Know the Difference Between Angel Investment and Venture Capital

One of the most common questions I get asked by entrepreneurs making their inaugural trips into Silicon Valley is “What’s the difference between angel investors and venture capitalists?” That is not because these two types of investors are unique to Silicon Valley, or that they don’t exist in other countries – but it is really more due to the fact that there are different levels and understanding of what an angel investor really is and then what’s the difference between an angel and a VC.

In some places – including Silicon Valley – people will call an “angel investor” anyone who has put a small amount of money into the company. Parents, relatives and friends who have invested three and four figures have been called “angels”. It’s a nice acknowledgement, but if someone is investing less than five figures, “seed funding” might be a better description.

According to Growthink.com, professional angel investors typically invest less than $100,000 into a company and will fund companies at an earlier stage than VCs. According to Forbes, a typical angel investment is between $100,000 to $250,000. At this level, though, the term “super angel” better applies.

One thing all these definitions of “angel” have in common is that an angel is investing his or her own money. A venture capitalist is investing money from a fund that has been raised on the basis of the strength and reputation of the firm. It is other people’s money and for that reason the investments can be bigger (usually starting around the $2 million mark), but they also have to be more carefully managed.

Angel investing – at any level – is much higher risk. Entrepreneurs seek this funding earlier, often when a product is still in alpha or beta stage. The money raised is often needed to bring the product to its next level or to bring it to market. Because professional angels and super angels are investing less money in any one company, they can often afford to invest in many companies, hoping that one pays off a big return.

VCs, however, are taking a calculated risk with others’ money and are looking for very specific return on investment (ROI). Because many VCs have been entrepreneurs themselves, they also tend to look to make investment in a niche they are most experienced in. That’s why some firms only invest in mobile technology or B2B software solutions. Finally, a VC firm often requests a seat on the board, ensuring that the large investment is closely watched.

ANZA Technology Network works with companies seeking angel funding and venture capital investment. We have assisted many entrepreneurs through the process of understanding why trying to raise earlier angel money might be better than going for venture capital, as well as when it makes more sense to build the business up through seed funding, bootstrapping and sales in order to get into position to pitch for venture funding. And, then, we have also worked with many companies who surprisingly learn that they need neither type of funding and can grow organically.

Javier Lopez is the ANZA Technology Network client manager. He works with our clients and network members to make sure your experience with ANZA’s programs and services are of the highest quality, and he works with potential clients and members to expand our network’s reach. Contact Javier at javier@anzatechnet.com.

Why Redwoods Don’t Grow in Australia

Guest blog post by Tom Sheahan, CEO of Red Oxygen >>>>>>

Redwood Trees: The three redwood subfamily genera are: Sequoia and Sequoiadendron of California and Oregon, USA; and Metasequoia in China. The redwood species contains the largest and tallest trees in the world. These trees can live to an age of thousands of years.

The business environment isn’t much different than the natural one. To grow a good business you need:

• Good, creative , honest, industrious people
• Society that has a rule of law and protects intellectual property
• Supportive public policy
• Deep source of private investment

Australia has many positives that are the basics when establishing a business.

Good, Creative, Honest, Industrious People

You would be hard pressed to find any awards ceremony; whether it is literature, movies or music, absent of an Australia on one of the finalist’s lists.

Rule of Law and Supportive Government

Without a doubt, Australia is one of the most respected and ethical governments and has a very developed legal system, with a strong enforcement of intellectual property. The Australian Government has set up innovate programs to support businesses’ growth: Commercialisation Australia or CA grants, R&D Tax Credits, Export and Marketing Development Grants (EMDG). These are some of the most generous and innovative programs in the world.  The Commonwealth government just recently committed an additional $378 million to Venture Australia.

A Deep Source of Private Investment

This is the Australian Achilles’ heel for businesses in technology and biotech. There always seems to be large amounts available for mining and real estate, but the investment in biotech and technology is miniscule. The past and existing governments under Liberal and Labor recognize this, and have committed public dollars to address this problem. If Australia really wants to grow a Redwood it needs to come from the private sector.

Look at the funding of the following Redwoods:

• Google – raised $25 million in a series A
• Twitter – raised over $600 million in several rounds. Yes, I know their revenues are only somewhere over the $100 million mark and some of the information available is sketchy. Regardless, they have raised a lot of money which would not be available if it were an Australian entity.
• Facebook – raised of $600 million in four rounds with one round of debt.  Facebook is a great example of a disruptive idea given the capital and environment to grow.

