Backers aren't tech smart, they're money smart

Investors are just looking for a payback, says Aftermail's Drury

When you’ve got a bright technical idea that needs funding, “you don’t look for smart money, you want completely dumb money,” a successful innovator says.

Though it might be tempting to seek a backer who knows enough about the field to be able to talk intelligently to developers, this is not generally a good idea, Rod Drury of email-processing company Aftermail told a group of ideas-people at a discussion session put on by ICT developer community Unlimited Potential and NZ Trade and Enterprise in Wellington earlier this month.

Investors are just looking for a payback, Drury says. They’re no more likely to invest if they know something about the product; in fact, they may try to interfere and drive spending in the wrong direction.

A clutch of 19 startups met with Drury, financial specialist Hamish Edwards and NZTE staff and made to give the key messages about their product or service in a two-minute “elevator pitch”. Offerings ranged from time-and-expenses tracking software, to a website to assist people to find equipment for hire and a slew of mobile applications, one supporting group texting and others trading on the ability to locate a user and pitch a relevant message to them.

The inventors were driven further out of their comfort zone by being asked where they would look for investors. Only a small proportion of them had tried obvious gatherings like the regular dinners put on by the New Zealand Software Association.

Asked where potential investors in high-tech companies might have made their money, most appeared at a loss.

The big moneymakers are in real estate, Drury advises. “How many property speculators have you talked to?” he asked. “Go out and meet those people. They like to take risks, they’re great networkers — and they know nothing about IT.”

The advisers also put emphasis on networking among startups. After the elevator pitches, they were asked, “how many saw a partner, a customer, a competitor?”

Even if products appear competitive, they were told, there were usually areas of the market where one planned to be active and the other not, so there is scope for complementary co-working.

The entrepreneurs were asked to brainstorm and rank their priorities. Networking, closing deals and establishing channels were ranked top, along with the big bugbear selling offshore.

The various kinds of investor were discussed — including “angels”, who are looking to put speculative money in, but usually want quite a significant stake in the company — bringing resistance from many who regard their idea as personal property.

Venture capitalists seek a more structured deal over time, typically with an exit strategy once the company is up and running.

If you’ve not found money within two or three months, you probably won’t, the startups were told. It would be wise then to re-evaluate the idea, not keep plugging away in hope of eventual success.

When budgeting, startups should allow a certain amount of money to fund the exercise of looking for money, Drury advises “And sharpen those elevator pitches. Would-be investors listen to one after another of these presentations all day. Yours has to stand out.”

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Tags investorsnz trade and enterpriseventure capitalistsaftermail

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