Start-ups warned of VC funding pitfalls

Finding and negotiating with venture capitalists can be very distracting, says ICT veteran

Standard business advice to young companies tends to involve finding business investment early. Start-ups are also often told that if they are planning to launch into overseas markets, it is essential they appear to be local to that market.

However, Tony Crewdson, chief executive of portfolio and project management software company i-Lign, does not believe in that advice.

Speaking from his own experiences, Crewdson says finding and negotiating with venture capitalists can be very distracting.

“It can distract you from your business, and it can also make you create a business you didn’t want,” he says.

The investors will want to make their money back as soon as possible and that might set the company off in a direction the founder didn’t want it to go.

Crewdson, as one of a group of seasoned ICT business speakers, is presenting at the Canterbury Software Summit, to be held in Christchurch next week.

Crewdson started his Wellington company ten years ago. Looking back now he realises he spent a lot of money on having an office and a presence, which was unnecessary, he says.

He would advise new companies to start off lightly.

“You don’t need to set up an office,” he says.

What is important is working on your product and getting something out there, and you will do that just as well from your lounge with a single developer, he says.

In 2004, Crewdson decided to exhibit at CeBIT — the world’s largest ICT fair. At the fair, in Hannover, Germany, he met some investors that were interested in injecting capital into New Zealand businesses. Crewdson spent about a year negotiating with the investors and was just at the stage of signing the contract when the investors suddenly pulled out. They had lost their money elsewhere and now wanted out, he says.

Crewdson was left with expenses and a company forced into a conventional go-to-market strategy that he didn’t want. Crewdson had to get rid of staff and restructure the company.

“We worked every day of the week for the next year,” he says.

If you are using your own funding, you are going to be smart about what you are doing, he says.

Crewdson also doesn’t follow the common thinking that in order to successfully launch into the US market, a company has to sound and look like an American company.

He says smarter use of web technologies can help companies get over the hurdle to overseas markets.

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