Capital Education video resources

[Suse Reynolds]

So, Dave what are you seeing in the market in terms of how you’re seeing investors behave

In your part of the world


[David Beard]

Generally, I think they're still pretty positive about investment in companies

I think there's a reset that people are starting to now consider, and I think people are also

say, people are more cautious, cautiously proceeding with some sort of excitement. I think

in the background is this sort of Warren Buffett in all of us that says, you know, in times like

this is actually an interesting investment opportunity.

But for us I suppose where do we look now, we saw, say, does the investment opportunity

still make sense. has the market changed? and you know, the big thing now is if you are an

looking at an investment, is there is that a sufficient investment for the next 24 months,

we probably would have previously said you know can the company keep on going for 12

months, we probably extended that out, and so there's probably a little bit more

realism or conservatism in in the planning process now.

So we're generally still actively looking at investments, but with those are the caveats

now I suppose.

What about yourself what are you seeing.


[Suse Reynolds]

So yeah, I've been doing the rounds of all the angel networks in the last week or so

and even just come off the back of a meeting with some of our most active angels at Angel

HQ and one of the guys asked how many of you are gonna stop investing, put your hand up

you are, and there were 20 plus people on the call, no hands went up.

So, and that reflects the conversations I've been hearing to.

People are certainly intending to go on investing, and we know intent and action

and reality are slightly different things, so that said the rhetoric has been slightly more

cautious so people are very, there's a really clear theme about I'm going to be supporting my

existing portfolio, you know a little bit more rigorous about new deals.

But like you, very very clear that this is, you know, this will inevitably throw up a really great vintage of companies

that a resilient, agile and supermarket focused so yeah,

I think people have kind of got that, it's just the extent to which their heads

will overrule their hearts, and the reality in those emotions is fair severe, obviously

bubbling away they go.


[David Beard]

Yeah, yeah I think similarly a couple of comments that we noticed from GFC days which we

We lived through and actually made some really significant investments, [unclear] empowered by
[unclear] Aroa[]

were some of our key investments off the GFC in 2009-2010, and they've gone on to huge

successes. What we found was the investors who are really passionate about this space,

kind of double down and really get into it, people who probably have a wider portfolio I'd say,

maybe some [family offers], maybe some other people who maybe get a bit scared off from

the venture capital space, because you know the risks are there, I think this is a

stark realisation to them that, you know this is a risky space some corporate

venturing kind of gets a little bit deterred, but the hard core venture investors and angels I

think are really understand this is a great opportunity to get some great innovation

companies, different people thinking about different ways to solve a new set

of problems which have emerged and have progressed from there.


[Suse Reynolds]

Yeah, and I think what some of the research too shows that angel investing is less impacted

by recessions then the venture, kind of side, of things and definitely, you know, angels are

motivated by things beyond the financial returns so all of that stuff around creating jobs,

keeping people and good jobs creating aspiration in your economy, it's you know it’s writ large at the moment.


[David Beard]

How do you see, from if you're talking to is the impact and what time frames you know

people talk about near-term, medium-term, long-term, what does that mean to you and

how do you think that affects the investment horizon in those near, medium and long terms?


[Suses Reynolds]

Yeah, I mean, that's a really something that's to the fall with most people I'm speaking to, it’s

just revisiting those capital strategies to make sure that they still stack up and definitely

making sure that the runway is at least 12 months, and preferably 18 months that's that's a

very common theme. And a lot of, kind of, people feeling a bit, sort of, conflicted by the fact

that they don't know what the scenario is gonna look like and yet preparing for the worst but

yet not sure if the worst is actually gonna happen.

And that's a difficult place to be, and and a lot of trying to protect jobs and talent, you know

that's a really clear theme as well amongst a lot of investee companies and the investors,

directors who are talking to those companies.

[David Beard]

How long this is gonna last? I mean a lot of people talk about near-term being one to

three months and medium term three to six, and long term six plus months.

I mean I get a real view from the global sort of perspective that this this isn't

going to go away in six months, this is a 36-month sort of process and, so for me

near-term is probably, the adjustments are going to take probably three to six

months and then we're going to kind of steep right out exactly how we can grow

out of that over the next six to twelve months and then over to thirty six months is is going to

be a whole new regime in which we can grow with different solutions and new innovations.

Yeah, and there's obviously the big reset in terms of adjusting your expenses to meet

what the future may hold in front of it.

