15/12/2012
RAISING SMART MONEY IN TECH
The Investor’s Perspective
Research conducted by Kingston Development Australia Pty. Ltd.
Released 15th December, 2012
RAISING SMART MONEY IN TECH: INVESTOR’S PERSPECTIVE
Introduction
Kingston is a global management, technology and investment company advising governments, NGOs,
IGOs and the private sector. Kingston focuses on creating enterprise value and delivering sustainable
business returns through technology and innovation. Kingston works with a large number of start-up
entrepreneurs and investors working as angels, venture capitalists and fund managers around the world.
In late 2012, we wanted to understand what attributes of the entrepreneur and investment opportunities
drive investment behaviour in the Australian investor community. This is part of a 360o review of the
investment ecosystem. We are working to collate insights from all perspectives to help ensure that good
entrepreneurs with good opportunities maximise their chances of finding capital, and that opportunities
are presented in the most appropriate and accessible way for time-poor investors.
This first report looks at the presentation of investment opportunities and the entrepreneur from the
investor’s perspective and highlights key insights that might assist entrepreneurs:
−− prioritize the development of skills, behaviours and attributes
−− frame and position their opportunities
−− prioritize their pre-investment efforts and tasks
We asked a total 44 multiple-choice questions to investors on raising smart money in the technology sector.
These questions related to the entrepreneur’s characteristics, the nature of opportunities presented as well
as the investment environment.
This report will classify two kinds of investor insights based on the survey data and third category
comprised of inconclusive statements where the investment community was divided. We defined:
−− a strong-form insight where 75% or more of respondents agreed or strongly agreed to the statement
−− a weak-form insight where between 50-74% of respondents agreed or strongly agreed to the statement
−− an inconclusive statement where respondent sentiments varied greatly
Highlights
−− O
ur research gives some insight into the investor’s ideal form of an entrepreneur, one who is technical
while being a great communicator; a visionary who has demonstrated the ability to influence yet be
able to be influenced by others and the market.
−− Our findings indicated that investors do not require that the entrepreneur have any tertiary level
education in entrepreneurship, business or a relevant industry.
−− Investors are generally looking for a well-defined and tangible revenue model from the start that can
offer investors a pathway to earn at least 5 to 10 times return on their investment within 5 years.
−− Investors seem to strongly value an entrepreneur’s ability to communicate to a non-technical audience,
deliver a good verbal presentation and demonstrate effective written communication skills.
−− In comparison to views on entrepreneurs, investors tended to assess opportunities on a case-by-case
basis and not hold broad-stroke views on evaluating investment prospects.
© 2012 KINGSTON DEVELOPMENT AUSTRALIA PTY. LTD., A GLOBAL CONSULTING AND TECHNOLOGY DEVELOPMENT COMPANY
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RAISING SMART MONEY IN TECH: INVESTOR’S PERSPECTIVE
Respondents
We selected 46 respondents who identified themselves as technology start-up investors in Australia (93.2%
male, 6.38% female)
The age of respondent: (optional question)
The investor’s prior investment experience (# of cash investments over $50,000 and over $250,000)
© 2012 KINGSTON DEVELOPMENT AUSTRALIA PTY. LTD., A GLOBAL CONSULTING AND TECHNOLOGY DEVELOPMENT COMPANY
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RAISING SMART MONEY IN TECH: INVESTOR’S PERSPECTIVE
Strong-form Respondent Insights
We defined a strong insight to be a statement where 75% or more of respondents either strongly agreed or
agreed.
Statements that were found to be strong-form:
The entrepreneur should…
−− have a well thought out business plan
−− demonstrate leadership skills
−− demonstrate a willingness to learn
−− demonstrate an ability to be coachable
−− be able to deliver a good verbal presentation
−− be able to articulate a clear vision
−− demonstrate effective written communication skills
−− demonstrate technical knowledge in a relevant domain
The opportunity should…
−− demonstrate a clear value proposition to all upstream and downstream stakeholders
−− should have a well defined capital requirement
General experience as an investor:
−− no statements were found to be Strong-form.
© 2012 KINGSTON DEVELOPMENT AUSTRALIA PTY. LTD., A GLOBAL CONSULTING AND TECHNOLOGY DEVELOPMENT COMPANY
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RAISING SMART MONEY IN TECH: INVESTOR’S PERSPECTIVE
Weak-form Respondent Insights
We defined a weak insight to be a statement where between 50-74% of respondents either strongly agreed
or agreed.