I know there have been more failures than successes in Silicon Valley. One recent failure that comes to mind is Color Labs. They raised over $41 million from Sequoia Capital, Bain and Silicon Valley Bank, and according to their website, “Regretfully, the app will no longer be available after 12/31/2012.” They did have a great website and beautiful offices in Downtown Palo Alto while it lasted.

Australian entrepreneurs accept (for now) that there are no $40 million investments to be had  in Australia for an A round, let alone $600 million. The funds in the US will be available for companies that survive and make it to the US. To do that, Australian firms have to prove their business models and become profitable sooner.

There are several examples of successful Australian-started companies; 99 Designs, Atlassian and Red Oxygen. The ones that have raised capital are mature, profitable businesses. Atlassian raised over $60 million in series A from Accel Partners, and 99 Designs raised $35 million from Accel and four individuals. Red Oxygen has only received private money from only US investors. The Aussies that make it to the US for their series A rounds are 6-foot, 4-inch tall first graders, mature beyond their years.

In Australia, there may never be a Google, Facebook or Microsoft, but there will probably never be huge $41 million failures.  However, if Australia wants to grow Redwood trees, the private sector needs to set up and invest!

Tom Sheahan is the CEO of Red Oxygen. He has more than 20 years of experience in the American and Australian IT/Telecommunications industry.  Before co-founding Red Oxygen in 2001, he was the Country Manager for InterVoice in Australia/ New Zealand. Prior to taking over the Australia-New Zealand sales efforts, Tom held various sales and marketing positions with in InterVoice-Brite and Arrow Electronics. Red Oxygen is based in San Francisco, CA.

The Right Fit

Last month I was in Sydney and Melbourne with one of our mentors, Mike Loftus, a serial entrepreneur and the entrepreneur-in-residence at Silicon Valley’s Angels’ Forum. Mike and I met with 50 companies from these two cities, as well as several entrepreneurs who flew in from other states.

ANZA Technology Network’s business imperative on these trips is to find companies that are the right fit for our Fast Track program. So what does the right fit look like?

The Fast Track program is all about speed to market. That means a product has to be ready to fit into its new market. With a market the size of the US, finding the right, first market niche that offers rapid uptake and leads to high-growth is critical. Most products can find the right niche. That is something our Fast Track mentors do well – work with entrepreneurs to get the right product/market fit.

Another consideration is whether the time is right for a company to move to the US. Over the years, we’ve seen too many companies come to America too soon, without the resources required to support growing a global business (usually due to underestimating how long things take). On the other hand, we’ve seen many who have waited too long. These companies continually put off entering the US market until everything is ‘right’ (it never is), and unfortunately, they end up being far too late to market to succeed.

This leads to the last – and most complex – element of the right fit, the entrepreneur. And this is why we travel to Australia to meet in person with our prospective Fast Track clients. Only when we see the passion and belief that an entrepreneur has in his or her business, the determination to win and willingness to learn, do we know we have the right fit.

Every company – and every entrepreneur – is different. That’s why the ANZA Fast Track is not a one-size fits all, but rather a process of making sure that it is right for each participant. That it is the right fit.

Is the time right for you and your company to accelerate your growth in the US market? Send me an email and we’ll set up a time to talk.

Viki Forrest is the CEO of ANZA Technology Network. If you are an Australian or New Zealand business looking for more information on how to expand into the US market, email Viki at viki@anzatechnet.com for more information.

Victorian Companies Fast Track Discount

ANZA offers a specialized version of our Fast Track services to Victorian SMEs with strong global potential across a wide range of innovative technologies including medical technologies, sustainable (environmental) technologies and small technologies (nano or micro).

This offer has been underwritten by the Victorian Government’s $8 million Smart SMEs Innovation Commercialisation Program (ICP), of which ANZA Fast Track services are included. If your business is located in the state of Victoria, and you are seeking to explore new market opportunities in the US or China, please complete this short form so we can contact you directly with more information.

MORE ON FAST TRACK

Fast Track is your business accelerator into the US or China market. Time to market is a top-priority for all CEOs. ANZA has developed Fast Track with this in mind. With the right connections and a laser-sharp focus Fast Track reduces the costs and risks associated with expanding your business into the US or China. Whether it is raising capital, finding distributors or securing new customers, ANZA has the network of experts to work with you to accelerate your success.

