NZX or NZ8? The startup money scramble, Moxie style

Every month, The Moxie Sessions brings together a small group of Auckland business thinkers to discuss ways New Zealand can take advantage of the Internet and boost its competitiveness. This month the group talked money: where is it, and how does a startup go about getting hold of some?

Time was, when you needed money to launch or grow a business and you’d exhausted the pockets and patience of your friends, family and local golf-playing banker, you might look to a listing on the NZX. Nowadays, startups are just as likely to book a ticket on NZ8; the entrepreneurs’ express, Auckland to Silicon Valley non-stop.

But is the only green in the Valley? Or, as that Air New Zealand 777 departs Mangere and heads northeast, is it passing over countless homes and businesses awash in the very dollars our tech heroes are flying so far to land?

Well I guess it would depend on the flightpath (rich folks don’t like hearing aeroplanes overhead unless they’re helicopters dropping party guests on the lawn) but after yet another mind-expanding Moxie discussion it seems to me that the startup community could raise a good chunk of those dollars (just not Airpoints Dollars) if it were to look a little closer to home. (And if a few things were to change, but we’ll get to those.)

While the rumour that a collective of Auckland tech startups has constructed a control tower and lavishly-appointed Koru Lounge out of Nikau palms and Post-It Notes in the belief that the Geeks on a Plane will one day return with precious Cargo might not be true (I just made it up), the appeal of overseas funding does seem to extend beyond the purely financial.

Yes, plenty of businesses have grown and prospered thanks to offshore investment, but there was a feeling around the Moxie table that perhaps the pursuit of overseas funding has become an end, rather than a means. A news story about your business being funded, someone pointed out, is a bit like one about your aeroplane being fuelled: the important thing is to fly somewhere in it.

September’s Moxie Session was held in the frankly swanky boardroom of Auckland law firm Buddle Findlay, home to startup specialist and partner Sacha Judd. Joining her in the Moxie speaker lineup were Cactuslab cofounder Karl von Randow and NZX Head of Cash Markets Amelia Wong.

Listening to the founders, investors, money market people and journalists around the table, my take on it was that there isn’t a shortage of money for tech startups as such, but a number of other shortages standing between that million dollar idea and, well, those million dollars.

There’s a shortage of appetite. New Zealand investors are a conservative bunch, and with a tax structure and long investing history skewed towards home ownership rather than share investing, it’s a stretch to get retail investors into the NZX full stop, let alone higher-risk tech startups. While SOE floats such as Mighty River Power are not without controversy, their main lasting benefit may be as a gateway drug… a low-risk taste to grow the overall pool, and hopefully move some investors along the path towards more speculative buys. Aggregate funds such as Lance Wiggs’s Punakaiki could serve a similar purpose

There’s a shortage of understanding among founders. According to Sacha from Buddle Findlay, most starter-uppers have only a tenuous grasp of how the road to IPO really works, and this knowledge gap is holding many back. A particular barrier is founders’ unwillingness to sacrifice their own equity for investment. As she put it, “people need to get that they’re better off having a small share of a huge company than they are owning all of a small company.”

(A good primer might be to look at this handy infographic from Fundersandfounder.com, which Sacha shared with the group: http://fundersandfounders.com/how-funding-works-splitting-equity/)

There’s a shortage of time. For a startup, there often aren’t enough hours in the day just to make whatever it is they’re making, without adding fundraising to the to-do list. Not many founders know as much about raising funds as they do about making widgets, so an early partnership with someone who does could be a smart move. 

There’s a shortage of investor nous. It takes more than a paid-off mortgage and a Dragon’s Den demeanour to be a successful and, more importantly, useful angel investor. As for founders, understanding of process and expectations among investors is a barrier.

There’s a shortage of perspectives.  Perhaps the answer lies not to the north east but in the Middle East. A couple of people at the table suggested that the way Israel nurtures and funds its tech startups might be a relevant model for us here in this similarly sized (in the grand scheme of things) country. If nothing else, it’s certainly a destination to consider should The Moxie Sessions ever hold a field trip.

There’s a shortage of willingness to DIY. Bootstrapping – funding a business’s growth via its own cashflow – is sometimes an option. For many tech businesses the computer you already have and a bunch of evenings after your day job is all that it takes to get things rolling. This got Cactuslab to apps with more than 10 million sales, and despite now being in a position to invest in other businesses himself, cofounder Karl von Randow has yet to rely on outside funds to grow his business.

Maybe, though, lack of money isn’t the problem. Perhaps, as former Pacific Fibre chief executive Mark Rushworth controversially and perhaps self-referentially suggested, the money is there for good ideas, but not every idea is good enough.

And even if it is, a business still needs more than money to succeed. As Jan Zawadzki from Hapara pointed out, businesses usually don’t grow in isolation, and that’s where the real power of Silicon Valley comes in. “The Valley isn’t just about money. The Valley’s about 3000 insanely well-connected people, and no amount of money can buy you that.”

$2500 of money will, however, buy you a round trip there on NZ8 to go and get connected. But if the sentiment around the Moxie Sessions table was anything to go by, you’d do just as well looking for the money your business needs between your office and the airport.

Moxie Sessions organiser Vaughn Davis is principal at social media and advertising agency The Goat Farm, www.tgf.co.nz

 


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