I’ve just completed a two day stint in Singapore attending the inaugural Asia Pacific Angel Investor conference. The conference has been an eye opening and horizon lifting experience – I’ve been exposed to and reminded of the immense power and potential of global angel networks. At this conference I met early investors in Expedia, Google, Skype and I’ve connected with professional life science investors. I’ve listened to investors that have had fantastic successes across India, China, Europe, Australia and the United States; watched a New Zealand company pitch to the group and arguably steal the pitching show. So what have been the key takeaways?
Networks, networks, networks drive success – the creme de la crème of Asia Pacific Angels presented at the conference. These guys have portfolios numbering 50+ seed investments (by comparison i’m up to about 17), with what appeared to be about 40% success rates (exits for value) and multiples on many deals exceeding 100x their investment and achieved in about four years – GULP. OK, they didn’t talk a lot about their failures. However, what seemed to underpin this success was the way they leveraged their networks to create value in these companies….fast, very fast. The Angels in these groups are seriously experienced entrepreneurs and business executives who have influence in their industries and geographic regions. We need to connect to and build these networks.
NZ Start-up Inc must drive faster and harder, to be relevant – it’s mind boggling how fast the best companies grow and the results they achieve in these markets. In NZ we tend to bake, bake and bake and then fire a half-loaded pea shooter at an elephant of a market. I’m not proposing that we load the gun with lots of cash and rush to markets we don’t understand. BUT, we definantly need to spend more time and money in these large markets and leverage local talent and local investors to enter these markets. Our (MOVACs) best performing ventures are the ones spending 50% or more of their time on a plane out of New Zealand. This costs…
The $3million equity gap is endemic across the world – NZ Inc has a real problem in facilitating later stage investment rounds beyond what’s become the typical NZ$250k – NZ$1m Angel round. BUT, this problem exists everywhere! Investors from China, India, Singapore, US, Australia all expressed this problem. The oxymoron is that Asia is considered to be “awash with cash” particularly China and India. BUT, this cash is sitting in large funds chasing US$10million+ deals. So, Angels across the region, are having to dig deep and go further with their investments. From an NZ Inc perspective, Angel Investor groups will need to seriously consider multiple rounds of investment when pulling together deals; and / or focus on deals with a clear and short path to break-even or sale of the business. At Movac we’ve adopted the role of thumb that an NZ business with global aspirations will need a minimum of NZ$3 million across it’s lifecycle.
NZ entrepreneurs easily foot it in this crowd – We had 12 or more pitch sessions at the conference. As a rule “I hate pitch sessions at these conferences cos I attend these conferences to meet other investors and I want to maximize this interaction”. However, it gave me an opportunity to bench-mark the NZ opportunities I’ve seen over the last couple of years versus the “up and comers” from the region and guess what? We foot it, we foot it real well! NZ Companies with experienced and balanced teams (idea + sales + management + experience) have nothing to fear in terms of their ability to foot it and stand out in this region.
Competition for scarce funding is a great driver for deal quality – I spent some time over dinner talking to a very successful Silicon Valley investor. His view on the success of Silicon Valley was = great universities, producing exceptional talent chasing an organized but limited community of investors = hot bed of competition for money and a real sense of urgency. My experience in NZ Inc. is we don’t get this yet – our Universities are geared to creating employees not entrepreneurs.
Cultural sensitivities – Hand over your business cards (and credit cards for that matter) with two-hands and respectively. Receive the business cards with two hands and inspect it graciously. Leave you jeans and tee shirt at home (major challenge for me). Be prepared to pay $15 for a friggin cup of coffee in a hotel (Singapore). The fundamental difference between eastern and western culture is that the West focuses on the individual the East focus on family and community (at least that’s what one of the presenters who’s been successful in both cultures said). Most of the successful entrepreneur / investors that presented were AmeriAsians (is that a word?) – Asians that had worked extensively in the US and Asia.
Interesting comments on the sector – Repeating stuff I heard: India has a rapidly growing middle class that is driving demand for new consumer goods. Mobile penetration outstrips internet adoption in India. Every sector is growing in Asia – it’s easier to establish and build a business in this environment than in established economies – everyone rises on a rising tide. Consumer Internet and Mobile are Hot Sectors for local investors. Investors in China worry about getting their money out of China.
TAKEAWAYS, in summary:
NZ Angels – we need to: a) network, network, network globally and build relationships for the benefit of our investee companies; and b) find a way to more effectively connect the Senior Executive talent pool in the NZ Expat community to our Companies…KEA can help with this, but it needs to be more exclusive and intimate.
NZ Entrepreneurs – work your investors ruthlessly; mine their networks; get them working on your behalf – writing the cheque is just the start.
Carpe Diem.
I have worked in Asia for over 30+ years and have advised many organisations to deal with the cultural differences. I came to NZ 18 months ago, after coming to NZ on holiday in 2007, business friends explained they needed somebody with my background and knowledge to explain to SME’s the way business is conducted in the Asia market. Investment is an essential part of achieving ones goals,but I believe that SME’s in NZ should think about combining there efforts, in relation to costs,knowledge and showing a picture to the specific markets in which the like to sell their products, skills or services. The picture should show an entity, which they have trust in and a capability to succeed. Do not say I like to do business in Asia, that is 27 countries , with another 27 only in China, go 4x for 3 weeks in the first year, built up the trust, do not appoint agents and work with a formula. Have a Business, Strategy and Budget/Finance Plan and try to get the advise of people , who know the market. As I said, investment is, especially in NZ to enter these markets necessary, but it is part of the package and only then success could be achieved.
Inspiring blog & sounds like you had an interesting time Phil, but the received wisdom is that a company needs to get some traction in its home market before going overseas. Do you think that still has much relevance? I definitely agree that NZ Inc has to up its game. Plenty of sound middle management employees, but few dazzling entrepreneurs. Great to hear those we do have can stand examination in the heat of the international pitch!
Yeah, i agree with the perceived wisdom Mark and i struggle to rationalise this one. There will be no right or wrong answers and a new product needs to achieve cost effective validation locally before spending lots on overseas development. Luuk hits on the key point, i think – building offshore networks takes a long time and we need to start this process early. So if an investment case is predicated on significant offshore growth (or capital for that matter), then we need to start the relationship building process at least 12-months ahead of when it’s needed. We also need to find ways (as investors) to build and leverage international networks capable of accelerating our companies into overseas market.
Totally terrific insights, Phil. Lack of abundant capital means entrepreneurs need to work far harder and faster and to leverage every single network to the max. The idea of optimising a company for the NZ market causes many problems in my experience – use NZ as a test market for sure but be prepared to adjust business model, product, packaging, value prop – everything – when you enter the offshore market. NZ Inc needs to really work on being part of these international angel networks and conversations – exactly right, Phil. That way we lift our investment game, get access to global industry expertise and networks, and hopefully to co-investment and eventually great exits.
as a singapore-based entrepreneur, i really enjoyed the post. i’d like to ask, if i may: based on what you saw, from the level of investment available, the level of entrepreneurial & development talent, and the overall ecosystem, would you recommend singapore or nz for a company looking to start up that has the option of doing either?
As a passionate New Zealander my heart says “come to New Zealand”, being practical i think you have a great and growing eco-system in Singapore – NZ is perhaps a little more developed for early staged investment – and you have a very large market at your door step. It would be hard to sacrifice that market access….
thanks for your comments! i appreciate the openness and insight.