Start ups need to do due diligence, too

I hear a lot of horror stories about investors. Many are misunderstandings. Some are just outright false. Then there are those that are true. Sadly, there are a lot of those.

There’s the alleged angel in the Baltic region who committed (in an email) to leading a round and then refused to talk to the other investors and eventually seemed to bury his head in the sand and disappear. There are countless stories of mysterious Middle Eastern angels who put teams through painful pitch, due diligence and negotiation processes only to bail (post-term sheet) after months of promises and B.S. about the money being delayed/lost/stolen/on the way.

This kills companies. I’ve watched great entrepreneurs with brilliant ideas sink because they’ve been fucked around and because they made poor choices. Many of the so-called “investors” involved are odious individuals. I wanted to write something that will help people avoid having to deal with them, so here are some tips.

Financial institutions are bound by a regulation called KYC (know your customer). It’s time we created KYI for investors. You should want (and probably need) to know who’s investing, why they’re investing, who they are, how they made their money, what else they’re up to, what they’re like to work with, what’s their temperament and risk appetite and other such useful tidbits.

Do some digging on the people you’re going to target — creep on their AngelListCrunchBaseLinkedIn and other profiles. Check to see if they blog, tweet, judge at Startup Weekends, mentor at accelerators, speak at conferences or do things that the vast majority of other investors do. Are they talking about their existing investments? Do they add value to industry conversations? Do they seem credible? Do they appear mostly sane?

Red flag No. 1. If they don’t have an online profile of any description, be a little wary. There are some super-wealthy people who obviously don’t want to be on LinkedIn, Facebook, Twitter and other such platforms as they’re too busy in their walk-in humidors. But in general terms, someone who has zero online profile makes my spidey senses tingle.

Red flag No. 2. If you’re constantly dealing through an intermediary, be wary. When you get into Series A/B/C, etc., it’s more natural for this to happen. This is what venture capital is, to a certain extent. In angel rounds, if you’re not regularly dealing directly with the angel, this is likely a pattern that will repeat. Also, you run the risk of Chinese whispers and subsequent misunderstandings.

If someone’s going to give you anything between $5,000 and $500,000 that they could otherwise spend on a holiday, a car or a buy-to-let flat in Walthamstow, they should probably want to look you in the eye and talk face to face. Likewise, if you’re giving someone a single- or double-digit percentage of your company, you’ll want to spend time with them. If you ask to meet an investor and that never happens for various spurious reasons, don’t take their money.

Ask to talk to companies that the investor has previously put money into. This leads us to red flag No.3. If they refuse this, or are sketchy about it, you should be very, very wary. Talking to companies that your investor has previously put money into is pretty normal due diligence for a startup. You should be asking what the investor is like to work with; are they pushy, obnoxious, needy, anxious, cool, useful or just good/bad/indifferent to work with.

The right investors should be happy to share this info with you. The bad ones won’t want you to find out that they are secretly tools. Incidentally, you don’t need an investor’s permission to do this — if they have investments listed on LinkedIn, AngelList and other places, just connect directly with the founder/CEO and ask.

Red flag No. 4. Watch out for loonie valuations. The less sophisticated the investor, the more of your company they’ll want. The classic instance is where the investor wants 51 percent of your business. In most funding rounds, you should be aiming to give away 10-25 percent of your company. The lower end implies you’re a hot deal or you’re doing something really well. The higher end implies it’s riskier or perhaps the traction isn’t that great. In early rounds, my personal feeling is that anything more than 25 percent is too high and can create a disincentive for founders, staff and current/future investors. Anyone who wants anything north of 25 percent is worth spending some more due diligence time on.

Red flag No. 5. Watch out for people who aren’t at least reasonably amenable to standardised term sheets. SeedsummitYC and many others have produced great templates that are pretty standard. Watch out for things like participating liquidity preferences (1x liquidity preference is probably ok, others would argue it’s pretty standard). Watch out for warrants, vesting clauses that are overly punitive, full-ratchet anti-dilution clauses and stuff like that. If you don’t understand these terms, you need to. Do yourself a favour and buy Venture Deals and appear smarter than your lawyer. Also, get a lawyer.

Red flag No.6. Watch out for people who only bring cash to the table. Introductions, advice, connections and guidance are the most useful things that early-stage companies can get. The right type of angel — usually one who’s been there and done that — is worth 10x their investment in this regard. They’ll shill for you at conferences, introduce you to people, act as an additional BD/sales/HR person and generally add way more than just cash to the equation. Ask not what you can do for your investors (you should know the answer to this already — make them a fuck ton of money), ask what your investors can do for you.

