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Some unwritten rules of early stage investing

For those new to early stage investing there are rules and there are unwritten rules. Here for your comment is my take on some unwritten rules. What do you think? Know any more to add?

Founders and Co-Founders

Raise money by first building a great business.

Help other founders – and learn from them too. They are the best source of advice.

You are not worth what your shares and company valuation say you are worth, as that value still needs to be delivered – so stick around and deliver. You may not sell down your shares unless it’s a very small amount in later rounds.

Invest essentially all of your own money and time before asking others for theirs. It’s harder for older folks with families, but extend well into your discomfort zone.

The founders who stick around are the ones delivering the value. Don’t think for a moment that you can sell your shares at investment round rates if you leave.

Over-communicate with investors, and don’t forget to thank them. Disclose everything, especially the bad stuff, at investment time.

Fight hard to land investors who are nice people.  Look after them and protect smaller investors’  interests in later rounds.

Make it easy for investors, after proving the value of the company, with an investment valuation that activates the investors to “invest now or miss out.”

 

All Investors

Support the company publicly by amplifying their messages. Any success is because of the founder and team, not you.

Be very careful about offering advice – only do so when it is actually wanted. Value the time of the founders, team and other investors.

Keep things simple so that the founders and the next round of investors are not scared off.

Give firm answers fast – decide quickly and then back up the verbal commitment every time.

Don’t play out of your capacity – if you don’t have the available funds to invest the required amount then step aside quickly.

Answer your emails very quickly and be ready to review and sign documents at any time. Do as much of your own legal work as you can, and use lawyers who are responsive.

Be very patient after investing – early stage investing is a five to ten year commitment no matter what was said at the beginning.

Watch out for FOMO (fear of missing out) driving your decisions. Do your own work to ensure it’s a great investment – don’t take someone else’s word for it.

 

Friends and Family Investors 

You have given your money away and will never see it again. If you get a return be very happy, surprised and say “I was only backing my relative or mate.”

You are supporting the family member or friend because of who they are, so provide no business advice or help unless explicitly asked for.

Sign everything you get handed without complaint. Read the contracts of course, but look only for the big stuff. It’s not your role to question specifics of deals or to hold up deal making.

Early Investors who can lead a round 

Try to make decisions quickly, and let founders know why you will not invest. Be easy work with, respond instantly and don’t be the person holding things up.

Share the offer, if asked, with other investors who also make decisions fast, are likely invest and who have a track record of writing large  cheques.

Make it easy on the founder by focussing conversations on the things that drive or destroy value, not on trying to catch them out with over-zealous due diligence.

Make sure the founders are getting solid legal advice from lawyers with experience in early stage investments. Keep deal terms simple so that legal fees are kept at a minimum, all parties can understand the deal and the next round is easier.

Step away in future rounds when you are out of your league.

Early investors who are, say, <10% of an investment round or under $25,000.

Make decisions fast based on limited information, and sign any bits of paper put in front of you quickly. That doesn’t mean you read the contracts and look for issues, but you don’t have the rights to negotiate the main terms on deals.

Posted in NZ Business | 2 Comments

US Portfolio – 2014

My main investment focus is on private companies in New Zealand, in 2014 through Punakaiki Fund and previous to that directly.

However in the past I’ve occasionally tracked the performance of my US share portfolio, so let’s see how it did in 2014. The amounts are relatively small.

Last year I have very little activity, continuing to hold Berkshire Hathaway (up 72% since investment) since 2008, doubling the amount of Apple shares held (2013 investment up 90%, 2014 up 47%)  and placing tiny bets (puts) on Facebook and Intuit share prices falling (both have lost most of their value, but they are a hedge on the market and sector).

Overall the portfolio was up 29.3% in 2014, easily beating the S&P500 benchmark of 11.39%. I am not able to easily look at prior year performance.

I also invested in Diligent and Xero shares in NZ, gaining marginally on the first and losing a bunch on the second – s0 far.

Posted in NZ Business

Why we need Skypath

My submission on SkyPath, the proposed clip-on high tech walking and cycling path across Auckland Harbour Bridge. I used Generation Zero’s very simple tool. You can too.

  1. Skypath will bring economic benefit to the region, from tourists staying longer and more tourist-related businesses being created as they take advantage of the resource.
  2. Skypath will bring further economic benefit by substituting commuter motor vehicles from the bridge, allowing for more people to commute across the bridge each day without increasing nominal capacity. Skypath is a very low castaway to delay the requirement for alternative cross harbour infrastructure.
  3. Skypath will extend a community of walkers and cyclists from Wynyard through to the bridge, taking advantage of the new path there, and providing world-class environment for social activity outdoors. It will build on and enhance the success of Wynyard Quarter.
  4. Skypath may well help reduce the noise from the motorway for residents under the bridge on the Northern side, providing a physical sound barrier.
  5. Skypath will increase the value of residential and commercial property on both sides of the bridge, especially that property close to either exit. These places will become popular with people who want a quick commute to town.
  6. Skypath will give something iconic for every tourist and local to do, whether it’s a walk to the top or the full loop via Devonport ferry, and may be used to promote travel and economic development in Auckland as a whole.
  7. Skypath will catalyse a network of safe, separated and fun cycling and walking tracks in Auckland, increasing health by getting people out of motor-vehicles and on to physical modes of transport.
  8. Per GenZero’s stock response I do believe that the opening hours should be reconsidered, initially and periodically through-out the lifespan of SkyPath. My own belief is that it should be open 24 hours a day.
  9. The rise of simple and cheap electric bicycles will make Auckland’s streets and the Skypath more and more accessible to a large number of people. Similarly many of our aging population and visitors will need motorised assistance up Skypath, such as electric wheelchairs.
  10. Beyond commuters and tourists, Skypath will open up easy travel between Takapuna and Auckland city, providing recreational access to the beach for the increasing number of downtown dwellers, including myself, and shopping access to the city for those on the North Shore.