I mean from what we are sort of seeing is I also say if you're a young company

looking for capital over the next twelve months, it should still be pretty good I also say that a

lot of people still have a lot of dry powder as we call in our business over sitting for 2020

from a. From a venture capital point of view where we have a fund structure, it probably will

get a little bit more difficult next year than this year. Key reason for that is funds will start to

use up its free cash in terms of investing it on the opportunities through this year and I

think the new funds will be slowly or will be a lot slower in uptake, so with a lower cadence

and new funds coming in there might be a bit of a squeeze into next year,

so my advice for companies that are looking for capital now is keep on going, keep on going

strong, don't take your foot off the the metal and keep on and do everything

you can, to try and raise the capital this year.

[Suse Reynolds]

I think that’s one of the sorts of characteristics of New Zealand venture, and our founders

particularly that they're very careful with cash, and they do a lot with a little.

We are very efficient when it comes to that and same sort of message to founders

from us as well. Be really clear about what you're raising how much you're raising for what

and be very, be really clear about what your value proposition is.

We are really being clear with investors to make value-based decisions in a New Zealand

context that has some extra layers which I actually think it's going to serve us really well

in terms of sustainability and that really powerful value proposition.


[David Beard]

You know and you're right I mean New Zealanders have always been frugal with

its cash and I think that position as well, these types of market conditions.

The other thing I think also that’s, you know if you're a company now and looking

at how you pay yourself going forward for the next 12 and 24 months is, you know

innovation absolutely screams out when market conditions are so volatile, it was just a

heap of new opportunities that generally can solve new problems.

This whole areas around, you know, how do we interface and interact and run

businesses in a contactless environment. There's going to be a whole bunch of innovation

around you know with federal restrictions both nationally and internationally, how do we

conduct business going forward from there. These are all great opportunities for innovation.

The other thing I find which I encourage young companies and small companies is they can

adapt and change reasonably quickly, larger companies have lot more baggage that it

doesn't allow them to necessary transfer to new ways of doing things fast.

And if you can innovate and change fast, you can often get the jump on large companies.


[Suse Reynolds]

I was going to say innovating and changing fast kind of speaks to you know [embassy] and

being really canny to what the market needs. And I think that sort of, that authentic

kind of connection that works with markets and it also works with investors

so just making sure that you really do your research on who you're gonna

approach for capital and why and making sure that you you do that in a really

kind of sincere way. I think that's gonna have a lot more traction than

in the past when you could just front with a pretty smooth deck and a pretty

smooth pitch and and be guaranteed to getting some money, that's less the case

these days


[Daivd Beard]

Yeah, and it’s about, you know, as you said earlier

consolidating, getting your cash flows sorted out but never lose sight of the longer-term

picture, there's also opportunities because you know in generally, we found post GFC,

there was a lot less noise in the market, so you know if you're doing things like Google Ads

for your marketing the spend that you have on Google ads just went right down.

There's lots of companies out there you put a just stop on all their spending around

marketing and that just created a whole new opportunity where you could get more

bang for your buck around the marketing dollars that you do and are willing to

spend.

Again, that advantages small companies who want to use their dollars wisely but

still get market share. So, you know. we've also found that with less noise greater

speed tp adapt, you should actually look at this as a really great opportunity to cut

through some of the bureaucracy some of the complacency that you've often had

trying to be a struggling startup and growing market share, really great opportunity now just

keeping a positive attitude about what you're trying to do and keep focus.

This is about laser focus I think.


[Suse Reynolds]

Yeah laser focus, and that whole kind of thing around retention and

value and retaining, you know, the other thing that's really great in today's market is, somebody put it which was a slightly harsh way to put it, but there's a lot of talent liquidity.

So, you know, unfortunately some businesses with some incredible talent

are going to not crack it.

So keeping an eye out for those kinds of people who are available to help you

and also being a little bit more creative with your use of employee share ownership plans

as a way of attracting that talent and keeping and retaining talent, I think that's

another opportunity for companies in today's world.

what are you seeing around valuations is that something, are you seeing that you know

investors are really putting the pressure on founders and deals to kind of reset that

and what are the implications of that.


