Funding for a Startup

Fundamentals first

More often than not, the first comment from a Founder/ entrepreneur who has asked to have a chat is “we just need $X to get underway” (X can equal anything from $100k to $1m), and that they just have to be introduced to someone who will magically provide this money. As we talk a little more to find out how prepared they are for the funds to go into their venture, it usually becomes apparent pretty quickly why they haven’t already attracted the funds, so we change the conversation to talk more about what needs to be thought about for them to build a solid and scaleable business.

As the Founder you are the
first investor in the venture.

Sometimes considerable funds of the Founder’s, and others, may have already been invested, and so we then spend some time discussing how they are the first investors in this venture, and so they will still need to make sure the fundamentals are right, for them (and others) to keep investing in this particular venture.

After working out together where some of the most apparent gaps are, it’s important the Founder understands that any investor will require these gaps addressed first, in some way, before they will look at your venture more seriously. Part of the reason why securing private investment can take 6-12 months is that the company is trying to play catchup and get the gaps addressed during that process. Having the gaps addressed up front can shorten the process. What I’ve seen is Founders who focus on getting the fundamentals right for building a global, scaleable business, start to attract investment interest. Believing this can be quite a leap of faith for some Founders.

Investment second

Once the Founder is focused on getting the fundamentals right for the business, the potential sources of funding appropriate for the business and the defined strategy start to  come into focus. Here’s a short summary of the range of potential sources of funding for a startup:

  • Sales – sales are the cheapest and easiest source of capital for a company, and if the venture is in a position to drive sales, it’s worth checking this out first. While driving sales, keep in mind your cashflows and customer service. In NZ, if you have possible export sales already lined up, it’s worth checking out how the NZ Export Credit Office can assist.
  • Debt – money is cheap at the moment (ie interest rates are low) so if you have strong growth plans and solid financials/ cashflows and/or secured sales orders, it’s worth talking with your bank about a working capital facility or other loan options. The bank will have obligations against these funds so make sure you understand them.
  • Grants & Awards – there are numerous grants available for different sectors and companies at different stages. There are also grants available for individuals or specific projects, so make sure you check them out too. Some will be 100% funding and some will require the organisation to match or contribute some funds. Successfully securing a grant or award can quickly raise your venture’s profile, but also has obligations, usually around reporting and public disclosures; make sure you understand them.
  • Corporate Partner – attracting the attention of a corporate could provide early-stage funding, access to resources, and channels to market for your venture.
  • Equity – someone investing in your business for equity (shares) is the most expensive form of capital available, and it’s important you understand the implications of this type of investment. The different equity investment contributions can be either effort & resources and/or funds from:
    • Founders
    • other team members
    • friends, family and fools (the 3Fs)
    • high net worth individuals
    • individual Angel investors
    • formal Angel investor groups
    • early-stage venture firms
    • corporate partners
    • incubation and acceleration programmes
  • Crowdfunding – crowdfunding is about the public (the crowd) providing funds for either a product (where they pre-purchase the product), or equity (where they buy into the venture directly). If you are exploring this option, there are a range of platforms available both locally and internationally, so it’s worth having a good look at what works and what doesn’t for each of them. They can be a good way to raise profile and drive sales if you are already im market. Running a crowdfunding campaign, as with most of these activities, can be very time intensive.  

The key takeaway to attract funding for a startup is to get your business fundamentals in place, and keep in mind that any form of funding has obligations so it’s always good to check out the pluses and minuses associated with each of them and be very sure you understand what those obligations are, as well as the consequences if it doesn’t work out as anticipated.

 

Claire

Incubating New Zealand business opportunities

We are often asked about the SODA incubation programmes, as well as what else is on offer, and so we spend time talking through the different choices available and the potential pluses and minuses for that entrepreneur with each of those options. Here’s a short summary of what we talk through with them.

NZ Founder Incubators

There are five Govt-Funded
Founder Incubators in New Zealand

There are five Callaghan Innovation-funded Founder Incubators in NZ, who specifically work with entrepreneurs (Founders) and their ideas. The Icehouse in Auckland is the oldest and largest of the Founder Incubators, and Andy Hamilton, their CEO, has taken a key role in championing incubation activities in NZ over the past 15 years. They have their incubation clients pay for incubation, wrapped up with co-working and other services. Many other programmes for businesses at different stages are also available. The eCentre, also in Auckland, is based in Albany, and provides co-working and programmes for their incubation clients, with some activities requiring you to be on site. SODA Inc. is based in Hamilton, and separates co-working from incubation. The fully customised incubation programmes are delivered remotely (you don’t need to be located in Hamilton), and can be managed part-time. The BCC in Palmerston North has a co-working offering, incubation programmes, and a new Sprout (Agritech) accelerator programme being offered for the first time, and using part-time and remote delivery. CreativeHQ (based in Wellington) provides co-working and incubation programmes, with a lot of focus on delivering accelerator programmes (some under their Lightning Lab brand).

Incubation versus Acceleration

If you’re working in this area understanding startup jargon is important, and it’s interesting to note that the use of these terms in NZ has been different to their original use in the USA. So we’ll stick to our use in NZ – incubation usually focused on a longer engagement (from 3 months to up to 2 years) on a rolling entry into the programme and more specific to the company, with acceleration a shorter (3-4 months) full-time programme on location, with the cohort all entering at the same time and concluding with Demo Day, a presentation to potential investors.

