Getting your startup ready for investment
Securing funding is a key enabler for many startups. Therefore, getting funding ready is an integral part of the work done in all of our startup programmes. Based on our experience working with entrepreneurs and investors over 12+ years in numerous markets, we have identified six key factors that investors base their investment decisions upon. Our tailored programmes address all of them to help entrepreneurs build fundable companies and positions themselves for investment.
Many startup investors will tell you they invest in people more than ideas.
To be attractive to investors you need a team with the right experience, skills and attitude. As part of The Icehouse Hatchery Programme entrepreneurs and teams evaluate their own skills, strengths and weaknesses and identify their most significant gaps. The Programme also helps team members better understand their own personal motivation to make sure they are committed and aligned for the long-haul. During The Icehouse Incubation Programme startups often look at expanding their team and we help them connect with the right people, be it staff, co-founders, investors, board members or advisors.
Startup investors are usually looking for big returns.
You need to demonstrate that there is a significant and growing market opportunity for your business. Part of our Hatchery Programme is an analysis of the market to get an initial understanding of the size of the opportunity. The Icehouse Market Validation Programme takes this further to help you develop an in-depth understanding of your potential market. Market Validation includes establishing hard facts about the size of your opportunity and gaining feedback directly from your target audience about how to capture the market.
When pitching to an investor you not only have to outline the size of your opportunity but also how you are going to reach your customers.
Icehouse Market Validation helps you to understand your target audience and how to best reach them. As part of The Icehouse Incubation Programme we help you develop and refine your sales strategy, introduce you to potential customers and help develop your sales pitch, marketing strategy and supporting materials.
While investors might say they care more about the team than the idea/product,
you do need a compelling product or service to attract investment. While seed funds might invest at the concept stage, Angels and Venture Capitalists will most likely want to see at least an early prototype and ideally customers. One of the benefits of Icehouse Market Validation is that you are guided to talk directly to potential customers and learn what problems they have and what the key features of a solution would be. In the Icehouse Incubation Programme we work with startups to help them develop their products based on what they learned during the Market Validation phase.
You need to be able to show to potential investors that what you do is significantly different
(better) than alternative products or services and that your product/offering cannot easily be replicated by competitors. Part of Icehouse Market Validation is a detailed competitive analysis to help you understand who the key players in your market are. During Icehouse Incubation we work with you to refine your competitive differentiation. And if you have IP we can also help you understand your options around IP protection.
Investors will closely asses your business, especially your financial forecast and predictions.
You need to be able to outline in detail how much capital you need to achieve specific milestones, when you will need the capital and what it will be spent on. Closely related to that is a realistic valuation of the business. Investors are unlikely to take a closer look at an opportunity if they don’t feel the valuation is a realistic representation of the opportunity and the stage the business is at. The Icehouse Incubation Programme has helped numerous startups work through this process, tidy up financials and forecasts and work out realistic valuations of the business. Over and above these six key points, most investors are driven to understand exactly how and when they will see a return (financial or otherwise) of their investments. This key point is often overlooked by startups. But investors are increasingly aware of needing to plan their “exit strategy”. As part of the continuous improvement of Icehouse startup support, we are developing specific investment ready support as part of our Incubation Programme offering to address this.
Sources of Capital for Startups
Once you have done the work and have your startup at a point where it would be attractive to investors we can connect you to a number of the leading startup investor groups and funds in New Zealand. There are a number of sources of capital available to startups, depending on what stage the startup is at.
When talking about startup funding, Angels and Venture Capitalist are usually the first option that come to mind. However, the reality is that self-financing is the number-one form of funding used by startups. It’s also a well-known fact that external investors are looking for founders that are willing to put their own money into the business. After all, if you don’t have enough faith in your startup to risk your own money, why should anyone else risk theirs?
And don’t forget about your friends and family. For most startups friends and family are the first source of capital and often the easiest to secure. But, it’s not without risk so make sure you do your homework before taking your uncle’s money. Read more about raising money from friends and family here.
Callaghan Innovation accelerates the commercialisation of innovation by firms in New Zealand. We have the talent, resources, knowledge and connections to help businesses turn ideas into internationally marketable products and services more quickly and successfully.
Among other things, Callaghan Innovations provides funding and grants for high growth NZ business. Visit the website to find out more.
Global From Day One Seed Fund (GD1)
Accessing early money is hard. GD1 invests seed money in early stage concepts and ventures that aren’t yet ready for mature angel or venture capital level investment. GD1 is a joint venture between The Icehouse and Sparkbox. The fund is focused on early stage concepts and ventures that have global potential. GD1 is open to applications from throughout New Zealand.
Angel investors are individuals who invest their personal money into startups in exchange for ownership equity. They generally invest in organised groups or networks and invest as the group. Angels are usually active investors that, in addition to capital, also provide advice and support.
ICE Angels is Australasia’s largest angel investment network with 130 members from all over New Zealand and overseas. Since inception in 2003 the ICE Angels have invested over $42 million across 46 investments. Almost one third of this, $14.5 million, has been invested in startups that have gone through the Icehouse programme.
Find out more here.
Venture Capital (VC) is another source of funding for startups, most commonly for later stage startups with significant growth potential. Most venture capital comes from groups of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. The main difference between VC and Angel investors is that Angels usually invest smaller amounts of their own money while VCs invest larger sums from funds, money that’s usually not their own. VCs also tend to invest in later stages than Angels do. Often, VCs will be actively involved in the businesses and assists with the strategic direction and decision making.
For a list of VC funds active in New Zealand visit the NZVCA website.
For more information about international VC funds visit the websites of the regional VC Associations:
With the right business plan credentials and securities you might be able to secure a bank loan for your business. The Icehouse works closely with The BNZ and they are always happy to advise startups about their options. Visit their website or give one of their startup specialists a call, 7 days a week, on 0800 269 763.
Startup Funding Resources
Early Exits: Exit Strategies for Entrepreneurs and Angel Investors – By Basil Peters
Financial Exits: Sell your business for a high EBIT multiple – By Tom McKaskill
Strategic Entrepreneurism: Shattering the Start-Up Entrepreneurial Myths – By Jon Fisher, Gerald Fisher and Wallace Wang
The Definitive Guide – Raising Money From Angel Investors – By Bill Payne
Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist – By Bred Feld and Jason Mendelson
The New Zealand Venture Investment Fund Limited (NZVIF) invests into venture capital funds and partners with angel investor groups to drive investment into exciting young New Zealand companies with high-growth potential. On the NZVIF website you can find a lot of information and resources, including templates for investment documents.