Article co-written with Garry Visontay, partner at Right Click Capital
Venture capital plays a crucial role in New Zealand’s economy.
It helps create a culture of innovation, entrepreneurship, development of new businesses, and jobs for the future.
Venture capitalists invest by taking equity in early-stage businesses developing new technologies, which often have higher risk or return profiles. Venture capital investments provide commercialisation skills to New Zealand’s top scientists, technologies and entrepreneurs, thanks to the operating background and domain expertise of venture capital managers.
In 2016, there were 50 disclosed venture capital investments made in New Zealand at a value of $92.3million, significantly up from $62.5million in 2015.
Potential “hotspot” sectors in A/NZ
Through the Internet DealBook, Right Click Capital tracks technology businesses globally that receive funding, and are subject to acquisition. It categorises each funding or acquisition into one of eight sectors based on the business’s main activity.
In recent years, a clear trend that’s emerged has been the number of software and transactional businesses appearing in the A/NZ region. Over half of the funding and acquisition activity in the last quarter was attributed to these sectors.
The ability to scale software businesses (particularly software-as-a-service (SaaS) businesses), where customers pay via a subscription model or through low-friction sales model, suits locations like New Zealand.
Customer leads can be generated online, and New Zealand’s time zone allows for businesses to provide round-the-clock customer support to large markets such as North America and Asia.
New Zealand founders’ competitive advantage and value proposition to foreign VCs
New Zealand has a number of inherent advantages that helps ambitious founders build scaleable technology businesses. It has a high-quality education system with well-respected universities and polytechnics. This foundational capability is critical in the development of core skills for founders.
Secondly, New Zealand’s small population has forced high-quality founders to build businesses that have global appeal. It’s very difficult to build a large business by only serving a domestic market.
Given Kiwis are among the most well-travelled citizens, and with a large number of migrants in its population, it makes sense to leverage this market knowledge to serve customers all over the world.
Thirdly, New Zealand has spawned a number of successful technology-based businesses whose founders, early staffers and shareholders are supportive of the next generation of technology founders, including Trade Me, Xero, 8i, Pushpay and Vend.
How entrepreneurs can get the most out of investors
While securing the right amount of funding to support a business is critical, it’s also important for founders to find investors who fit their business. Sometimes it makes sense for founders to bring on passive investors who sit in the background silently.
In most cases, it’s preferable to have a number of active investors who can add value to the business. Active investors sometimes take directorships, where they can provide formal input into the business’ strategy and policies, along with maintaining an appropriate level of corporate governance.
Good active investors don’t have to take on directorships to be useful. As a founder, I’ve realised that the most valuable conversations can take place outside of the boardroom where he’s asked for advice on a difficult matter. Some years ago, I remember struggling with an issue – the speed of our hiring process – and one of our directors called me a few weeks before a board meeting to coach me through the situation.
At first, I was taken aback by how forward they were, but I realised they were looking out for my and the company’s interests. Recently, I’ve been helping a founder through a challenging period by calling them regularly, and providing support and feedback.
Good active investors should be helping founders think ahead, particularly around capital management. They can help with introductions to potential investors (whether in your current or future rounds of financing), and vouch for founders’ performance.
Fundamentally, staying in regular contact with investors is key.
Article first shared in bizEDGE NZ . Twiddle your thumbs at Ben (@benjaminchong) and follow us (@RightClickVC) while you’re at it.