[David Beard]

I think what you're starting to see is, there's less extremes in valuation now than

they were probably six months ago, partly that's because the people who are investing now

have always been sort of base evaluations on key metrics and that's not really changed from

from this six months ago to now, so from a founder or a company’s perspective I'd say the

valuations have got a little bit more realistic and mainly because without this, the safest

strategic investors or family offers coming into to enter the play then essentially is

probably at the same set of valuation going across all sorts of investors so I think

it’ll start moving towards a very narrow set of valuations going forward, however that

variation will start going down I mean there's no hiding the fact that revenues have gone

down, as revenues go down and growth goes down multiples go down, so I think companies

have to expect that as the multiples go down, then they're gonna they're going to have

some valuation pressure. That’s not to say that they won't recover and it's

really a case of and getting the recovery and the time frame, but

hopefully you will have a bit of a shock to the valuation, but they’ll get back up pretty quick.

It all depends on how fast and how quickly you can get back into market and regain your

revenue streams. What about yourself?



[Suse Reynolds]

You know it’s the same kind of thing. The valuation discussion always fraught one,

and you know it doesn't stop being a [unclear] just because we're in a recession and so

the advice we've been giving is that you just need to be even clearer about what your value

proposition is and have a really pithy understanding of your capital strategy and where and who

you're going to raise from next at what valuation, above and beyond the one that you're

pitching for now. And I guess, sort of, in that kind of context we've been giving a little bit

of advice about terms and that if you need to kind of make your deal or your

opportunity more attractive be more inclined to give on economic terms in the current climate

then control rights because you are still the person who knows your business best and so

just be wary of that kind of pressure when it comes to doing deals. And yeah, and just a

flip back [] to round out on that valuation discussion, you know we are, sort of, hearing you

know things like twenty five percent forty percent you know sort of contraction and valuations

I'd be really wary of pressure being brought to bear on you as a founder, you know, with that

kind of redirect without you having a really, kind of, clearer and deeper

explanation for why they’re putting that kind of pressure on you.


[David Beard]

Yeah I mean, at the end of the day, valuations are heavily correlated with growth and you

know if you are retracting in growth then you have to expect that. I think your point is quite,

it’s that sometimes it's about getting enough money and passion to the business

that you can then move out of that current growth points, stagnation point

that we're at the moment to get to a higher one and then that proves to all the

investors that you are with a higher value, so timing is quite important on

this you know in some respects, whilst everybody is still consolidating

you know, unless you're in a process of seeking capital, thenI think valuations will

struggle in this really next couple of months, but if you're starting a capital

race process you probably will close in next two or three months and hopefully

we should be over not so much over, not so much over the worst, but at least understand

what the worst looks like, and I think they'll be less panic valuations going through if we want

to call it that.

[Debrad Hall]

When you’re going in into rasing your first round of investment as a business, you need to

think about the capital strategy that will play out over the next three to five years.

Key points you need to think about is: Only take investment from people you know you can

work with. The second key point is to think aboiut the valuation of the busines very carefully,

not just now, but how it will play out over the next three rounds of fund raising. Make sure

that you founders have enough skin in the game after the next three, four raises, that they

are still motivated to do the work to get the business to exit.

Mistake we see founders making is that they think about raising capital in terms of just

this round of capital, this first round or this follow on round, and I can’t stress how important

it is that you think beyond the first round and on to how this is going to play out. Because in

these early-stage investment, the investors are looking for something different from when

they invest money in shares on the stock exchange or invest money in a company that’s

going to pay a dividend in the future. What the early-stage investors in the startup sector is

looking for is a company that can use this investment to really accelerate their growth, to the

point that the payback comes multiple of the investment, rather than just gives a percentage

return each year. So, what we look for is, your investors will tell you that you kind of need a

10x exit, and essentially what they’re saying is what plan for me to get my money out

multiplied, if I put money in now. And so at the very least, when you’re raising your first

round, you need to plan out what your capital strategy is going to be because it’s very

unusual for a company that is growing fast and does have global potential to actually only

need one round of investment. And that’s important because you should think about it in

terms of how much equity you’re keeping in the founder pool, that is for the people who

are actually going to do all the hard yards to make the company fly.

It doesn’t matter in essence whether you retain control or not, in fact, with early-stage

investment you pretty much give up control as soon as you take on your first investor dollar.

But the important is that if you plan out through two or three or more, depending on what

sector you’re in, capital raises along the way, say over the next five years, how much equity

are you going to have at the end of that, in the founder pool? Are we still going to have

someone in the company who is massively motivated to do the eighty-hour weeks that

might be required at that point to actually make this company a true global success.