Statements that were found to be weak-form:
The entrepreneur should…
−− not necessarily have tertiary level education in entrepreneurship
−− have a well documented business plan
−− have a clear exit plan
−− be investing cash as part of a raising to have skin the game
−− demonstrate a long term commitment to a prior venture or self-directed activity
−− have prior professional work experience
The opportunity should…
−− demonstrate a tangible revenue model from the start
−− have an independent right to exist
−− offer investors at least a 10 times return on investment with 5 years
−− offer investors at least a 5 times return on investment within 5 years
−− be easy to communicate to a non-technical audience
−− operate in a market that is large enough to support multiple competitors
−− be significantly different from other competitors in the market
−− incorporate strong barriers to competition
General experience as an investor:
−− Entrepreneurs do not demonstrate a believable pathway to exit
−− I look for a strong revenue model from the start
−− Entrepreneurs demonstrate a strong enough commitment to the venture
−− Entrepreneurs do not clearly articulate why they need the money
© 2012 KINGSTON DEVELOPMENT AUSTRALIA PTY. LTD., A GLOBAL CONSULTING AND TECHNOLOGY DEVELOPMENT COMPANY
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RAISING SMART MONEY IN TECH: INVESTOR’S PERSPECTIVE
Inconclusive Statements
Statements where no consensus was reached by the investors surveyed:
The entrepreneur should…
−− have a tertiary level education in business
−− have a tertiary level education in a relevant industry
−− have prior entrepreneurial experience
The opportunity should…
−− be significantly different from other competitors in the market
−− not rely on another platforms or existing services
General experience as an investor:
−− I value patents and intellectual property over trade secrets and speed to market
−− I am wary of opportunities that do not have clear competitors
−− Entrepreneurs are not prepared to give away enough equity to make the investment worthwhile
−− I invest in business to business (B2B) over business to consumer (B2C) opportunities
−− I invest in business to consumer (B2C) over business to business (B2B) opportunities
−− Entrepreneurs are often pursuing too many ventures at the same time
−− I will not invest in opportunities where the majority of the capital is to be used for marketing
−− I will not invest any capital in marketing initiatives
−− I am impressed with the opportunities that are presented to me
−− I am impressed with the quality of the entrepreneurs that present to me
© 2012 KINGSTON DEVELOPMENT AUSTRALIA PTY. LTD., A GLOBAL CONSULTING AND TECHNOLOGY DEVELOPMENT COMPANY
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RAISING SMART MONEY IN TECH: INVESTOR’S PERSPECTIVE
Researcher Insights and Analysis
Our findings indicate that investors do not require that the entrepreneur have any tertiary level education
in entrepreneurship, business or a relevant industry. Rather there is preference for street-smarts, hands-on
market knowledge and practical skills, such as the ability to have a well thought-out pathway to market
and a thoroughly considered well-documented business plan. Investors strongly value an ability to
communicate to a non-technical audience, deliver a good verbal presentation and demonstrate effective
written communication skills. This shows that the ability to clearly communicate an idea, venture or
investment opportunity is critical.
The data guides us on the sort of character traits investors are looking for in an entrepreneur. There is a
strong feeling that the entrepreneur should have an ability to influence people, demonstrate leadership skills
and articulate a clear vision. We found that investors believe that the entrepreneur should demonstrate
a willingness to learn and ability to be coachable. These findings together indicate that investors value
a flexible entrepreneur that is not overrun with ego, self-confidence or an unwillingness to incorporate
advice and ideas from their investors. There should be a delicate balance between exerting confidence, a
willingness to listen to investors and to adapt to the changing market.
We found it surprising that investors did not look for evidence of the entrepreneur’s prior long-term
commitment to a previous venture or self-directed activity before making an investment. The investment
time horizon of 3-5 years is commonly held in the investment community. As such, we expected investors
to seek prior evidence of a long-term commitment so that the entrepreneur was less likely to go cold, be
fickle or frivolous, or likely to be distracted by other opportunities. However, in the investors’ experience
entrepreneurs have shown a strong commitment to their ventures post-investment.
This research gives insight into the investor’s ideal form of an entrepreneur, one who is both technical
while being a great communicator; a visionary who has the ability to influence yet be able to be influenced
by others and the market.
We received more dominant views on the nature of the entrepreneur than we did regarding the nature of
opportunities presented to investors. There were only two strong-form results relating to the opportunity
itself, out of the 13 opportunity questions posed. This indicates that investors tended to assess opportunities
on a case-by-case basis and not hold broad-stroke views on evaluating their investment prospects.
