“This is the best time to raise money ever,” Stewart Butterfield told the New York Times recently. Butterfield is CEO of Slack, an instant-message-based team communication company, whose valuation rose from $US1 billion to $US2.8 billion in little over a month early in 2015.
With low interest rates, Silicon Valley billionaire investors boasting on talk shows, and media reports of unicorns (startups valued at over a billion dollars) and decacorns (those worth $10 billion or more), it’s not surprising the US is flush with wannabe tech investors.
And there isn’t just money around for US companies. Last month, Wellington start-up Area360, creator of STQRY (pronounced ‘story’) – an app providing digital guides for museums, zoos, gardens and the like (including Auckland’s Kelly Tarlton's Aquarium, pictured) – announced it had closed a $5.5 million Series A investment round led by Seattle-based venture capital firm Madrona Venture Group.
Area360 had previously raised $400,000 from local investors such as Gareth Morgan and Alan Gourdie, but the Series A funding will help the company establish its US headquarters (also in Seattle), and expand into new markets (initially in the US and Singapore, and then Europe), and new industries (airports, casinos and hospitals).
Area360 co-founder and CEO Chris Smith, who was born in Seattle, but moved to Wellington to attend Victoria University, says raising capital in the US was a completely different experience.
“In New Zealand, you’ll know the one or two people you want to get investment from and you put all your energy into making that one managing partner fall in love with you.
In the US, you almost play a volume game. You’re out there doing three or four or five pitches a week, nailing as many as you can, because if you can get several terms sheets [venture capital investor expression of interest contracts] in at once, then you can play them against each other to get the best deal you can.”
In pitching to venture funds in Seattle and Silicon valley, Smith discovered that despite the cloud bringing us all together, most investors still want the companies they invest in to be US-centric, either in terms of location of the executive team or the operational focus.
“If you’re based in New Zealand, they [believe] they won’t have any control over how things are done in the business,” he says.
Chip Dawson, CEO of International Business Management and a long time angel investor in New Zealand start-ups, agrees. Increasingly, investors want to add value by helping shape the companies they invest in, he says.
“They can influence you if you’re close by, but very few will get on a plane and come down here. You have to be there when they want you.”
Quentin Quin, general manager of NZTE’s capital team, says Silicon Valley VC and angel investors tend to be less risk-averse than their Kiwi counterparts, making them a good fit for tech startups. Still, the early-stage investment climate is improving in New Zealand, Quin says, as local angels see the financial returns being achieved overseas. This allows NZ companies to delay international fundraising.
“So when they do have to go into the US market, their technology, or their business model or their channels are a little bit more substantial, so they’ve got a better story to tell.” ⋅