Fast Track services include:

• Development of strategic sales and marketing strategies
• Building distribution channels
• Attaining new customers
• Securing capital
• Access to a trusted network of advisors

For an assessment of your US or China opportunity contact us directly or complete this short form.

Back in the US After Starting a Business in Australia

Guest blog post by Tom Sheahan, CEO of Red Oxygen >>>>>>

After living, working and spending 30-odd years in the US, I started a business in Australia called Red Oxygen. I’ve now moved myself – and the business – back to the US. However, I remain deeply connected to the entrepreneurial community in Australia and wanted to share some things that became more obvious to me after returning back to the States.

Perhaps the biggest mistake entrepreneurs coming to the US from another country, and Australians in particular, make is allowing themselves to succumb to ease of familiarity when it comes to dealing with the US market, and not paying attention to the nuances. “It seems like the TV shows/movies and they speak English – then it must be so.”

Market Size

The US covers four/ six times zones (if you count Alaska and Hawaii), with 313 million people. While Australia is roughly the same size as the US mainland, its population is just 22.6 million. The US consumer market is nearly 15x that of Australia.

Language

The diversity of language and people always shocks Australians when they first come to the US. Australians may topically know about diversity in America but are often shocked when they land in a neighborhood, bar or restaurant where no English is spoken.  Their Australian accent may add to their frustration in simple communication and lead to blank, perplexed stares from fellow patrons.

There are over 45 million hispanophones (people who speak Spanish as a first or second language) in the US. Only half of these people speak English as well. That means that there is a Spanish-only speaking population in the US that is the same market size as Australia! There are some parts of the US where there is no need to speak English. There is no official language of the US at the federal level. You may encounter Spanish in almost every state. Tagalog, Vietnamese, Cantonese, Mandarin and French are also popular languages spoken in the US.

Most Australians only think of the US as an English outpost/colony, similar to Australia and don’t understand the complex history of the land. For example, there have been six different flags flown over the state of Texas – Spain, Mexico, France, the Republic of Texas, the Confederacy and the United States, but never a Union Jack.

Culture of Convenience

The US is a huge market, and the 313 million Americans want service and support – now!  They don’t care who helps them. They don’t care if the person who helps them has a non-American accent, or answers the phone in India or Indianapolis. They don’t care if it is via chat, email, voice or SMS. Americans just want their question answered and their problem solved. They won’t wait for Australians to wake up, check their email or answer the phone. They don’t care about learning about different time zones (including those in their own country), how to dial internationally or about figuring out what day it is or time it is where you are. If you’re an Australian trying to do business with Americans from Down Under, be prepared to keep their hours. If you don’t, they will take their business to another vendor.

The Americans were the first to outsource, and are more comfortable with this than Australians. They are very familiar with someone named Raj answering the phone, because it could be Raj from next door or Raj in India. As long as Raj answers the phone at 2pm or 2am, that’s all that matters. The American consumer wants their product or problem fixed, shipped, purchased or solved quickly and efficiently – that’s all.

Personal Style

I remember seeing a group of Aussies getting ready to pitch their big ideas to a group of Silicon Valley venture capitalists. They were all dressed in their Sydney-nightclub best. I kept thinking to myself, poor guys. Sure – Americans love Australians, but when you are trying to do business in a different culture, you must pay attention to the cultural subtleties and adhere to them.

What you wear to an Australian nightclub is not appropriate to wear to a US business meeting. For men, think Mitt Romney or one of his sons. For women, think Michelle Obama or Hillary Clinton, casual dresses with blazers or tailored pantsuits. Yes, I know Mark Zuckerberg wears a hoodie and the late Steve Jobs wore jeans and turtle necks, but they are exceptions – not the rule.

Tom Sheahan is the CEO of Red Oxygen. He has more than 20 years of experience in the American and Australian IT/Telecommunications industry.  Before co-founding Red Oxygen in 2001, he was the Country Manager for InterVoice in Australia/ New Zealand. Prior to taking over the Australia-New Zealand sales efforts, Tom held various sales and marketing positions with in InterVoice-Brite and Arrow Electronics. Red Oxygen is based in San Francisco, CA.

