Venture funding tough to get

Another route to fame and financial security for budding software exporters is venture capital.

Another route to fame and financial security for budding software exporters is venture capital.

But when one venture capitalist has doled out funds this year to just two out of 147 applicants, it can seem a bit of a long shot.

Chris Twiss, the head of the New Zealand Venture Capital Association, offered tips on maximising the chance of tapping VC funds at a New Zealand Software Association meeting in Auckland earlier this month.

He pointed out that of $1 billion in funds available last December, 7% of investments have gone to startups, 8% has been allocated as seed money and 7% to early stage companies. The biggest chunk — 23% — went to mature stage companies; $460 million is still available.

To stand a chance of laying your hands on some of it, you need to demonstrate you have a team fired with passion to turn your idea into a winning product.

If you don’t have the expertise within your own organisation to run the business, find a mentor.

You must also be able to identify a substantial market for you product, and outline your competitive advantage.

And before you even go cap in hand, learn about the organisation you’re asking to invest in you, and think hard about the kinds of questions you’d be asking if the roles were reversed.

Before investing the effort, however, it pays to know what you might have to give away in return.

The head of Auckland company Anuva, Richard Burton, says there is a cost involved in accepting private investment.

Investors typically demand shares and a say in management, which Anuva, a document management system developer, wasn’t willing to hand over. Burton is seeking funds from Technology NZ’s grants for private sector research and development scheme, instead.

Marcus Whittington, of Auckland company SentryBay, has succeeded in attracting both private and public funding.

The process of persuading private investors to stump up was tougher, involving pitches to many different organisations, whereas the total of $110,000 SentryBay has received from Industry NZ and Technology NZ involved applications to two bodies whose grant rules are well known, if convoluted.

The private investors put up a greater sum, but SentryBay, which sells an anti-virus product, ended up giving up more of the company than it had hoped.

Whittington says New Zealand venture capitalists don’t have a great understanding of the IT sector, but can call the shots because money is scarce.

“Not many New Zealand investors are experienced at IT investment,” Whittington says.

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