If you’re feeling cheeky, send them this. But seriously — be upfront about asking what else they’re bringing outside of cash — can they introduce you to potential clients or useful contacts? Can they help with hiring or international growth? Do they know the reporter covering your area at the biggest trade publication or at the FT? Can they connect you with bigger investors when the time is right?

Red flag No. 7. Watch out for people who want overly complex financial projections (or other ludicrous requests) when you’re pre-revenue or pre-product. Anyone with a brain in their head will know that it is A) guesswork and B) producing this material is a time sink.

Smart early-stage investors are backing the team, the market and the idea — probably in that order. If someone’s looking for five-year projections, you’d be as well off reading the tea leaves with them. Definitely have your product roadmap in your head, and some ideas about how you’re going to scale into new markets, etc. — and have an idea of what you’d like to make, but you shouldn’t have to waste your time on projections.

Red flag No. 8. Watch out for people who drop off the face of the planet after giving you a soft commitment. As a species, we’re not great at saying “no” to people, so a lot of investors will simply break off contact instead of saying no. If someone drops off the radar after saying they are in, it probably means they are out. If they’re going on holiday, having surgery or doing something else that prevents them from replying to an email/WhatsApp, etc.,they’ll probably tell you.

Red flag No. 9. If your gut feeling is bad about someone the first time you meet them, pay attention to that. You don’t have to be best mates with all of your investors — in fact, you shouldn’t be. But, you do have to at least tolerate them. If you’re lucky, you’ll be talking to and emailing them once a month for the next five to 10 years. Gut feeling is important.

I’m not saying discount an investment straight away, but if someone feels off, creepy or just not right, spend a bit more time figuring out why, and definitely do at least one more meeting to double-check that feeling. I have taken on investors in previous businesses who I really didn’t like when we first met, but they offered money. It ended like this.

These are just a small subset of the things you should be looking for when you’re talking to early-stage/angel investors. It’s equally as applicable to later-stage investments, but in the early stages of a business, this is serious stuff. The people you take on as investors at the start can be a huge predictor of the success of future funding rounds, or the company as a whole.

I’ve heard stories of people who had investors who were supposed to put in the second tranche of funding, but couldn’t because their assets had been seized by a country as a result of various nefarious deeds in the past. I’ve met companies who’ve taken investments and then did their due diligence on the investor — only to find out they were one of the leading fugitives from a European country. As you can probably imagine, having someone like that on your cap table is going to make it a lot less likely that a tier-one VC will invest in your next round.

Do your homework. Do it early. Do it often. Don’t be afraid to ask for references and more info about the person who’s investing. If they’re sufficiently motivated and interested in you, they should be happy to do it. If they’re sufficiently smart, they’ll respect you asking. If they’re sufficiently sketchy, you need to think about casting a wider net.

Original article here 

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Christchurch-based Invert Robotics raises $6.4 million, eyes European expansion

Christchurch-based robot maker Invert Robotics raised more than $6 million from private investors as it expands into Europe and branches out into other sectors.

The company first raised $740,000 through crowdfunding platform Equitise in May 2016 and has now raised $6.4m from private investors from Australia and New Zealand, including former Macquarie Group chief Allan Moss.

Powerhouse Ventures is still the robot maker’s biggest shareholder, with 23 per cent of the company, according to Companies Office filings. The New Zealand Venture Investment Fund (NZVIF) is the second largest with 14.5 per cent followed by Guildford Investments with 5.3 per cent.

The company produces mobile climbing robots with video feeds that can inspect industrial tanks without causing damage.

Australasian dairy groups Fonterra Cooperative Group, Synlait Milk and Murray Goldburn and a number of global food and beverage brands use the robots, which have attracted interest from the food and beverage manufacturing industry in Europe and Asia such as FrieslandCampina and Heineken, the company said.

Invert Robotics said it expects revenue to quadruple in the current financial year, with significant contributions from European operations.

Revenue was less than $1m as at June 30, 2017, according to Powerhouse’s website. It is about to open premises in Germany and Denmark and has already opened in the Netherlands.

See full article here.

