Entries from October 2008 ↓

Colin McKinnon was interviewed in today’s Herald, plugging the NZVCA’s new book, “Fuel for your Business”.

The book is “… aimed at young, early stage New Zealand companies looking for funding to help them grow, and focuses on attracting ‘rocket fuel’ or angel and venture capital investment.”

Colin says that he hopes the book will prompt prospective investors to approach the venture capital association.  He continues, “Angels are more informal, philanthropic and are more about being involved in a community of common interest. Venture capital is professional, about fund management and about having a good track record so it can attract more people to the fund.”

I can’t say I’ve ever met an angel investor who thought they were being philanthropic by investing!  And we might even eventually forgive the Herald for showing a picture of Colin against a map of the world that excludes New Zealand, worthy of NZEDGE’s now-defunct collection.

I look forward to reading the book once it hits the shops, and will enjoy Colin’s take on the debate on “Why VC’s and Angels Must be Wed Locked” at the upcoming inaugural Angel Association summit.  The love’s gotta flow in both directions, sweetie!

After the depressing Sequoia “RIP Good TImes” slideshow did the rounds last week, I couldn’t help but think that the situation is somewhat different here Downunder.  We’ve never suffered from the same level of irrational exuberance that seems to grip North America in vertigo-induced nauseating cycles.  We may be crashing, but it will be from a lower altitude – of course if you’re still dropping at terminal velocity then the initial height may not have mattered so much.

And yet, from what I’ve seen there’s still plenty of angel investment cash about – the trick for angels is to find investable businesses who are likely survive economic hard times and build their businesses organically until expansion resources free up, as they inevitably will in the future.   So for the local Angel scene, the reality is that we are living in interesting times full of challenge, but the I believe picture is far rosier than what Sequoia might paint.

And the Australian Association of Angel Investors concurs.  They published the following article (reproduced with permission) in their most recent newsletter, which is among the most sensible summaries I’ve seen.

–

Angel Investment & the Global Financial Crisis
By Jordan Green
October 20th, 2008
Angel News Australia Volume 1 Issue 4
Published by the Australian Association of Angel Investors Limited

The global financial crisis triggered by the USA sub-prime disaster continues to spread and deepen. The question is being asked, “How are angel investors affected?”

Answers are offered here in three parts, being for angels, for angel-backed companies and for the community at large.

For Angels:

Angels predominantly invest in early-stage companies committed to high growth over a period of 3-6 years. Early-stage investing is inherently counter-cyclical. In other words, when times are hard and the ‘market’ is depressed early-stage investors are eager and active. Witness the marked activity of those quality VC firms around the world who already have their investment funds. VC who do not have their funds probably won’t be raising new funds any time soon.

In down turns valuations are lower and the quality of entrepreneurs is often higher because the market is not cluttered with me-too guys and gals attracted by the successes that appear in the early days of the up turn in the cycle. Those very successes are the ones nurtured by investors who invested during the down turn.

It usually takes 2-3 years to build a business to the point where it is best equipped and positioned to take advantage of an upturn in the market. Further, a business developed and refined during lean times is more likely to be an efficient, responsive operation able to optimize margins and adapt rapidly to market change.

At the personal level, angels have a choice about where to place their funds. In down markets the decision to put their discretionary funds in the hands of brokers and bankers who live off transaction fees is less appealing. The decision to invest in angel deals is a vote of confidence in themselves and their ability to use their own skills, experience and networks to build and harvest value.

For Portfolio Companies:

From the entrepreneur’s perspective money is never easy. In the years ahead raising investment capital will be even more challenging. Around the world early-stage investors (angels & VC) are advising their portfolio CEOs to batten down the hatches and plan for a prolonged period of self-sufficiency.

As always for young businesses, cash is king so, unless a company has over 12 months of cash reserves, it should raise funding as soon as possible and raise as much as possible.
If a company’s market position is weak and/or the target customer segment is severely impacted then cash requirements will be going up. In those cases aggressively examine and pursue M&A opportunities. Remember, everybody will have lower valuations and now might be the perfect opportunity to combine with one or two competitors to ensure that, together, there are resources to weather the crisis and to ensure critical mass (including funding, customers, rolodex power, market share, cash, synergy, etc.). Or consider getting closer to corporate partners as investors, or even as acquirers.