The counter to that is companies that we see that don’t think about their capital planning

along the way, and end up with founders who are diluted down to five or ten percent of the

business, by the time they’ve done a series B or series C. And at that point, the investment

becomes less attractive because, as I say, we’re going to have someone in the business

who’s truly motivated to make it fly. And when I look at first round investment, I always look

for that plan of what’s the capital plan and if we got to five years down the track and the plan

had to play out , which of course it never does play out as you expect. But let’s, for example,

say the plan plays out you’ve done a pre-series A round and a big 50 million series A round,

five years down the track. At that point, how much would you have to sell the business for,

for me to get ten times the money I put in, the first round?

[Julie Fowler]

I'd like to talk to you about capitalisation tables or cap tables as they are commonly known in

the industry. A cap table is simply a list of your existing shareholders which sets out their

names, a bit like your share register, and the number of shares they have, and most

importantly it's the proportion of the company that they hold, so the percentage shareholding

of each shareholder. Now the importance of the cap table is that you add to the cap table to

include the investment of your investors that are coming in on your round, and so that you

can see the number of shares that the investor will be issued when they invest their

investment amount and you can see the effect of that investment on the rest of these

shareholders. There's a whole set of mathematics that go with determining how many

shares an investor is to be issued when they invest their investment amount, and that can be

worked out through your cap table. It's really important to get your cap table agreed up front

with your investor. You would be surprised at the number of times we get to finalisin

documents and then questions arise as to the cap table, and of course that's fundamental

because the cap table sets out the number of shares and the price per share and, as I say,

the percentage shareholding so if there's a lack of agreement as to those figures there can

be a fundamental misunderstanding about the commercial details of the deal it's also

important in your cap table to think about whether you want to reflect your employees share

option plan if you have one. Usually, very commonly, a cap table is calculated on the basis

that it's fully diluted, fully diluted means taking into account all options or other rights over

shares that you have issued.

So the key thing to remember about your cap table is that it's simply a spread which sits out

your shareholders the number of shares and their proportionate share holdings that sits out

the number of shares and the price per share and the proportion of shareholding of your

investor.

[Mark Clare]

Capital-raising covers both debt and equity, today we’re goning to be looking at the mistakes

that people make in equity capital raising.

The first mistake we see is not understanding what investors are looking for.

Investors are looking to make financial return on their investment, and companies need to

understand this going into the process. The simple answer to understanding whether your

company or opportunity is interesting to investors is:

Is the opportunity big enough, where if you are successful the financial returns will be

substantial for all those parties involved.

The second mistake we see is not effectively presenting the capital raising opportunity to

investors. You need to have nailed down your narrative, the story behind the company, you

also need to have your financial and operating metrics well-organized. Don't get too caught

up in capital raising projections, the only thing you can guarantee about this capital raising

projections are: they'll be wrong.

The capital raising projections are there to show that you understand the total addressable

market, you understand your unit economics and you understand your growth story.

Three, not approaching investors in the right way. Investors want to see opportunities but

they want to see the right ones. Show them that you understand their requirements and your

opportunity matches what they are looking for. Investors also see a lot of opportunities, so

first impressions count, and they can last. In a capital raising process you need to be

persistent but you also need to maintain a tight deadline. In the capital raising markets we

have a saying: ”Capital raisings are like fish they go off”.

Fourth, making mistakes and deal negotiation. In negotiation with investors,

deal terms are very important and you should get proper legal advice.

We have a saying around capital raising negotiations: “You set the price I'll

set the terms”, the terms are that important. All entrepreneurs are focused on the final

price or valuation where external capital comes in, but be careful choosing the right investor

with good quality terms is more important than the final price.

[Debra Hall]

When investors come into the business, they almost always require you to have a

governance board, so to appoint directors to govern the company.

Now when we think about that early-stage board, we often find that founders and

management teams have very confused views about the difference between advisory

boards and governance boards so we'll see a company that says yeah we've got a board

don't worry we've got all these people advising us and, you know, that we get together every

month or two and we have a board meeting. Unless those people are actually appointed

directors of the company, they're not a governance board. A board of advisors works for the

management team, works for the business and very valuable for a company to

have relevant advisors. Your board of advisers has people who have deep domain

knowledge in the things that are important to this business maybe you have a scientific

adviser, maybe you have a logistics adviser, those people can give you specific domain

advice in helping you build this business.

