Green Lane Digital are a small team of Sydney based angel investors who directly invest in high potential startups and entrepreneurs.
I talk to David Kowalski about the capital raising options for startups in Australia. What he looks for in a startup and the entrepreneur behind it and how other Australian startups can approach and pitch to angel investors like him.
This is an audio interview. Download the interview here
We’re looking to do more interviews with other Australian Entrepreneurs and Investors. If you know someone that we should interview, email us at firstname.lastname@example.org
Summary Notes of the interview:
- The Options for Australian Entrepreneurs to raise capital are:
o Friends & Family,
o Debt Finance (hard to get)
o Angel Groups (like Sydney Angels or Melbourne Angels)
o Pitching events (like Innovation Bay)
o Incubators (like StartMate, Seed Accelerator or Green Lane Digital – who are professional Angel Investors)
- Normally entrepreneurs would come to them when they are looking for capital from some Angels that can add value in the form of experience and connections
- Best to approach the investors through a referral, but can be direct through the investors website. For example the Green Lane Digital website has a structured question form so they can cut to the chase and get the information they need to quickly evaluate a startup
- Approach mistakes can include hype around the investment, not coming through a referral OR turning up at the investors door!
- Only raise the amount for the runway period you need. Otherwise you’d be diluted and the money will just sit in the bank.
- When talking to an investor, the conversation isn’t just about how much money they’ll put in. It’s often around how much time and value they’ll put in. The value is often the experience, network and contacts out of the investors as well as the money.
- The Pitch should include:
o The problem that they are solving
o How are you better than the competition
o Do many people have that problem (do they care, and will they pay for it)
- It’s often the entrepreneur, the person themselves that stands out rather than the idea and the entrepreneur or founding team is often more important than the idea. But in reality good, intelligent, knowledgeable entrepreneurs won’t be running with a bad business idea.
- Successful entrepreneurial traits include: intelligence, good communicators, high energy, persistence and previous success (even in another area in their life). And the stage of the entrepreneurs life is also important – they need to have the time to put into the business
- A good advisory board is great to plug the holes in the entrepreneur’s skills or knowledge and will make the startup more appealing to invest in
- The broad steps they go through to evaluate a startup for investment:
o First meeting – all about identifying the problem, the solution, does anyone care and will anyone pay for it
o Understand the space and the business
o Why the entrepreneurs want the money and what they want to do with it
o You get to a point where you decide you want to invest. Initial term sheet then due diligence. If the business has got customers or potential customers Green Lane Digital like to meet the customers or sit in on some sales meetings
o Reviewing the shareholders agreement and different clauses
o Investment – putting the money in
o Post investment – kick off session to execute all the plans and use of funds. Close involvement for at least the next 3-6 months
- With early stage startups they’re very hard to value financially. So no mathematical formula is used by Green Lane Digital. The valuation process normally involves deciding first how much the business needs to raise, and then coming to an agreement on how much equity the entrepreneurs will give away to the investors for their money and time
- They’d only invest into the startup if there appeared to be a clear 4 or 5 options around exit. But if the business is delivering value to its customers and the customers are continuing to pay money that’s a big tick, there’ll most likely be someone who will buy the business. Things can change in 3-4 years time so focusing too much on the exit at the beginning can be dangerous.
- Green Lane Digital normally invest in consumer facing internet startups anywhere between $100k - $1 million. Normally first round investment would be $100-300k for 20-25% of the business. They like to take 20% + in the businesses so it is worth them putting their time into it.
- Early stage businesses are risky, so they are looking for those home runs! Not 2-3 times return on their investment, they are looking for a lot more than that. $10 million + exits. And with the very early stage consumer facing, go to market type businesses they invest in, it takes a few mistakes and a while to get set up, so it’d normally be a 2 year minimum timeframe, but often 3-4 years to exit.