really disconcerting,” says Kennedy. “I was thinking, is he bored or looking at his e-mail or what?”

That’s when Wilkinson realised Novik wasn’t distracted, he was using his phone to type notes. Wilkinson began to use Novik’s phone as a barometer for the pitch. “Every time he went to his phone, I looked over and if it was the yellow notepad we were doing well. If he was in mail, I would move the conversation onward.

“It was like one of those video games, like in Oblivion or Deus Ex when you are having to monitor the facial expressions of the person, and constantly change your strategy whilst you’re in the thick of it.”

At that point Wilkinson’s mind wandered, in typical entrepreneurial fashion, to invent a new startup idea: a VC simulator app.

“How much money do you want?”

Novik’s question sliced through Wilkinson’s virtual excursion.

Nobody had yet received this question during the tour. Malcolm Gladwell describes this moment as “the turn”. It’s “the perilous, crucial moment where [a pitchman] goes from entertainer to businessman. The turn requires the management of expectation.”

However, this wasn’t the pitchman asking for money. This was the other way around, and it took the entire room by surprise.

Wilkinson’s face contorted through a dozen expressions, as he tried to process the thought of actually receiving money. He had not thought that far ahead. He had only been concentrating on making it through the pitch. He came up with a number: $300,000.

“He looked disappointed”, says Wilkinson, “so I quickly changed tack and said $500,000 and he started writing.”

Y Combinator’s Paul Graham writes that when investors ask how much you plan to raise, “it’s not because you’re supposed to have a plan. It’s to see whether you’d be a suitable recipient for the size of investment they like to make, and also to judge your ambition, reasonableness, and how far you are along with fundraising.”

Then another promising sign.

Novik started to make suggestions.

“He asked about planning a browser extension, and when we said yes, his eyes lit up,” says Wilkinson. “You could tell that as soon as he started suggesting the features that it was going well and we were on the right track.”

The conversation wrapped up soon after, and with a smile Novik posed for a picture and shook their hands. “See you in a few weeks,” he said.

Twingl were the first of six startups from the tour to make it through to a final round.

On Friday September 13 at Auckland’s Maritime Museum, Twingl pitched to Horizons Ventures executives in a Dragon’s Den format in front of an audience full of local and international investors, including Solina Chau of Horizons Ventures and Mary Meeker of Kleiner Perkins Caulfield & Byers. Both appear on the Forbes list of the world’s 100 most powerful women. The Dragon’s Den also included Nick D’Aloisio (now 17) who Novik had invited to come along on the trip.

Mary Meeker was the first to talk after Twingl’s pitch, which was given by Wilkinson. “The reality is that Facebook has all this stuff, but they haven’t graphed it out quite the same way you have, which I think is a beautiful image, and it’s a great idea.”

This is usually the part in the a story when Twingl attracts millions in funding, but that is not the case - yet. Horizons thought they were promising, but it was too early.

If Israel is fully grown, New Zealand is still a pimply teenager

Novik’s more general feedback was that compared to Israel, New Zealand is still a teenager, albeit a promising one.  Israel has been developing its technology industry since the 1950s (two of its first presidents were scientists), and Silicon Valley began with Stanford University in the 1880s.

While Israel is by no means the only startup ecosystem Novik is familiar with, he noted some definite similarities between New Zealand and The Startup Nation. Both face adversity (earthquakes and geopolitics) and lack resources, which has helped force successful startups in both nations to be resourceful and innovative, and take a global perspective from day one.

One key missing piece of the puzzle in New Zealand is the presence of experienced (serial) entrepreneurs. A high-tech ecosystem becomes sustainable when successful serial entrepreneurs reinvest their knowledge, capital and connections into successive ventures.

New Zealand’s relatively young ecosystem loses much of this reinvestment potential, because our local entrepreneurs and/or startups continue to relocate overseas, thus severing the recycling process.

One potential solution is to recruit experienced entrepreneurs and engineers to immigrate to New Zealand and fill the gap. Despite challenges presented by US immigration policy, around half of Silicon Valley’s startups are founded by immigrants, including Google’s Sergey Brin, Intel’s Andrew Grove, Instagram’s Mike Krieger, Stripe’s Patrick and John Collison, YouTube’s Steve Chen, and Yahoo!’s Jerry Yang.

Canada has begun to recruit high-tech entrepreneurs by providing permanent residency upon attracting at least C$75,000 (NZ$100,000) investment from Canadian angel investors.

Wildfire’s expat Kiwipreneur Victoria Ransom, now at Google, believes attracting talent to New Zealand should focus on lifestyle benefits, and growing the base of software engineers. “New Zealand is a highly desirable place to live so with the right incentives, I think it should be possible to attract good talent. I feel the shortage of tech talent is probably greater than the shortage of leadership/entrepreneurial talent - so if the technical base is there I think this will help greatly to foster both local entrepreneurs and encourage foreign entrepreneurs [to immigrate].”

The best New Zealand we can be

US entrepreneur Brad Feld says in his book Startup Communities, “My comment consistently to people is not to be like Silicon Valley because you’re not gonna succeed at that. The goal is to be the best you can be of yourself. Learn as much as you can from Silicon Valley and other cultures, but if you’re Boulder, be the best Boulder you can be. If you’re Boston, be the best Boston you can be.”

Over the next few years, New Zealand needs to find its own way to make a unique digital contribution, and part of the solution is to support our next generation of entrepreneurs like those behind Twingl.

Thanks to the Horizons pitches, Twingl has already begun to build an impressive team of supporters, including former IBM executive Ian Wroe, now of The Good Team in Auckland.

“Getting the attention of some of the world’s top VC firms is the most amazing validation you can get,” Wilkinson reflects. “We really learned what we were capable of in the month leading up to the big event. When you’re excited and have a deadline like that, you surprise yourself.”

“Before we had their attention, it’s like we had some kind of filter attached to our perspective that stopped us from thinking really big. It was like that moment in the Matrix, where Neo realises that he can bend the whole world to his will, beginning to believe. We’re all done with uni, are relocating to Wellington and going for it.”

Wilkinson laughs.

“2014 is the year of Twingl. The future is bright!”

Linc Gasking is an entrepreneur and co-founder of Free Range, which has a mission to build the capability and connectivity of New Zealand startup founders. Read his report, Five ways New Zealand can accelerate a healthy high-tech ecosystem, here.