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Dear David: cash and kings

Idealog's resident Agony Uncle David Downs answers your burning innovation-themed questions on finding capital in New Zealand and greasing up VCs. 

Dear David,

I’m just emerging from years in the lab with a game-disrupting innovation and I need some cash to get it to market. But I’ve keep hearing that there's no investment money in New Zealand. Do I need to move to the US to get enough money for my innovation to change the world?

Yours,
Future Billionaire

Dear Future, 

This is a topic that comes up regularly – the criticism that New Zealand has ‘shallow’ capital pools and therefore isn’t the place to fund innovation. Personally, I don’t give it much credence. Yes, it’s true that New Zealand doesn’t have that many true venture capital funds, but that’s only part of the story.

Firstly, New Zealand has a fair amount of early stage investors. There are angels and super angels in all the major centres now and, of course, there's the rise of crowd funding. Good ideas and good companies have the opportunity to get support lots of different ways that didn’t exist a few years ago. In my personal opinion, lamenting a lack of funds is a waste of energy, and often a lack of funding is a symptom of a deeper issue with the business fundamentals, the viability of the idea or the tenacity of the founder. 

Sounds harsh? Yes, and that’s the second point: early stage business is hard. Good companies will thrive. Bad ones will not. That’s the law of the jungle. And, to some extent, the dynamics of the market have to play out in the early stages of company life in order that the company is stronger for it. One recent report points out that a reason New Zealand businesses struggle to get to scale on the world stage is a lack of competition in their early stages. Not that I’m wanting to make life harder for anyone, but being forced to compete gives owner/managers a great schooling in what it will take later in the company lifecycle to be successful.  

The other key point is that today, more than ever, capital is global, not local. It used to be that we had to fish within our own small pond. Now, thanks in part to the people who have gone before us, investors from offshore are actively looking at New Zealand. As the recent Investors Guide to the New Zealand Technology Sector report published by MBIE shows, funds like Intel Capital, Sequoia, Khosler Ventures, Bessemer, etc., etc. are now active in New Zealand. The report, written by the Technology Investment Network (TIN100) should be compulsory reading for all aspiring startups in New Zealand. It paints a vision of a dynamic sector with smart, sophisticated companies, successfully competing internationally for capital.

Dear David,

I’ve managed to land an appointment with a top US VC who is looking at investing in the widget I recently invented. What tips can you give me to prepare?

Regards,
Nervous Nelly

Dear Nervous,

Firstly, congratulations! That's great news and I’m sure the result of a lot of hard work, mixed with a great idea and company. Go you good thing!

From the conversations with investors I’ve had, there are certainly some key things for you to consider in your pitch meeting.

There are three key questions VCs want answered: Why you? Why now? And, what’s the pain?

Why you? What is it about you, about your idea, your company that makes you stand out? What’s special or remarkable? And not just fluff or a unique pitch, but about you as a person and team that makes them believe you have the right stuff to succeed?  Remember a VC might receive 1,000 pitches in a year and commit to only ten of them. They also will all tell you they invest in the person over the idea; ideas are cheap, people are the x-factor.

Why now? Ideas are like good comedy. It’s all about ... timing. Great ideas at the wrong time are no better than bad ideas. It’s a confluence of technology shifts, consumer sentiment, societal conditions and, yes, probably luck, although we all know that often luck is the result of hard work or attitude. I remember I had a job interview and the only question the interviewer asked me was, ‘When you drive to the airport, and you’re late, do the traffic lights tend to go green or red?’ A great lesson in perspective (P.S. I got the job). 

And then the key question, what’s the pain you are trying to solve? Why is it so important that people would care about, or pay money for, your product or service? Some VCs go as far as to wonder if it’s a ‘bleeding from the neck’ issue – urgent and obvious. Too often, they say, founders are in love with their own product and can’t be objective about its real appeal. Do some consumer testing, ask lots of different people for their input and (in the great phrase of Design Thinking) fall in love with the problem, not the solution.

Then, once you’ve managed to satisfy yourself you can answer these three questions, there are some basic rules of pitching: 

Be concise. I’ve seen pitch docs of six-to-eight pages which were successful in getting tens of millions of dollars of commitment. No need to write a novel.

Be clear. Write for a layman, but, of course, with enough detail to establish credibility. Avoid jargon or buzzwords.

Be direct. Not always a strength for New Zealanders. State how much you’re looking for, and what you are offering in return. Don’t pussy-foot around. Investors don’t have time for deciphering your ambiguity.

Be available. VCs expect you to be available to them when they need you. Reply to emails within a working day; be prepared to meet within 24 hours. Answer a call or text immediately. The wheels of commerce are running fast at the moment, you need to keep up. 

And last but not least, be confident. New Zealand is a credible source of innovation at the moment, and we can foot it with the best. Walk tall! Kia kaha.

By day (and the occasional night) David Downs is general manager, services, at NZTE. He also authors books (No.8 Re-Wired is the latest), presents on radio and TV, and plays the ukulele (we can’t all be perfect).