Finding Start-Up Venture Capital In Australia
Most start-ups spend a lot of time thinking about how to get their hands on some Venture Capital. It’s accepted wisdom that Venture Capital (VC) companies have money to burn but are short on great ideas to burn it on. The consulting firm I used to work for was full of people who knew where the smart VC money was going. People I know in investment banking and legal firms seemed also in the know. Yup lots of people know lots of stuff about how VC firms work so I was quite optimistic about being able to find them when the time came to pitch my ideas to them.
When my brothers and I first began working on Haystack, we kept our other jobs so progress was slow. But after about a year of working nights and weekends, I quit my consulting job and got ready to unleash our ideas on the Venture Capital market. I started by contacting all those people who seemed to know something about VC. Several months later, I was no farther along the road. Slowly I began to realise that Brisbane is not a hot bed of Venture Capital and neither is Sydney or Melbourne. I met lots of wealthy investors and some of them seemed genuine and invested in good ideas. Eventually I met a couple of Angel Investors who did seem kind of interested. But “Nice idea – come back when you’ve built it” was as far as I got.
Eventually after almost a year of networking, I met at last a genuine Brisbane based VC guy – well almost. His VC firm was based in the US, but he still lived in Brisbane for some of the time. This guy’s name is so secret, it would take at least two beers to prise it from me so let’s just call him Bullshitter. By this stage, I could show him all sorts of nifty bits of Haystack technology that my brothers had invented. His response – “Nice idea, I may consider putting in $25k. Come back and see me when you have connected all the bits together.” I left the meeting euphoric. I had met a real VC guy and he was talking about giving us money. Not the $2m I had hoped for but it was a start. I continued to meet with Bullshitter for another year. This guy was always involved in a deal because the $25k or $50k or $100k that he told me could have been mine, had always unfortunately, just been committed elsewhere.
Progress with the Haystack App was steady but slow. By day, I worked in the family ice cream business to earn a living and my brothers did the same in their software jobs. At night we worked on Haystack. For two years we had been building Haystack and chasing venture capital without any luck and then just when I felt that things were going nowhere, along came our first investor – my old boss Brian. I had been meeting him over coffee from time to time to keep him up to date with progress and eventually out of pity or maybe blind faith he agreed to help fund the next stage of Haystack. He maintains he can’t quite remember agreeing to invest but I think I just wore him down with my powerpoint decks.
A few months later, I flew to Silicon Valley to check out the App development scene and then on to New York to meet with two real VC guys that Brian knew. One was a Chinese/American guy called Bob. I googled him and came across lots of clips of him talking on CNN. I also knew that he’d bought a gold mine recently and gold mines aren’t cheap. Bob’s office was near the top of Trump Tower in Manhattan. When I walked into Bob’s office, he was sitting behind a big desk like Michael Douglas in Wall Street. He asked me how much revenue my company had. I told him nothing yet. Bob stood up and told me he didn’t invest in companies without revenue so we should stop wasting each other’s time. Back in the hallway, I checked my watch. I had been in his office for exactly 4 minutes.
My second VC meeting in New York was with an English guy called Gary. His previous venture was a startup which went global. He sold out and then used the cash to set up his VC firm. We met in a small restaurant on the Upper East Side and he took me through his journey and he gave me some solid advice. Gary told me to try and attract investment in small incremental stages rather than in big hits during the early stages. He also told me to be prepared to lose 20% to 30% of the company in each major round of capital raising, which was frightening.
Back in Brisbane, I reset my objectives and focused only on raising enough cash to get to our next stage of development and pay our mounting trademark and legal bills. The bit of Haystack that scanned business cards looked awesome but it still didn’t work together as an integrated product. Brian by this stage was now getting more involved and looking for ways to make sure his own investment wasn’t going down the plughole. He advised us to build a full working prototype and leave it to him to find more investors. I wasn’t sure I wanted to take weeks to build a demo version that we would have to throw away. But we built it and it looked slick and two months later we had three more investors. Two of the guys, I already knew and the other I had seen in newspapers. They liked the technology, they trusted Brian, and best of all – they knew they had a very big chance of losing all their money. That deal seemed strangely attractive to them and all of a sudden another four of their friends were keen to be part of the ride so now we had eight investors. This is what I call Adventure Capital.
All of a sudden, Haystack was looking awesome. We had expanded our development team and the app was getting better and better. I had kept in touch with the few angel investors I had managed to track down and all of a sudden, they wanted to give me money too. The problem was, they all wanted too much of the company for too little money. The essential business model of VC firms and angel investors is to recognise a good idea that is close to launch and jump in with a bit of life saving cash at the right time. The only thing which almost tempted me was the Silicon Valley connections of a couple of the angels, but my old boss encouraged me not to weaken.
Our final investment hurdle hit us just a few weeks before our launch date. We’d always planned to launch on Android and follow up 4 months later on iPhone. Sitting in the Virgin lounge at Brisbane airport one day, I looked around and got a sickening feeling in my stomach. Everyone had iPhones and this was Haystack’s prime target segment – business people that exchange lots of business cards! All our data told me that Android had more market share than iOS and the gap was widening, but it was clear to me in that moment that we had to launch on both platforms simultaneously. And so we went back to the investors and told them we thought we should delay launch until the iPhone app was ready and all of them coughed up a bit more cash to fast track our iPhone version. We hired an amazing guy that builds iPhone apps for MTV and used our extra two months to beta test the Android app. And so far – it’s looking good.
We never did get any money from a Venture Capital firm and none of our investors are what you would call Angel Investors either. Not finding a VC firm to take Haystack seriously was probably a very good thing in the end because chances are the founders would own a lot less of Haystack and have to put up with a lot more interference. With six weeks to go live, our investors are as pumped as the development team and they have all rolled their sleeves up to help us launch with a bang. As for the VC market in Australia…. I know enough to know it’s mainly smoke and mirrors and all a bit too hard. Stick with your own network, develop your idea and fund it in small increments. If you have a good idea and a good team – Adventure Capital will find its way to you.