Hopefully, entrepreneurs already know how much cash they have, their expenditure at the current “burn rate” and when they will run out of cash. They need to cut costs, even if it means staff reductions, fewer features and lower general expenses. This is equivalent to raising an internal round through cost reductions to buy more time before the need to raise money again. Losing staff is hard and often emotional but, consider services for their higher capital efficiency.

Re-evaluate development plans, customer acquisition timelines and revenue milestones to achieve more with less. Sounds like blood out of a stone to most entrepreneurs but, this is essential to survival. The lesson learned from the Tech Wreck and other down turns is that the winners are those left standing.

First to market means bearing the brunt of market education and other front runner costs that demand deep pockets. Speed to market remains critical but, aim to be the last one standing.

For the Community:

High growth SME are a key driver of our economy. These businesses drive product and service innovation thus lowering costs for customers while driving their own growth of revenues, staff and profits.

Small, agile businesses backed by experienced, successful business people can rapidly address the changing needs of the distressed markets. While large firms struggle to adapt through mass lay-offs and other unproductive cost cutting efforts they become more aggressive acquirers of innovative technologies and services that improve their productivity. The interplay of angel-backed businesses can sustain, or introduce key capabilities for the competitive advantage of Australia.

A vital, active angel community applying its resources to fostering, mentoring and funding commercially successful innovation while working in partnership with inspired government leadership and initiatives can underpin the rapid evolution of Australian business that is essential to protect and improve our lifestyle, our culture and our security.

The Angel Association has linked up with international partners in Australia, the United States, and Europe in a move which it hopes will help young New Zealand companies looking to expand offshore.

Angel Association chair Andy Hamilton said cooperation agreements have been signed with the Australian Association of Angel Investors, the European Business Angel Network, and the United States Angel Capital Association.

“The objective with signing these agreements with Australia, US and Europe is threefold. It will promote relationship exchanges. It will promote best practice exchanges. And it will aid our kiwi companies entering foreign markets and getting finance in those markets.

“Angel investing has become a significant asset class in its own right since the year 2000. By building international linkages, angel groups in New Zealand can benefit from the worldwide growth in angel investment.

“Since 2005, we have seen considerable growth in syndication of angel deals between angel groups in countries. Now, we are starting to see syndication occurring across country borders.

“For a young New Zealand company looking to expand to, for example, the US, having a US angel investor alongside some New Zealand angels could help greatly in terms of that company’s knowledge and understanding of the US market. Syndication also greatly expands the potential  capital available.

“We are already seeing international interest in our growing angel community. Representatives from three Australian angel groups will be attending the Angel Summit in early November in Auckland. We hope that Kiwi angels will be attending US and European angel conferences next year.

“We are also look at building links with the Asian region. Further, moves are underway to establish the World Business Angels Association, of which we will be one of the founders,” Andy Hamilton said.

Harvard University’s Samuel Arbesman recently submitted a paper to Physical Review E entitled “An Explanation of Superlinear Scaling for Innovation in Cities” (HT: New Scientist).  The major thrust of the paper (embedded among the erudite scientific analysis) is that larger cities have dispproportionally more innovation, because they allow for richer interconnection between different communities.

My initial reaction to this from my favourite hometown of merely 250,000 souls (counted on a fine day going downhill with a southerly tailwind) was “oh no, we’re fux0r3d!”  All this talk of the Innovation Capital and Business Innovation Strategies will come to naught, because we just aren’t big enough to compete with the larger locations overseas.

Rereading Arbesman’s article however, size is only one factor enabling innovation.  Sure, given a sample of a large number of cities puts Wellington in the same league as cities such as Birmingham Alabama, Czestochowa Poland, and Pau France – none of which are particularly well known for their innovation policies.  But Wellington and Auckland are very culturally diverse cities, and I would argue that their relatively small size enables rich interconnection between communities, precisely because the interconnected communities themselves are so small.

In Wellington we joke that we’re a “village with skyscrapers”, and that there’s only a degree-and-a-half of separation. The number of people from different walks of life that I’d talk to on any given day is staggering.  I can have a breakfast meeting with Pākehā colleages, meet with Māori clients in the morning, lunch with Asian colleagues, afternoon meetings with constellations of immigrants from Europe, North America, the Indian subcontinent and Southern Africa that define the local IT scene, dinner with my own family (between us we have rellies living on six continents) and then go to an evening Interfaith meeting with people from all over the world.  There are no ethnic neighbourhoods here; the ethnic groups are just to small to sustain whole geographic regions.