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UCE EY Summer Startup Programme Final Showcase

Dr. Rachel Wright and the UC Centre for Entrepreneurship team invites you to attend our Summer Startup Presentation evening on Thursday the 8th of February 2018 at the Central Lecture Theatres, University of Canterbury,

Join us as our top ten students from the 2017/18 Summer Startup Programme pitch their ventures to a panel of judges from the local business community.

Schedule:

6:00pm Doors open
6:30pm Presentations begin
7:45pm Networking with drinks and nibbles provided

The Summer Startup Programme:

This is the Centre for Entrepreneurship’s fifth summer startup programme, providing students with the opportunity to dedicate 10 weeks to their business or social venture. Students are surrounded by the structure of a full programme including external guest speakers, mentors, and industry experts. We have a fantastic cohort of more than 30 students; here is a link introducing the students and their ventures.

Register here.

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Coffee and Jam #238

WHERE: Greenhouse146, Lichfield St

WHEN: Tuesday, 23 January 2018

TIME: 12:30pm – 1:30pm

This week, Steven and Kris from Parry Field Lawyers are going to tell you why the DEVIL really is in the DETAIL when you’re a start-up. Join us for a few startup horror stories, some “save your bacon” learnings and an intro to Parry Field’s Startup Legal Toolkit. We’ll also be handing the mic over to 2 brilliant young entrepreneurs from the UC Centre for Entrepreneurship. If you’re an investor or just keen to know how your world’s going to be changing, these pitches are a great place to start. See you there!

Steven Moe / Senior Associate 
Steven returned to NZ two years ago after 11 years working in Tokyo, London and Sydney.  He now works often with start-ups on getting their structures right and has a particular interest in social enterprises having published the book “Social Enterprises in New Zealand: A Legal Handbook” last year.

Kris Morrison / Partner-Parry Field Lawyers
Kris leads the corporate, technology and startup advisory team, and regularly advises on business structuring, acquisitions, and much more for a number of not for profits, charities and Social Enterprises. He is also a Board Member of Code Club Aotearoa.

UCE Speakers

Jess Scarsbrook and Jacyntha Michael are pitching Aspirations Café, a social venture providing a practical pathway to employment for young people with intellectual disabilities.
Jack Wood will be pitching The Dandy Club, a men’s clothing venture dedicated to using only the most sustainable and innovative materials.

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Innovation Why we need to get out there and flaunt our Kiwi innovation

There is a paradox in the notion of Kiwi ingenuity that lies in a disparity between our ability to invent and to implement. There appears to be no shortage of ideas in this country of ours, but there is a significant paucity of those ideas being brought to scale on a global level.

We New Zealanders are an inventive lot. This is reflected in our ranking in a number of different indexes. For example, in The Global Creativity Index 2011, we rank sixth and in the 2012 Economist Intelligence Unit Creative Productivity Index, that analyses creativity and innovation in Asia, we again rank sixth.

However, in The Global Innovation Index 2014 report, while New Zealand ranks eighth for local patents, we only come in at number 19 for filing overseas applications. Business analyst Alan Main suggests this failure matters: New Zealand has a 22% conversion rate of local to international patents, compared to Singapore, where the number is 81%, Finland, 58%, and Denmark’s and Ireland’s 42%.

See full article here.

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NZ dropped four places out of the top 20 countries for innovation this year

Score another one for Seoul while Silicon Valley slides.

The U.S. dropped out of the top 10 in the 2018 Bloomberg Innovation Index for the first time in the six years the gauge has been compiled. South Korea and Sweden retained their No. 1 and No. 2 rankings.
The index scores countries using seven criteria, including research and development spending and concentration of high-tech public companies.
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Canterbury Angels’ Board Member Paul Claridge in Avenues

What is it like to give and receive a helping hand in business?

After philanthropist Mark Dunajtschik donated $50 million to build a children’s hospital in Wellington, we went looking for Christchurch’s angels and found the city has an army of them.

SUE SKEET AND PAUL CLARIDGE – CANTERBURY ANGELS.

Sue Skeet, founder of memorial website A Memory Tree, and database app NoticeMATCH, which records information about deaths in New Zealand.

I launched A Memory Tree in 2009 and from that, NoticeMATCH was born. But in the early days of NoticeMATCH, I was badly affected by the Christchurch earthquakes. I lost homes in both quakes. I knew three people who passed away. It was eight hours before I knew if my daughter was alive. It was just too much. I moved to Timaru and had a bit of a hiatus from building my business.