Addendum: Just after I wrote this, NZTA Auckland tweeted:

@NZTAAkl: Update: The #crash prior to the #Auckland Harbour Bridge is now clear of lanes.  Congestion is back to Esmonde http://t.co/M2yxdDGkoa ^LT

Posted in NZ Business | 10 Comments

Punakaiki Fund news: New Funding and Vibe Communications

We re-invested in Vibe Communications

I’m delighted to report that Punakaiki Fund this week reinvested in Vibe Communications, bringing the fund’s shareholding to 24%. The remainder of the shares are owned by the executive-founders, CEO and key staff.

Vibe had a fantastic year in 2014, growing their network, launching new products and delivering for customers. It’s the company that’s taken the largest amount of my time as the sheer pace of change is a lot to keep up with.

Great companies are growing

 

Vibe was not alone in their growth: Mindscape, Timely and InfluxHQ also had fabulous years, delivering record month after record month. It’s easy to be a smart investor when you have lead founders like Ryan, Andrew, Jeremy, John-Daniel, Scott, Dania, Davey and Barry to invest your money with.

November Options Round 

We were able to make this second investment in Vibe as we just successfully closed out an options round. Our original private investors from April had the right to buy more shares, and we were very pleased when they collectively invested another $1.5 million, or 98.4% of their options. And we also have an offer out now with selected Exempt investors that is giving us more capital on top of that.

More funding for more companies

We now have money in the bank to invest in another round of companies.* At this stage in our life are generally looking to invest between $100,000 and $750,000 per company per round.

We are always on the lookout for new companies to look at. Our requirements are simple:

1: Well defined end users in a global niche, and a great product that delivers to their needs.

2: Growing revenue from paying customers that shows you know how to grow and keep growing.

3: Smart driven yet balanced founders and team who understand their niche and are in it for the long haul and the right reasons, and who we can trust.

4: Good numbers for investors. Frankly if the first three are in order then this part is easy, and we are pretty easy on valuations and terms when it comes down to it.

We continue to invest with a very long term horizon, a luxury we have as our fund has no defined lifetime. We like simple term sheets, founder-centric arrangements and being able to give help when asked, and stay back when not. So get in touch if you are a founder and are thinking of fund-raising, but maybe after Christmas – and have a good break.

*Of course we do have a wish-list of great companies whose requirements already dwarf our capacity, and who we are talking to. We will keep on our own path to growth so we can increasingly be there when companies need us. 

Posted in NZ Business | 1 Comment

Males only?

Like Vaughan Rowsell, I get asked to facilitate or be on panels and speak at events a fair bit. Actually not quite like Vaughan — he’s incredibly popular, and for good reason.

Vaughan’s publicly announced that he will not accept being on panels with no women. Between us it’s actually a policy that he has privately had for a while.

So have I, although not as strictly as I would have liked.

As a facilitator I, if required, I’ve actively managed panel membership to ensure we have a diverse set of views, thinking about topic, gender and cultural background. Several times I’ve taken the liberty of finding one or two more people to add the the existing panel, with conference organisers always happy to oblige. Sometimes this has even happened on the day, and once, when the sole women panelist was called away 15 minutes before the panel, we found someone just seconds before the event. Step up Alyona Medelyan, who easily proved she was the smartest person in the room (or at least on the panel) at ITx.

It’s harder when you are a just a panelist to influence the membership of the whole panel, but most organisers are happy once you suggest some other people to add. In the web, IT and early stage company sectors this is particularly easy, and Webstock, NetHui, Gather, FooCamp, ITx and pretty much every other conference in our space deserve credit for working hard on diversity. Other industries, such as the finance industry, can be quite a way behind, and this can make for boring conferences. However they are generally very receptive as well.

So I’m delighted that Vaughan has gone public, and am happy to support him with the same policy. Let’s make the diverse panels happen. And like Vaughan, I know plenty of speakers who are not forty-something white males whom I can recommend.

Posted in NZ Business | 1 Comment

Killer Whales in Auckland Harbour

(All photos can used for non-commercial purposes, but if you have ads on your site, are media, otherwise commercial or want to use more than a couple then please contact me.)

It was wonderful to get out on the water today on a friend’s boat, and within seconds of leaving the boatyard we encountered killer whales.

I almost bought my real camera – but these were taken from a small boat with an iPhone.

Folks out on the water were treated to a feast.

These guys were zipping along, and probably saw more than anyone else.

The Vodafone trimaran got pretty close as well. The killer whales went right through the starting line for the Wednesday afternoon race.

We’d stopped pretending to go fishing by this stage.

We should call them Killer Whales not Orca – as “Orca” was a term invented by Sea World to stop people thinking that it was not ok to hold these magnificent mammals in tiny pools in captivity.

They can roam up to 160 km in a day.

We generally waited for them to approach us, then went ahead.

The power and size were impressive.

But this one was a baby I think.

Here, leaving, on the right hand side is a bigger one.

And just after that photo we chatted to one of the guys on the foiling skiffs, and I yelled out “don’t fall in”. So of course he did, but was remarkably composed considering the predators (none have been recorded to kill humans) nearby.

We didn’t catch any fish.

(All photos can used for non-commercial purposes, but if you have ads on your site, are media, otherwise commercial or want to use more than a couple then please contact me. This includes photos posted on Twitter.)

Posted in NZ Business | 1 Comment