So far from being a hindrance, our small size combined with the diversity of modern New Zealand can be a real advantage for breaking down barriers that are common elsewhere.

Superlinear scaling breaks down here, and long may we remain an outlier in Arbesman’s data set.

Update: In a personal communication from Arbesman, he says

… you’re definitely right that the variations and exceptions to the patterns observed are the ones that can give us the most insight into the innovation process in cities. And it sounds like New Zealand is chock full of these exceptions.

Heard today:

Q: What’s the capital of Iceland?

A: About $2.50 …

Here’s a wordle tag cloud of nzangels.com … now that’s not a bad description of the industry, either, is it?!

Hands up … how many people out there deal with teens regularly, or rather try to when they’re not glued to a screen of some description … keep those hands up … OK, now how many people have been teenagers themselves.  Nice to see all of those hands up (except for the few loyal angel-wise kids following this blog).

Now, wouldn’t it be nice if there were an attractive web site which delivered authoritative information to teens on the stuff that really matters?  Attention investors, here’s your chance to help make it happen.

The Pitch:

Teen 42 is a Website being set-up to Assist Teenagers worldwide online to make optimal life choices providing interactive information, education and advice on Careers, Finance, Personal Growth and Health, Culture, Addictions, Heroes and more.

With consistent stats telling us for the past four years that 73% of Teens globally searching for Career info followed closely by 70% of Teens looking for Financial help in an adults world and a recent Charles Schwab survey saying that – ‘At the tender ages of 12, 13 and 14, adolescents begin to worry about the future – “Where will I go to college?” “What kind of career will I choose?” “How much money will I make?”‘ It’s a new kind of teenage angst – you start to understand the need for TEEN42.

Add to this the findings from a recent Charles Schwab survey stating – ‘At the tender ages of 12, 13 and 14, adolescents begin to worry about the future – “Where will I go to college?” “What kind of career will I choose?” “How much money will I make?”…

The National Association of School Psychologists estimates that career-related anxieties among teens have increased about 20% in the past decade. Experts say striving for success is great, but they also warn that if it becomes an obsession, it can be unhealthy for kids.  “They become anxious [and] jittery. They become worriers,” says Dr. John Lochridge, a psychiatrist. “They turn to drugs or alcohol as external ways to calm themselves down.“

Today’s Teens need resources and support not the unhelpful labels being handed out on their negative behaviors.

We will launch with our first site focusing on Careers and will be able to not only psychometrically match a teen with 1-5+ Career choices, but show them from today, what grades they need to achieve this year, what courses next year and what is required in higher education (with local institutions) to enter their chosen career. They will also be shown a video of that career in action.
Take the same formula of interaction across the other sites and you’ll start to see why we will become the number one Teen site.

Accomplishments to date:

1. Executive Summary, comprehensive Business Plan and 3-5 year Financial Projections
2. Inc in NZ with Tax Numbers, Bank Accounts as well as Inc in USA (out of Delaware) with Tax Numbers, Bank Accounts
3. A CEO is on board in an advisory capacity who has 5 startups under his belt and previously a Mentor to ANZA
4. A CFO & CTS ready to Board
5. Two Board Members as well as two Advisory Board Members
6. Just secured space at The Hothouse (incubator) in San Francisco
7. An appointment with a leading Advt Agency requesting first option to present several brands aimed at the teenage market.
8. Five VC’s have requested meetings as soon as we arrive back
9. One US Sponsors has expressed interest of being our first Sponsor on arrival in the US
10. The website is currently in Beta form.
11. The Founder has already personally invested $300k plus seven years of research. A further $30K has been invested by an Individual.
12. Researchers and content writers volunteering their time until funding is available.
13. We are partnered with the a) Californian Mentoring Foundation b) Step-Up Foundation Aust/NZ, c) Telavison.tv and d) Dreams for kids.

Development plans:

The next stage is to bring on several new researchers and content writers to complete content already written for the next two sites (Finance and Personal Growth). Although we have a website built already, we will engage a Web Architect (in the Silicon Valley) within the next six months to create a large online place including the latest in Platforms, technology, Video, Avatar’s and e-Commerce. Taking into account several of our revenue stream requirements potentially putting us ahead of the likes of Yahoo/Facebook/Google/Bebo/YouTube etc.

The next stage early in the second year is to develop the e-Commerce sector and then soon after, we will mirror the project for the Adult market.

Key Challenges:

• Getting Kiwi Investment for such a needed website
• Getting people to understand that we are not another Social Networking site.

