I retired from personal blogging in July 2008.
But you can find me over at http://blog.xero.com.
37 Signals are suggesting VC’s are bad.
In a New Zealand context should you take money from a VC or not VC?
A significant portion of the the NZ tech industry is anti-VC as a source of funding. Not sure where this comes from but I think that NZ VC’s are in a tough spot.
The stars will probably want to (and are able to) skip them and use their networks to attract a US VC firm. So (as a huge generalization) that removes the cream and the companies that are fundable more than likely need a bit of tough love to dress themselves for commercialisation and have a lower probability of a favourable exit.
The second dichotomy is that early stage companies are less likely to get funded and the ones that do crash through to reasonable revenue probably don’t want to take it from a local VC. You will have also picked up from previous posts that I’m now pro-investment as early as possible. You need to build your team with people doing their roles as early as you can. Splitting roles is a classic underfunding problem.
A third dichotomy is that it is difficult to get funding when you are unknown. Once you have had success you may not need the funding.
The NZ VC’s also have to compete with Government Grants and Angels (which work here because of our tight networks).
So I believe it is tough for NZ VC’s. But we need to support them. Two things need to meet.
VC’s need to do earlier stage deals in New Zealand. That means that we as Entrepreneurs need to spend more time on design and planning before we build. Spend you own money at the beginning making the investment a no brainer. Also get great people on your team or as advisors so that you are fundable. I.e. we need to make it easier for VC’s to do early stage deals with us.
The ideal model is Design, Fund, Build.
VC deals are normally set up so that they control subsequent rounds of funding. I think for early stage deals they should come in as common shareholders. This avoids the founders being, in effect, completely sold on round one.
We also need to understand that you may not make all your money on your first deal. Don’t worry about giving up a slice of equity to get into the game. Once you’re proven it will be much easier to get subsequent deals funded. We’re here for a while so you need to build relationships over your long career.
I’m looking at a doing an early stage VC deal now for one of the projects I’m working on. Don’t need to but I think I should do. I’ll let you know how it goes.
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The ideal model is Design, Fund, Build… in an ideal world. But we don’t live in an ideal world and people want to see something built before they decide to invest. This creates a classic catch-22 situation.
We have such a huge brain potential in this country and most of it is being drained overseas because of the perception that there are no good opportunities in here. I think that NZ VCs need to be a bit more daring and forward thinking when it comes to funding hi-tech startups. And if a project fails lets not be too hard on ourselves. Constant shifting of blame and pointing of shortcomings only breeds contempt, distrust and eventually apathy.
[...] Rod Drury states that the ideal model for an early stage business is Design, Fund, Build. This sounds sensible to me. What I’m wondering is whether it’s ever too late to apply this simple logic. I suspect that Design is not just about the technology (or, the product), it’s about the Business too. So perhaps we should skip the Proof stage (right after/during Design) that so many get held up in (but don’t forget the research). It’s much more difficult to Prove something if you can’t Fund it. Stop at Design, or rather, Do the Design. Ever noticed how attractive architectural concept drawings are? I’d buy that. [...]