Investors did not seem to require that the opportunity incorporate patents or intellectual property over,
say, trade secrets and speed to market. There was a common feeling that the opportunity need not
necessarily operate within a market that had existing buyers and sellers. If the opportunity was going
to operate within an existing market then it should be significantly different from other competitors in
the market. It was surprising to see that there was not a strong feeling that the opportunity needed to
incorporate strong barriers to competition.
In regards to the return investors were looking for, we found that investors are generally looking for a
tangible revenue model from the commencement of trading. Investors are looking to earn at least a 5 to 10
times return on investment within 5 years. Entrepreneurs should thus be able to show investors a clear and
realistic pathway to their expected returns. Related to this, some investors have found that entrepreneurs
do not clearly articulate why they need the money for their venture and this was a priority for investors.
Investors believe that the entrepreneur should have a clear exit plan, but in their experience plans presented
to them are found to be poorly thought-out, generic and/or unrealistic.
© 2012 KINGSTON DEVELOPMENT AUSTRALIA PTY. LTD., A GLOBAL CONSULTING AND TECHNOLOGY DEVELOPMENT COMPANY
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RAISING SMART MONEY IN TECH: INVESTOR’S PERSPECTIVE
Acknowledgements
We would like to thank investors who helped us distribute our survey. In particular, we’d like to thank
Jordan Green, the founder of Melbourne Angels and Chairman of the Australian Association of Angel
Investors Ltd.
Participants who consented to be acknowledged in this report:
Stuart Anderson
Paul Hoff
SYDNEY CAPITAL PARTNERS
NICTA
Jose Carlos Sánchez Bartra
Marin Ivezic
BUSINESS ANGELS CLUB OF PERU
Greg Beaver
Tony Krimmer
20 20 INNOVATIONS & INVESTMENTS
ENTERPRISE CONNECT
Clive Cheng
John Mathieson
CONTADOR CONSULTING
Phillip Curtis
Robert Okabe
ANEXCO PTY LTD
RPX GROUP LLC
Sze Ding
Anthony Painter
GEORGE & KING
BRISBANE ANGELS
Nicolás Erdödy
Greg Riebe
ERDÖDY CONSULTANCY LTD
ENTREPRENEURS IN RESIDENCE PTY LTD
Wayne Fitzsimmons
India Suter
M-GROUP
NEIS SARINA RUSSO
Jordan Green
Russell Yardley
AUSTRALIAN ASSOCIATION OF ANGEL INVESTORS LIMITED
ALGONQUIN INVESTMENTS PTY LTD
ABOUT KINGSTON:
Kingston (www.kdis.com.au) is a global management consultancy and technology company that works
with hundreds of funded technology entrepreneurs around the world.
We are working to collate insights from all perspectives of the investment ecosystem to help ensure that good
entrepreneurs with good opportunities maximise their chances of finding capital, and that opportunities
are presented in the most appropriate and accessible way for time-poor investors.
RESEARCH CONDUCTED BY:
Bonnie Tran
Research Analyst and Executive Assistant to the Managing Director, Kingston
Daniel Wirjoprawiro
Head of Client Services, Kingston
Phillip Kingston
Managing Director, Kingston
Raw survey data is available on request.
© 2012 KINGSTON DEVELOPMENT AUSTRALIA PTY. LTD., A GLOBAL CONSULTING AND TECHNOLOGY DEVELOPMENT COMPANY
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RAISING SMART MONEY IN TECH: INVESTOR’S PERSPECTIVE
Contact Details
Kingston Development Australia Pty. Ltd.
LEVEL 13, 190 QUEEN ST,
MELBOURNE, VICTORIA, 3000
AUSTRALIA
Bonnie Tran
RESEARCH ANALYST AND EXECUTIVE ASSISTANT TO THE MANAGING DIRECTOR, KINGSTON
[email protected]
Daniel Wirjoprawiro
HEAD OF CLIENT SERVICES, KINGSTON
[email protected]
Phillip Kingston
MANAGING DIRECTOR, KINGSTON
[email protected]
AUSTRALIA:
1300 652 998
INTERNATIONAL:
61 3 9670 8822
EMAIL:
[email protected]
WEBSITE:
WWW.KDIS.COM.AU
DISCLAIMER
The information contained herein is of a general nature and is not intended to address the circumstances
of any particular individual or entity. Although we endeavour to provide accurate and timely information,
there can be no guarantee that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.
December 2012.
© 2012 KINGSTON DEVELOPMENT AUSTRALIA PTY. LTD., A GLOBAL CONSULTING AND TECHNOLOGY DEVELOPMENT COMPANY
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