Principals & Previous Experience:

Founder and CMO – Wayne Sharp
Wayne’s vision and creative drive will ensure TEEN42 a respected spot in the global educational and Internet field. His background includes 26 Years in the Advertising and Marketing arena with 15 of those years in Direct Marketing (four internationally), as well as Business Development, Account Direction and Art Director. At 22, he started his own Advertising Agency in Melbourne Australia during the recession in 92 lasting 6 years. The last four years have been spent in the Web Market, Marketing and Selling Static/Brochure/E-commerce sites and gaining incredible knowledge of the web’s potential.

CEO – Mike Loftus (Advisor)
Considered a visionary in the wireless and ad-sponsored DA space, Michael Loftus has been involved with startups for over 15 years defining their core strategies, developing product roadmaps, and driving their sustainable revenue. He is CEO of Broadcaster Media, a mobile services firm that lets brands interact directly with consumers via media-rich, mobile content. Previously, Michael prepared and launched Connect Directories in Dubai, UAE and Say Hello in Jacksonville, FL. Like his earlier company, inFreeDA, Connect Directories provides the ad-sponsored DA services that have transformed today’s 411, offering a zero-cost alternative to fee-based 411 calls. In 2005, Michael served as CEO of inFreeDA a Hummer Winblad funded company, which was sold to AT&T in 2006. Michael has also been, EVP for Eagle River Interactive and CMO at NetFish Technologies

CFO – Steve Peppler (Advisor)
Steve brings a wealth of experience in finance and business. Prior to joining Flintfox as CEO, he held leadership positions at Quaker Oats of Canada (Pepsi) as a member of the senior leadership team and Controller/Director Customer Finance. Additionally Steve gained valuable experience at Kraft Canada, Crothers Limited and the Royal Bank of Canada Senior Financial Analyst at Kraft Canada. He holds a Masters of Business Administration from the Schulich School of Business and is a Certified Management Accountant

What they want from an investor:

TEEN42 simply requires an Investment or a Loan of $60k – $100k (NZD)
The investment will be used to

• Expand and improve the current Website with Video,
• Hire a further two Content Researchers/writers
• Put in place necessary server & Customer support infrastructure
• Initiate the Marketing campaign
• Begin negotiations with potential sponsors
• Meet with VC’s

Once we have secured this investment, we can launch within a month and it is estimated we will have large numbers of visitors within the first 2-3 months.

Dave’s Commentary:

There’s no question that this space services a large, growing, under-loved and important demographic.  The initiative also has potentially massive positive social outcomes.  The principals already have a product and some relationships in place, as well as passion and the drive to succeed.  I get the impression that the right investor could add great value to the operation.

Contact details:

Wayne Sharp
Email:  sharpy at teen42.com
Mob (NZ): +64 21 655 040
Mob (US): +1 415 419 6528
Skype: Sharpynz

Note: If you plan to act on any information on this site, please be sure to read the disclaimer.

I’ve given up watching broadcast TV. Over the last year, on average, I’ve watched less than an hour of TV per month, generally to be sociable, although I do have a weakness for Dr Who.  I’ve even gone off TV news – I’d much rather pull my info rather than having it pushed at me.  And when I need visual entertainment, I generally turn to Internet-based programmes like Epic Fu and TED talks.

Susan Blackmore’s TED talk was released online recently.  She introduces the concept of Universal Darwinism (based on the ideas of Richard Dawkins), the core concept of which is that any system that has variation, selection, and heredity MUST evolve such that subsequent generations are better adapted than previous ones.  She argues that this doesn’t only hold for living things, it applies to any system.  In other words, in such systems order inevitably arises from chaos.  Strong stuff succeeds, weak stuff fails.

She goes on to develop the idea of meme machines (meme = that which is imitated), ideas that get copied and thus improve themselves over time.

We see this kind of thing in the start-up space all the time, and the trick for investors is to try to predict which teams will be able to nurture their ideas into memes which survive and become dominant.

Trade Me is a good reference example – great idea (thanks, ebay), great team (Sam Morgan and friends), vacant niche (New Zealand) = viral growth.

But even more exciting and potentially rewarding is taking our local ideas, backing them with great teams and resources, and exporting them to the world.  When you have a game-changing idea, the world is your vacant niche.  The challenge then becomes to evolve yourself rapidly enough to beat out the competition.

How fast are you evolving?  Are you making the most of a rapidly changing environment?