[Suse Reynolds]

I've been in the angel space for about a decade now, I'm executive director of the Angel

Association New Zealand but I co-founded angel HQ in Wellington about ten years ago.

And so I've literally seen dozens and dozens and dozens of people in your position who are

starting out looking to raise capital. And governance is a really critical piece of it because it's

fundamentally about getting the team around that you that you need to be able to, kind of,

give you that kind of direction and guidance as to where you're gonna best and most

neatly raise value.

We've just done a survey recently of founders and asking them what they most got from, one

of the things that they were most grateful to get from their from their board and from

their investor director and they have indicated a number of occasions that

it's the emotional support and that's where a start-up or high-growth board a

board where you're raising capital differs perhaps a little from a more

conventional corporate. It’s that sort of real, kind of, and in fact as a

colleague said, this morning on a panel I was at. that it is like a marriage you

know it really is you're you're going down this path for the long haul and a

startup space a board is your, kind of, for me as the entity that gives you the

strategic oversight.

It's your, you will be in amongst it you'll be doing the doing there will be times when you won't

be able to see the wood for the trees a board should be able to give you that, a board is your

strategic oversight, it's providing your guidance, it’s your ability to steer stuff and I think in the

angel space too we're not so much looking at risk in compliance, we're looking at risk and

reward and so that's always another really important part of governance in a board in the

space. And you're looking to, you're looking to have a board a formal kind of board,

perhaps not necessarily when you first raise that very early seed or pre-seed round so I'm

talking anything from, sort of, a hundred thousand through to maybe two, three hundred,

perhaps tops four or five hundred thousand. But beyond that when you're raising an

angel round or you're raising any kind of formal capital, which is you know 500K through to,

could be anywhere, up to sort of two or three million that's probably, it'll be around about

500K to 1.5 million, at that point you will need to have a board to have credibility and give

your investors confidence that you are willing to have other advice and take on that advice

, and the governance piece, too, gives this follow-on investors confidence that you

understand what it takes to scale, that you're going to need more than just you.

Nobody does this stuff alone and the board is the first kind of formal recognition, one of the

first, formal bits of recognition that nobody does this alone.

And ideally, a board for a start up, a high-growth startup, it won't be any more than at the

most five, and our American colleagues sometimes think we're over-engineering it to have

five, that sometimes New Zealand startups are over-governed, but having, sort of, having

three is probably okay as well. But it's really getting your first board in place too is also kind

of getting the foundation right in the structure right so that when you scale fast, you've got

people around you who can help you do that. And your board will have a range of different

skills on it primarily around the vertical, or the area that your startup is involved in,

somebody who's maybe done it before. Other aspects of the board are that you

will need someone who is perhaps well connected, connections, people, nobody you

know, if we often talk about the fact that when you're raising money, it's not really, it’s the

money that you're raising, it's the people that you're buying, it's the connections that you're

buying that's a really critical piece.

I think the really important thing is that when you are looking for that board member, that you

go two or three deep and once you've done that you'll have a really clear sense of whether

or not that person is the right person to be on your board. Don't forget to do that.

[Caroline Quay]

Finding the right investors, there are many early stage investors in the New Zealand

ecosystem. You need to think about your product, your service, your target market and look

for the right kind of investors. For example, at CureKids Ventures we are a

healthcare-specific investor, so if someone comes and pitches a FinTech idea, then it won't

fall within our mandate. So research your investors, know what their mandates are, know

what their interests are, because chances are the investors that would want to invest

in your company are experts in your industry or have a passion in your industry and would

want to come with you on that journey. Also realise that anyone who wants to invest in your

company all the investors that are looking at your company, look at them more than just a

cheque book, they're not just about the money. They’re are people who have succeeded in

your industry, who have held senior positions whether New Zealand, in New Zealand or

globally, that are widely connected. Their connections can be very meaningful and can help

accelerate your company. So look for the right kind of investors.

[Marshal Couper]

So why am I talking about mental health and well-being of founders, well there's some data

out of the U.S that says that founders are two times more likely to have major depression,

and three times more likely to succumb to drug abuse.

There's also a Harvard Business School study that says that about 8 percent of

startups fail because of founder burnout.