After taking part in a Lightning Lab business acceleration programme last year, I presented NoticeMATCH to the Canterbury Angels and there was a lot of interest. They did some due diligence – they are angels, but they are investors. It has to be a solid business proposition.

The due diligence process was a lot of work and it wasn’t just a case of them choosing me; it was me choosing them, as well. I had to ensure these were the kind of people I could work with. They’re not only investing in you financially; they’re investing with their skills, knowledge and connections. Paul is just incredible. He is so hands-on and he’s there to help and answer questions.

It’s a very lonely road being an entrepreneur. The success rate is so low because people start with a hiss and roar and then fail. It requires grit, and grit over a long time, and consistency. They’ve invested some funds that have enabled me to focus on my business 100 per cent – that’s really been the biggest thing.

The angels come with a lot more than investment. It’s a business relationship, but it’s also very supportive. Paul and I really get on. As an entrepreneur, you can get tunnel vision, so it’s really good to have someone to say, “you’ve really got to focus on this now, and just put that other thing to one side”.

Paul Claridge, a member of the Canterbury Angels, is Sue’s lead investor and business mentor.

I joined the Canterbury Angels about 18 months ago. They’re a group of people who are very experienced in business and are really interested in helping young companies. A large number of start-up companies don’t succeed, and often because they don’t get the right advice, or maybe their idea isn’t that flash. Canterbury Angels is part of an eco-system at the very early stage and there’s a lot of other players as well, like the Canterbury University Centre for Entrepreneurship.

All of the Canterbury Angels have day jobs, and this is an interest and a hobby for lots of the angels. I’ve got a background in senior roles in a wide range of businesses in different sectors so, like other angels, we’ve learnt a lot and we are applying some of that knowledge and experience to companies that are forming and starting to grow. I think that probably takes some of the pain and suffering away from them in a sense. I do it because it’s really interesting and I enjoy helping people grow companies.

It can be pretty lonely for a founder or an entrepreneur, and to have some support from experienced people is almost more valuable than any investment. I’ve been working with Sue for close to a year. I’m one of five or six angels that have invested in Sue’s company and I happen to represent that group – we call that the lead investor.

I work one-on-one with Sue, but I’m representing the group. There are about 50 members in Canterbury Angels, some more active than others. Canterbury Angels has been going for a couple years. It takes about five to 10 years for a business to grow from a little seedling into something bigger. As I said, it can be lonely and tough when you’re trying to build a business.

*Canterbury Angel Investors is the Canterbury region’s angel investment network. The group helps young companies gain the investment they need to grow, while generating returns for investors. 

See full article here.

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Health Tech Investor Roundtable

Investing in Early Stage Technology

Kevin Sheehy, health tech strategy consultant at Genulin Consulting Limited, invites you to a roundtable meeting where industry experts will share their knowledge of the local investment opportunities.

Date: Thursday 21 September Time: 13h00 to 17h30
Venue: ChristchurchNZ (New Premises); BNZ Centre; Level 3; 101 Cashel Street

The New Zealand Health Technology Review 2016 identified capital raising as one of the top three challenges facing local companies. Many local companies are seeking early stage capital and cornerstone investors familiar with their challenges. Investing in local health technology offers
excellent potential for access to major international markets for those that can successfully grapple with the sector’s risks.

The roundtable aims to increase investor confidence in assessing early stage health tech opportunities and how to structure companies for success.
We have a fantastic group of speakers (Bios below) who will share their views and case studies on:

• The global health landscape – where are the pain points;
• Why NZ health tech is a great opportunity;
• What success looks like in health IT, medical devices and biotech;
• Partnering through seed and VC stages in the health tech sector.

Programme:

1pm: – Kevin Sheehy – Director Genulin Consulting Limited
Introduction – Health system opportunities and challenges

1:30pm – William Lee – Commercial Director, Canterbury university Research and Innovation
Investment in NZ Health start-ups: how to partner with Universities

2pm – Duncan Mackintosh – Medical Research Commercialisation Fund – Brandon Capital
Overview of the MRCF funds and collaboration, with lessons learned.

2:30pm –  Dr Phil Kearney – Director External Licensing, Merck Sharp & Dohme Australia|
What opportunities are on the MSD horizon

3pm – Kimberlee Jordan  –  National Technology Network Manager for Biotechnology, Callaghan Innovation
The opportunity in biotech and some NZ successes

3:30pm – Break for tea

4pm – Investment Manager Powerhouse ventures
What is different about health tech for an investor

4:30pm – Paul Morrison – Managing Director Ossis
Taking a medical device to the US, the capital needs

5pm – Roundtable discussion co-chaired by Duncan Mackintosh and local Angel Investor
What investors face in health tech.

