It has been an exciting 16 years for the investment arm of The Icehouse. More than $100m has been invested into 165 startups since 2003.
We've invested in technology to re-grow human skin for burn victims, bugs that extract gold from e-waste, software for managing "swarms" of robots, "intelligent" asthma inhalers, an online platform that helps users learn to play music, and much more.
We have had startups compete and win globally and others stumble and fail. Around 130 are still on their journey.
To mark our $100m milestone, we want to share some of the insights we've learned from the founders and investors of some of New Zealand's boldest and brightest startups.
Tips for New Zealand startup founders
1.Do due diligence on your investors
It is so important to attract early investors that can materially contribute to your mission. Relevant technical knowledge is important but so is investment experience. Ask potential investors who they have invested in previously and talk to those founders. Have they invested in more than 5 startups over more than 5 years? Have they invested further in the startups they supported? Did they get involved beyond their money?
2.Learn from other founders a few steps ahead
The best people to learn from are those that have recently faced challenges that you will face. Questions they can help you answer: How much should I pay myself? How do I set a valuation? It is inspiring to hear war stories from others that have built behemoth businesses and made millions. However, you may be surprised to find that your fellow unassuming, not-yet-successful startup founders are the ones that can help you the most.
3.Choose your board wisely
It can be tempting to fill your board with the most marketable A-list investors you can find. Indeed, it can help your brand to have their association. However, it is important to qualify how they can support you beyond their name and money. Confirm they have the motivation to really get involved, will arrive to board meetings well prepared, and have time to do some heavy lifting.
The few startups that have materially outpaced all others in our portfolio have been magnets for everything including talented team members, money, directors and advisors, PR, recognition, and support. Startups don't win because of their original idea or their individual brilliance. They win because they can amass an army of team members, directors, and supporters. In turn the army helps to build the war chest and that war chest helps further fuel the army.
5.Innovate on your business but not on everything
It's hard enough to build a product that people love. Don't distract yourself by innovating things that fundamentally won't move you forward. An example? Employment agreements. There are dozens of examples and templates out there. Unless you have a very real and specific reason for varying them, just leave them alone and get back to business.
Tips for New Zealand investors
1.The golden rule does not exist
Founders have choices. They perform due diligence on their investors, not the other way around. If you've only ever experienced founders falling over themselves for your money then you are either (1) amazing (Let's have a coffee!) or (2) not talking to the right startups. The best thing you can do as an investor is figure out what support founders value beyond your cash, and define how you will deliver this.
2.Don't confuse donations with investments
I have heard some investors say, "There's no hope but I just want to support the founder." That's charitable and called a donation. Pull these funds from your donation bucket and then invest using your angel bucket wisely.
3.Don't throw all your chips on the table
It can be tempting to go "all in" when you come across an exciting startup. Their pitch is slick, they've made great progress, and they have the A-team. What could possibly go wrong? Going well or going poorly, they will come back for more capital. Facebook raised $2b across >10 rounds before they IPO'd. Be prepared to double or triple your original investment in future capital raises.
It can be tempting to take advantage of founders needing cash to secure "bargain" prices that heavily dilute the founders. This can cause founders to lose their motivation because they don't have enough skin in the game. If that happens, the founders will either leave or subsequent investors may dilute your shareholding in order to ensure the founders have sufficient equity. Check that greed isn't overriding what's best for the founder to succeed.
6.Investing in startups is more accessible than ever
There is a massive gap between what people think you have to invest in startups and what's actually needed. Most investors are neither investing a significant quantum in each company (often only $25k), nor investing significant portions of their wealth (often <3%,). There are investors in our funds who have spread $50k across 30 startups.
Final point: it's a long journey with plenty of challenges and risk. If nothing else, make sure you surround yourself with people you like and trust.
Robbie Paul leads the investment arm of The Icehouse which includes Ice Angels, Tuhua Ventures, Eden Ventures, First Cut Ventures and Flux Accelerator. He's invested in more than 80 startups including Parrot Analytics, Shuttlerock, Avertana, and Crimson Education.