So what are the three things that you can do to put yourself in the best position to run your

startup and and ensure that you have the energy and the ability to grow your business.

Well when it comes to mental health and well-being the keys are, you know it

sounds basic but the keys are exercise, nutrition and sleep.

So starting with exercise, this doesn't mean you've got to go to the gym it doesn't mean

every day, it doesn't mean you need to be pumping iron and going for a run every day to

keep your energy levels up. It just means getting out and about and doing 20 minutes a day

of basic walking, it's not rocket science but it's really really important, I can't emphasize that

enough. The next biggest thing actually is, so exercise is probably the biggest thing that you

can do to help your mental health and well-being. but the next biggest thing would definitely

be sleep, sleep is just crucial. The pressures of an early-stage founder are immense no

one's denying that, but you do need to set some time aside for yourself to re-energise so

that the next day you can go hard, and you can't do that on five hours sleep you can't even

do it on six, you've got to try and get that seven hours sleep that's .

recommended there's a few things you can do to help make that happen.

One is ensuring that you don't drink coffee after 6:00 p.m.\, that you don't that I get in front of

a screen for two hours before going to sleep because the blue screen, the blue light impacts

on your ability, but just to get to sleep, but if you can't get to sleep it does

impact on the quality of your sleep and your REM. So, can't emphasize enough the

importance of getting sleep. The third thing as I mentioned is nutrition, it goes without saying

exercise nutrition everyone talks about those things together, but nutrition is also incredibly

important for mental health, so there's a really strong link between gut health and mental

health and if you're eating junk food all the time, if you're going from meeting to meeting

to meeting and not really looking after your diet, then that will have an impact.

So exercise, sleep and nutrition, the three real keys to looking after yourself.

[SImon Ansley]

I'm from New Zealand Trade and Enterprise. Our job is to enable great New Zealand

companies to connect with relevant offshore investors. What we're seeing is interest in

creative technologies, B2B SaaS, FinTech of course so Xero, every technologies, and

emerging ones in space and frontier technologies. The markets that we are seeing that

interest from are Australia where we have a really active venture capital ecosystem,

Southeast Asia mainly around Singapore, and the west coast of the United States

of America. Right now the average round size that our team is helping with is around those

series A market, approximately two to five million dollars, to really support that scale or

the internationalisation of your proposition into offshore markets. Usually you would have

already some offshore customers and have great channels to scale that technology or

that offering further and deeper into that market. That's what gains the most attraction from

an investor. We're finding that the sophistication of the New Zealand entrepreneur is

increasing all the time and our goal is to really help you to understand some nuances

around the capital raising, specifically in that market that you're targeting. Today we've

also set up an education platform called InvestEd, and as a next step I love any of you that

have wanted to learn a little bit more to also jump on InvestEd website, and you get a

little bit more of a in depth, how to prepare yourself for raising predominately offshore capital.

If you'd like some more information, please go to New Zealand Trade and Enterprise

website, click on investment and then click through to InvestEd. Thank you very much.

[Ngaio Merrick]

Your pitch deck is your opportunity to take the investor on a journey of discovery.

At the end of your pitch, your investors should understand why what you're doing is

important, what it is that you're doing and how you're going to execute it, and most

importantly they should feel your passion for the project.

The very first part of your pitch is to explain the problem that you are solving.

Explain it with passion, explain it with stories, explain it in detail. There's a famous VC in the

US that says if you have 95 minutes to pitch, 90 minutes should be your story of the

problem. Maybe that's a bit of an exaggeration but you need to develop the story in a way

that emotionally engages your investor once. You've established the problem, you need to

determine who owns the problem. This is critical because if the person who owns the

problem isn't the same as the person who pays for the solution, then you'll go-to-market

strategy is going to be fairly complicated. So understanding who owns the problem is

essential for the investor to feel engaged with the process.

Then you can tell the investor what your solution is and explain your solution in

a single sentence, and then expand on it. What validation did you do in the market before

your solution was created, what changes did you make, when you did your market validation

to prove that your solution is the right solution for the market.

Once you've established your solution, you need to give the investors some confidence in

the proof of your solution. What are the statistics on stickiness, customer feedback,

testimonials, anything that can prove to the investor that there is product-market fit for

your solution, for real customers.