Links to Investors

Investors who have been successful in their own right and then introduce their own money and expertise into someone else’s startup are generally called Angel Investors. The IceHouse (Ice Angels), CreativeHQ (AngelHQ) and BCC (MIG Angels) all have formal angel groups linked to them, and if there is a good fit with the skill set and expertise in that group for your enterprise, this can provide a quick link into that source of funding. There are also other formal angel groups in NZ, such as Enterprise Angels (EA), Flying Kiwis, and ArcAngels, as well as a lot of other angels and high net worth individuals who don’t formally belong to a group. Angel funding is only one source of funding for startups and both the eCentre and SODA remain agnostic to the funding source for a specific incubation client, without formal links into any one group. Funding for a startup is the topic for next week’s blog.

Technology Incubators

The Technology Incubators are funded by Callaghan Innovation and private investors and were formally established last year. The three Technology Incubators are: Astrolab (based in Auckland), WNT Ventures (based in Tauranga), and Powerhouse Ventures (based in Christchurch). Powerhouse also has some Founder-focused companies in their care after the merger with Dunedin’s UpStart Incubator during 2014.

These Technology incubators are focused on working with intellectual property opportunities, where they provide funding and build the team to grow these opportunities for growth (so they may or may not have a Founder involved).

Other Incubation and Acceleration Providers

There are also a number of other NZ providers of acceleration and incubation programmes, such as Wharf42 Plug and Play Incubator (a pipeline to Plug and Play in Silicon Valley), Vodafone’s Xone (Corporate Incubator), RotoruaXLive the Dream, Venture UP,and Akina. Each of the Universities have been active in this space as well, with student programmes now available at almost every one.

This is a busy space with lots of activity, with more programmes coming on board almost weekly at the moment it seems. When evaluating them make sure to consider what is on offer, what your contribution will be, and which programme provides best fit for you and your opportunity. Good luck!

– Claire (also CEO for SODA Inc.)

Taking on 2016!

It’s already half way through January – how have you managed keeping up with your resolutions so far? Are you well underway and heading towards your goals, or have you already started to drift off course?

I’m an avid list-maker and note taker, so I’m always looking for new ways to record both the things I’d like to do, as well as the journey to getting them done. There’s nothing more rewarding than ticking something off a list as done!

The beginning of a New Year usually has me looking at what other tools and techniques are available. The app ‘Brian Tracy’s Goal Wizard’ was brought to my attention and I was happy to try it out.

brian tracy

http://goalswizard.com

There’s a bit of work getting set up in the app, but the effort is worth it. You will need to have some idea around your medium/ long-term goals, and the steps required to get you there, so probably not best-suited for the goal-setting newbie.

The Daily Routines button up top right in the app is a feature I particularly like. Every day you’re encouraged to review Morning, Midday and in the Evening. It would be good to be able to customise some of the questions asked in these sections, but getting in the daily habit of asking at all, is useful. I think being able to separate personal from professional goals would make it more useful. At the moment I’m using this only for personal goals and that seems to work. Otherwise, a useful app on my phone that’s still being used towards the end of January – and that’s a good sign :)

Top Articles of Interest Through IP Market For 2013

In no particular order, the top five articles that proved of interest to the IP Market community during 2013 are featured again here below: 

Microsoft launches ‘Patent Tracker’ to help you search its library of intellectual property

http://thenextweb.com/microsoft/2013/03/28/microsoft-launches-patent-tracker-to-help-you-search-its-library-of-intellectual-property/

New Zealand drops ability to patent software

http://www.zdnet.com/new-zealand-drops-ability-to-patent-software-7000015109/

Figuring out how to divvy up startup equity

http://www.entrepreneur.com/article/230450

Taking your brand global is easier than you think

http://blogs.hbr.org/2013/08/taking-your-brand-global-is-ea/

To angel investing or to venture capital, that is the question

http://duskic.com/to-angel-investing-or-to-venture-capital-that-is-the-question/

2013 proved to be an exciting year for us as we moved into the promotion and blogging of international innovation conferences and events through the IP Market community.

We continue to grow and enjoy the interactions we have with innovators, professional service providers and investors in IP. We wish everyone a relaxing break, and success in the New Year and we look forward to working with you all to make the most of your ideas and connections in 2014…

FoMA Annual Conference 2013

I was fortunate to attend the Federation of Maori Authorities (FoMA) conference this year. It was held at the Hawke’s Bay Opera House in Hastings 1-3 November 2013, and was the first year I’ve attended one of these events. Unfortunately I missed the Friday activities, including the dinner that Ian Taylor (Maori Business Leader of the Year 2013) spoke at, and that many people commented over the weekend as one of the best speakers they’ve heard for a while.

However, I attended the Saturday and the Sunday morning activities. What I particularly liked was the:

  • range of speakers – across science, business, leadership, Maori, and community;
  • diversity of the attendees – almost half of the attendees were women, and there was a great range of ages, and people’s roles within an organisation, attending as well;
  • quality of the conversation over the networking breaks; and
  • balance of speakers and the time available to network.

With around 200 attending during the day and closer to 400 at the two conference banquets on the Friday and Saturday nights, this was a very useful conference for not only catching up on what was seen as key issues or activities in the Maori economy, but also to catch up with a lot of people working in this space. I also particularly liked the conference being held over the weekend, and although being work, didn’t encroach too much into the working week.

I had a great time and would recommend attending at least once, to Maori and non-Maori alike.