5:30pm – Networking drinks

The aim of the meeting is to help the local investor community better grapple with the opportunity in health tech. We hope to be able to build investor confidence through knowledge of how to approach investing in health technology in New Zealand.

We have some great local and Australian speakers and should have a good cross section of people around the table for robust discussion on the day.

RSVPs and queries should be directed to kevin.sheehy@navigator.healthcare

As numbers are limited to 20 attendees, we’ll be allocating places to those who RSVP first.

 

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CO.STARTERS – Help grow businesses on the West Coast!

Would you like to:
Grow and Develop Businesses in Your Community?
Empower Individuals with the Tools and Skills required to Thrive and Succeed?
Develop or Refine your Business?

Development West Coast with support from West REAP and Buller REAP would like to assist people in the West Coast region to explore and develop business opportunities. To aid in this we are expanding the highly regarded CO.STARTERS business start-up and development programme across the West Coast region.

To assist in this we are looking for experienced business owners, business service professionals and community leaders that would like to help West Coasters with developing or growing their business.

About CO.STARTERS:

CO.STARTERS is a nine-week cohort based program that equips aspiring entrepreneurs with the insights, relationships and tools needed to turn ideas into action and turn a passion into a sustainable and thriving endeavour. This program is based on the Business Model Canvas incorporating Lean Start-Up methodology which has been used by highly successful entrepreneurs and corporations around the world. CO.STARTERS utilises and develops locally based facilitators and mentors, while bringing in expert guest speakers for inspiration and guidance.

Get Involved:

We are now looking for people throughout the West Coast region that would be interested in being involved in the CO.STARTERS programme. Including experienced business people keen to be involved and trained as facilitators, mentors and guest speakers.

If you are interested in getting involved in supporting the Co.Starters programme, or find out further information contact:

Development West Coast  Bridgette Sara – Bridgette@dwc.org.nz
Buller REAP                       Emma Sherie – emma@epicwestport.co.nz
West REAP                        Belinda Conn – costarters@westreap.org.nz

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Spark invests in homes.co.nz Real Estate website

Spark, through Spark Ventures, has bought an unspecified minority stake in PropertyNZ, the company behind the Homes.co.nz real estate web site.

PropertyNZ said the investment would support its ambitious growth plans to further disrupt the property portal market in New Zealand. CEO and co-founder, John Holt, said the investment would fund the 18 month old business through to a break even position and provide significant capacity for accelerating growth.

Spark Ventures CEO, Ed Hyde, said the company had made the investment for several reasons. “They are well placed to make an even bigger mark in the rapidly growing area of digital services for the home. They have a great team of seasoned New Zealand entrepreneurs and relevant international experience, and we see a lot of potential cross-benefits with some of our other services and customers.”

PropertyNZ was founded in 2013 and launched its web site in late 2015 after securing investment from online trading company Trade.me, which took a 13 percent stake for an unspecified amount.

Jamie Kruger, PropertyNZ chairman and co-founder, said the company was eager to help homeowners with decisions beyond the buying and selling of property. “Spark is a great fit as they understand the opportunities associated with successfully engaging with homeowners,” he said

PropertyNZ claims that Homes.co.nz “caught the attention of Spark by freeing up property data like sales histories and estimated values on a map interface and quickly growing to 300,000 monthly users in 12 months.”

It says much of this data was not freely available prior to the nationwide launch of Homes.co.nz in 2016. It says the company is in a healthy state having surpassed $1m in annualised revenue in its first year of operation.

Kruger said: “We’ve been blown away by the interest Kiwis have in the property data we’ve freed up. Property records for 1.7 million homes are now viewed 1.6 million times a month.”

Holt added: “Our focus on homeowners who are not buying or selling will increase as we add a wide range of calculators and tools to help manage your home and enhance its value.

“Helping Kiwi’s plan for their longer term property aspirations and significant projects on their current home is all part of our vision of being much more than just a property listings portal. … We’re connecting with homeowners to support their entire property journey, whether they are just getting started, have plans for a new kitchen, warmer home, or finding that perfect home by the beach to retire.”

Original article.

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