Seminar Series gives SMEs clues to securing investment24 April 2018. Posted by Emily Agnew.
Money makes the world go round.
It’s an old saying, the truth (and origin) of which has been endlessly debated. What is unchallengeable is that money – investment - is necessary for businesses to grow and stay the course in a competitive marketplace.
And for existing businesses, as well as start-ups, finding investment money can be extremely challenging. Making sense of the current business investment environment was the purpose of the recent James & Wells seminar series around New Zealand.
The series featured a selection of the country’s top investment minds, who took the seminar attendees through the common pitfalls for those seeking investment to help their businesses get going, grow or simply survive tougher times or setbacks.
Simeon Burnett of Snowball Effect told the audiences there were two main obstacles to companies raising capital: not being able to tell the story of their particular business; and not having robust financial information available for potential investors – in particular evidence of effective cash flow management.
That was echoed by the ANZ Bank’s Andrew Pryde, who said when businesspeople come to banks seeking money for growth they need to be very clear about what the money is for, and provide future financial projections for the business if the investment is made – “We want know what it’s going to look like financially three years out.”
For James Beale of Oriens Capital, businesses did themselves a big favour by “doing their homework” before approaching a potential investor. “Most importantly: know what your business strategy is. How do you propose to compete, be successful and grow?”
New Zealand Trade & Enterprise’s Mike Hanna says it’s also important for businesses to “get their house in order” before approaching investors for funding. “You need to be ready to receive the capital. Investors look for a range of things when considering putting money into a business: correct business procedures, accurate and appropriate business models, accurate market sizing and a compelling team.
“You also need to address any ‘red flags’ that might be there – signs to an investor that something may be an issue that could put their investment at risk.” For that purpose, says Hanna, businesses should call on independent, external advice. “We see a lot of business founders who are great technologists and major players in their sector, but who don’t understand how to raise capital. It’s definitely an acquired skill. The better you get at that skill, the more successful you’ll be.”
Waterman’s Lance Jenkins agrees. “It’s incredibly important for the business seeking investment and the potential investor to have an initial conversation about what is involved in capital raising – the A to Z of it – so both parties understand how it works before they enter into a partnership of any kind.”
Colin McKinnon of the New Zealand Private Equity and Venture Capital Association says there’s currently a big appetite to invest in NZ businesses. “The investment environment is very strong at the smaller end – ‘angels’ and venture capital funds – but we’ve also got a very strong private equity ecosystem, with a lot of funds that are investing in mid-market companies.
“Where we’re short of funding in New Zealand is in the $5 million to $10 million, later-stage venture capital area, though recently there’s been growing offshore interest in that market.”
McKinnon says one advantage of the smallness of the business community in New Zealand – the famed “six degrees of separation” effect. “Businesses and entrepreneurs can build a personal connect with potential investors more easily here since they may already know each other or have a mutual connection, making it easier to locate and raise capital.”
James & Wells founding partner Carrick Robinson brought another important consideration to the seminar discussions: the prime place of a business’s intellectual property (IP) in the whole investment discussions and equation.
For many businesses, says Robinson, IP is the only primary asset they have – in the initial stages at least. “Investors will zero in on that; if it’s not properly defined and protected, it will be very difficult to secure their investment. Insecure IP is a huge risk for investors; if someone else beats the business to the market because they stitched up their IP first – or worse, took it from the company because it wasn’t protected – millions of dollars can go down the drain.”
Businesses attending the seminar sessions supported the testimony from the speakers.
Sequent’s Graham Grant says his company launched a programme 10 years ago to ensure it was always ready for potential investment and updated their systems and processes two years ago. That covered everything referred to by the speakers in the financial and IP area. “To us, it’s good housekeeping to be in that state of readiness.
“You can have a great story as a business but if the evidence isn’t there to support your story – it becomes a bag of holes.”
Erica Crawford of organic winemakers Loveblock emphasised the importance of IP protection. She and husband Kim sold the wine business that bears his name – and the IP around the name was central to the deal, and heavily protected. Ironically, that now means the couple can’t use his name in their own promotions.
The first hurdle to overcome when businesses want to attract investment is engaging in the initial conversation. James & Wells hopes the ‘Turning Innovation into Gold’ Seminar Series helped kick start these conversations for the businesses who attended, resulting in maximum business growth.