We need to educate the investors

Startup-image

In the recent Business News corporate finance report for calendar year 2018, I added up over $9.1B worth of equity capital raisings for WA companies, across 504 deals ($18M+ per deal).

How much went to early stage private (Pty Ltd) tech companies?

$28M.

That’s less than 0.3% of total raisings.

So, this proves there IS money in Perth ($9B of it!), but NOT yet for early stage private tech companies. Well, there’s $28M a year, which is not nothing (and MORE than there was a few years ago), but it’s still a drop in the relative ocean.

A company I came across recently – one of the best startups I have seen – told me they went to 130 meetings, and pitched their business 130 times before raising a cent. They had 129 ‘no’s; before a single yes. There was no one I could introduce them too, they’d seen them all.

Where did they raise money from? Singapore. (Everyone in WA and Australia passed.)

Over the past 6 years we’ve seen the development of a pretty strong local ecosystem for startups – startup weekends, meetups, co working spaces, accelerators, incubators, pitch nights, media interest.. etc.

The education of startups & founders is happening and well entrenched. There’s no excuse now for your lonely tech entrepreneur not to know what they are doing – they could wander down to Perth Morning Startup, join the upcoming Startup Weekend or pitch at Perth Angels, Innovation Bay or plus-Eight tech accelerator. They should find their way, knowledge and people if they put their mind to it.

What we need now is the EDUCATION OF INVESTORS.

People with money to invest in businesses need to be taught HOW to do this in the early stage tech sector.

People who’ve made money will fall back on what has worked for them in the past. That’s perfectly natural. And if you are a Perth investor, then that probably means via ASX companies, mining investment & commercial property, whipped up by the brokers of West Perth.

We do not need much to swing the startups’ way to make a material difference.

If we could raise it from 0.3% to just 1% then we would be tripling the amount of investment. To $90M or so a year.

Imagine what that could do.

Not for ASX companies or rushing companies (too early) to a listing. For private, early stage, little or no revenue tech companies that could scale and become the next Canva.

99% can still go to ASX, mines and property. Just carve off 1% of early stage, scaleable businesses, that could “do a Canva” and grow to $1B valuation in 6 years.

By the way, Canva failed to raise money in WA too. They tried, for many years. In the end, a chance meeting with a visiting American VC in Perth set them off on their road, assisted by Lars Rasmussen (ex of Google Maps and then on Facebook). Canva moved to Sydney.

Yes, we need more startup success stories. You can point to a mining billionaire, and several property or ASX multi-millionaires. Business News is full of them. You bump into them walking down the Terrace.

But to get more success stories, we need more early stage investment. We need to ‘throw more darts at the dartboard‘ to see if we can hit some bulls eyes.

I don’t know which ones will succeed, but I know within the 300+ startups in Perth, there could be the next Canva, HealthEngine, Moodle, or whatever.

So, we need to EDUCATE the investors on HOW to invest in startups; how to value them; how to spot the potential wheat from the chaff; how to be patient; how to give advice; how to mentor.

The monied classes have a lot to give in this respect. They also offer more than money; they have hard won experience, contacts and savvy.

Perth Angels do their master classes – which is great! – but in a way they are preaching to the converted. Members of Angel groups.

We need to reach more of those that have money, know they probably need to invest in tech, but have no idea how to start; but are willing.

How do we reach them I wonder?

~~

[Sources: Business News, Techboard]

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5 thoughts on “We need to educate the investors

  1. Of course, I agree with you on this Charlie. Only thing I would suggest is that we also need to get early stage investors to understand that they are investing in the search for and validation of a repeatable, scalable and viable business model, not execution and growth. Anything less is going to waste time, effort and funds of the investor and the founders (and I’ve seen enough of that). Focusing on product development and expecting growth restricts how much the startups can and should pivot and sets them up for a crash and burn (that can only be avoided for a period, even with more money) or to become a zombie startup (going nowhere). For example, changing a customer segment completely may be the wise thing to do if it doesn’t turn out to be big enough or valuable enough. Such a change almost always results in a decrease in sales, traction, etc. but the hope is to find something much bigger. The normal company progress accounting methods don’t apply to startups (since they aren’t small versions of large companies). I have a proposal up before Perth Angels now to explain this to early stage investors (i.e. a deep understanding of Lean Startup and Customer Development) and what they should do and encourage in early stage startups for them to truly be lean but I’ve not heard anything from them as yet.

  2. Good points Charlie. There is a very similar and related situation in my professional world, where tradition business owners/managers fail to see the importance of understanding more about the technology that enables their businesses to be successful. Yes, they have a superficial awareness of the technology, and (often reluctantly) fund their technology departments, but they quickly step away from conversations with any technical depth. If that situation were to change, perhaps they may be better equipped to recognise the value in the investment you refer to. Perhaps we need to educate the business community leaders, in order to generate educated investors?

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