KEY POINTS:
nzherald's Business Chat picks the brains of Rod Drury, technologist and entrepreneur with 20 years of international IT experience.
His latest venture Xero, an online accounting solution for small businesses, is due out this year.
If you had one piece of advice for someone starting their
business today and needing capital, what would it be?
Take the money. We hear lots of young people saying: "Hey, look the angel investor is going to take 40 per cent."
I think the thing is, it is serial so it actually doesn't matter how much you dilute to get your money. You want to get the money to get in the game and you are going to have much better ideas as you go through anyway.
So even though you're going to give away quite a bit of equity at the beginning, if you can take the money to get the opportunity to build the intellectual property, then you're in the game.
Through that you'll build networks and just get a whole lot of skills and see in the higher-value ideas when you get into your next one [venture].
So I think unless you've got lots and lots of money right now, you have to think about entrepreneurship as a series of small steps.
How do you balance your desire to hold a meaningful shareholding in your company while satisfying those passive investors coming on board?
That's the thing. I don't think you can expect to hold a whole lot at the beginning but you try to create as much value as you can before you bring investors in.
I see people socialising their business idea before they've got a really good business plan. So they haven't used the opportunity to get their value and intellectual property into that plan. Or you see people trying to show things before the brand has been developed. The brand can be quite a cheap thing to get started, so again you're trading value.
But it goes back to the point, I don't think you can expect to hold a huge amount at the beginning unless you've got the resources. But once you've done a few deals and built up your personal war chest, then you can have the idea and the money and that allows you to own a much larger stake. Then you can do things the way you really want to do them. But you also want to make sure you bring the right people in and make sure people are tied into your success because it's much better to have a smaller amount of a very large thing.