Next you need to look at the market, who is your target customer specifically as

much detail as you can give and then what's the Total Addressable Market that your solution

can reach once. You've identified the market look, at who else is out there, what's the

competitor landscape? How is your product unique and different from the other competitors

in the space? How high is the barrier to entry for other players coming into the market?

And that leads straight into your IP position, have you protected your trade secrets?

Have you filed a patent? What is the price for somebody else to come in and copy take over

or repeat your product or service in the market? And it's at this point that you need to confirm

whether or not you have a freedom to operate in the markets that you're intending to

go into. Now you can bring in your financials, what's your financial model? Basically,

how are you going to make money, how much money and when? Too much financial

information at this point is not a good idea, you need high level financials in your

pitch and more financial information and a backup of the model in your due diligence kit.

Articulate your vision for the company. Where is it going to go? What do you see as the final

solution? Is this a company that's going to exit? it's going to be an IPO, it's going

to be a trade sale, or are you going to be a global company that grows and pays dividends?

Why you? Why should i as an investor trust you to deliver on your vision, to execute on your

plan? What is it about you personally that's special, that's different, what have you done

what's your experience that gives me confidence that you are the person to invest in.

And the whole way through, investors are looking for people who are self-aware and

coachable, if you can demonstrate those values during your presentation, it's a big leap in

the right direction.

[Mitali Purohit]

Some of the options for early-stage startups in New Zealand are: angel networks around

New Zealand, active and passive funds in New Zealand and Australia looking to invest in

high-growth startups, New Zealand venture investment funds, skip fund, crowdfunding

platforms, and family and friends.

When you don't have a product and market traction, sometimes it's hard to raise investment

from early-stage investors, so the best place to start would be to find a friend or a family

member who understands the opportunity, and are willing to back you as a founder, and the

business opportunity that you present.

One of the places where early-stage startups in New Zealand can go for investment is angel

groups. There are about 11 angel groups around New Zealand, starting from top of North

island to South island, each angel group is different size but the best thing about

angel groups is they consist of individual investors with different backgrounds,

so if you're pitching for your technology, you probably find a few people who understand your

space, market technology your team, so you're getting smart money as well as

experience that comes with the group as a whole.

And then there are also other groups that manage funds so angel groups also have small

sidecar funds that they manage. The difference between the early-stage funds and angel

groups is that the funds would have set investment criterias, so before you approach them

check their website, speak to the investment manager and they'll inform you of the process

and some of the features they're looking for in a start-up to be eligible for investment.

So this could be a really good strategy for startups who are approaching the angel groups

and the funds. Both the groups can do due diligence together to fast-track the process for

you so you don't have to answer the same questions with the same people that you're

dealing with. And they're also different independent funds they usually have sector focus so

there will be funds that are focused on science and technology, there might be funds that are

might be investing in software only, there might be funds that are generalists, so some of

these funds would have investment committees that you pitch to. These are active funds and

managing your investments over time. The other types of funds that you would come

across a passive funds where the’ll make the small-sized check and they'll

just request an update from you regularly passively.

New Zealand also has a government fund that invest in early-stage sectors such as

NZVIF’s SCIF fund. Crowdfunding platforms are a great place for companies

commercialising B2C products, consumer facing products and maybe have a little bit of

revenue for seeking investment. The crowdfunding platforms can help you prepare your

information memorandum, they manage the investment process as well as post investment

reporting to investors.

[Julie Fowler]

A term sheet is a document that you agree with your investor when you are discussing the

terms on which they will invest. It's a really important document because it allows you to

reach a landing with your investor as to the key terms of the investment before you jump in

and pay for a lawyer to prepare those documents for you, and it also enables you to take

that term sheet to other potential investors and invite them to participate on the same terms,

if in fact you've agreed that you can do that with your lead investor. Your term sheet sets out

the key terms of your investment with your investor before you spend your time and money

negotiating and preparing the long-form documents. The key points in a term sheet are the

name of the investor, the amount being invested, the pre-money valuation or another

indication of the number of shares the investor is receiving and the price per share.

In addition to that, it should set out the type of shares the company is receiving, it should

attach a cap table so everyone is very clear about the number of shares and the

proportionate share holdings after the investment. The term sheet may also include

provisions around found lock-in and founder vesting. It's likely to include rights that the

investor has negotiated including the right to appoint a director, the approval rights of that

director and information rights the investor wants. There will also be provisions around

governance and restrictions around transferring into issuing shares.