Entrepreneurs are being encouraged to chase global markets if they want to win backing for their early stage ventures, with investors having their eye firmly set on international markets with little regard for domestic sales.
Massey University Master of Management student Hattaf Ansari worked with the university's start-up incubator – the ecentre – to investigate the criteria of investors in early stage ventures in New Zealand and compared that with similar US data.
Ministry of Business data show small businesses are an integral component of New Zealand's economy, accounting for 97 percent of all enterprise, 29 percent of all employees and an estimated 26 percent of total gross domestic product. However, capital for early stage ventures is not as readily available compared to other western economies, Mr Ansari said. Against that backdrop, the study aims to give entrepreneurs a better understanding of how to present a startup that's attractive to investors in New Zealand.
The research – the first of its kind – was based on a survey of the New Zealand early stage capital market and obtained responses from 88 investors who had invested in New Zealand ventures in the past 48 months. This sample comprised of angel investors, private investors, venture capitalists, members of crowd-funding platforms and members of professional angel groups. The responses were then compared with US research.
"We found investors' priorities were heavily influenced by their culture as well as the characteristics of the market," Mr Ansari said.
He noted both US and New Zealand investors identified trustworthiness and enthusiasm of entrepreneurs among their most important criteria. However, potential for international sales was ranked as the fifth most important criteria whereas potential for domestic sales was ranked as the least important criteria for New Zealand investors. This is in contrast to the results from US investors, he said.
"Most New Zealand investors look for ventures that have international reach and are easy to scale," said Ansari. "While US investors like to see potential in the market where they are based."
He noted New Zealand investors ranked 'liking the entrepreneur at first meeting' as the 16th most important criteria while US investors ranked it as the fifth. The findings suggested this was because New Zealand investors are more cautious when building relationships and take a longer time in getting to know the founders.
Local investors ranked expertise of the entrepreneur as the ninth most important criteria while US investors ranked it as the fourth most important criteria. According to Ansari, New Zealand has fewer investors with start-up experience so there is a preference for teams who have been involved with a start-up before. Investor involvement was also less important for New Zealand investors compared to US investors.
Given the findings of the study, Ansari said entrepreneurs should target international sales to stand a better chance of raising capital from New Zealand investors and shouldn't be discouraged if investors do not immediately express a favourable opinion about the venture after the first pitch.
"New Zealand investors take time in getting to know the entrepreneur and forming relationships. The most important criteria for New Zealand investors was building trust and this takes time," he said. Also, he recommends founders should attract experienced people to their teams to stand a better chance of raising capital from New Zealand investors if they themselves do not have adequate experience.
(BusinessDesk)
Rebecca Howard
Mon, 13 Mar 2017