“Getting to WOW!” Webinar with Silicon Valley VC Bill Reichert of Garage Technology Ventures

The Meaning of “Entrepreneur”

The word “entrepreneur” has a variety of meanings depending on where you are in the world.  Here in the Bay Area, the term generally applies to those starting a technology-related business.  The movie The Social Network led to a glamorized image of the tech entrepreneur as a hero of movie star proportions. The un-reality show “Startups: Silicon Valley” pretty much undid all of that and more. (See Pando Daily for the details on that.)

This brings us back to a definition more in line with what’s been written by Mark Suster, an entrepreneur who is now a VC and has a blog called “Both Sides of the Table.” He recently wrote a lengthy description of what it’s really like being a tech entrepreneur and called it “Entrepreneurshit: The Blog Post on What It’s Really Like”.

To sum it up, Mark says,

“It’s not all glamour. It’s mostly not glamorous at all. It’s just something you have to do. Often because you’re unemployable.”

Which isn’t a bad thing. If entrepreneurs were employable in Silicon Valley or just about anywhere, they would most likely find work as engineers, as marketing execs, as COOs, or open or join a biz dev consultancy. But to join those ranks, these people wouldn’t be entrepreneurs. Many leave those jobs to become entrepreneurs, but those who return, who remain “employable”, well they were probably just biding their time between jobs. They had temporarily bought into the un-reality. When the reality of “entrepreneurshit” hit, they ran from the fan.

Those still standing, knee deep or covered in the muck are probably the real deal. At ANZA Technology Network, we work with entrepreneurs who have already survived one very good test on this scale. Having withstood the challenges presented in your own market – be that Australia, New Zealand or elsewhere, and declaring you are ready to bring your business to the US, means you have probably already weathered most of what Mark Suster has described.

You have, to paraphrase:

• Recruited employees
• Signed up paying customers
• Defended your business to tough PR mavens or journalists who want to know why you think you won’t fail
• Convinced your family that putting your heart and soul into your venture for no paycheck and no immediate return on their investments (be it monetary or love and support) is a risk worth taking
• Raised some money

You are, based on all of this, the essence of the meaning of “entrepreneur”. You are forward focused  and ready to take things to the next level. You are, for all intents and purpose “unemployable”. Get in touch with us. We’re ready to work for you.

Javier Lopez is the ANZA Technology Network client manager. He works with our clients and network members to make sure your experience with ANZA’s programs and services are of the highest quality, and he works with potential clients and members to expand our network’s reach. Contact Javier at javier@anzatechnet.com.

New York vs. Silicon Valley

New York or Silicon Valley? It’s the question many startups looking to launch in the US ask themselves. Which area has more to offer a new technology business ready to go after a piece of the lucrative US market? One of our client members Curicon is currently exploring which place is better to launch their US presence. You can read about their journey in the Sydney Morning Herald.

Australian Buzz about Business Opportunities in Singapore

A distinct buzz about Australians doing business in Singapore can be heard. Are these entrepreneurs looking away from the behemoth of business opportunities in China, the world’s most populous market to the tiny island city-state with a population of just 5 million for obvious reasons?

Is the overwhelming nature of doing business in a dominant global marketplace of a billion people vs. doing business in one that has a quarter of the population of its own, yet is full of consumers hungry for startup technology simply more appealing? Does it take too much work to enter the Asian market through China? Are the language barriers and business culture too difficult to navigate for a short-term turnaround vs. doing business in an environment where English is the main language, barriers to entry are reduced due to a free trade agreement and venture capital is easier to come by than in a lot of other places?

Two recent articles caught our attention and support the talk we’ve been hearing about business opportunities for Australians in Singapore. Chris Gawan-Taylor reports to Advance (the leading global network of Australians living abroad) on the pros and cons of doing business in Singapore in their January newsletter. Meanwhile, one of Australia’s best-known investor-incubators, Pollenizer, opened a Singapore hub late last year. Pollenizer, however, is an example of an Australian business looking to seed Singapore startups. And that takes the buzz to a different level.

What are your thoughts about business opportunities in Singapore? Should Australian tech businesses looking for a presence in Asia choose Singapore before of China? Why? We welcome your opinions on this developing story.

Big Money in B2B

I thought I’d start off 2013 sharing something that might indeed be Silicon Valley’s best kept secret. Enterprise is sexy. According to VentureBeat, 80 percent of companies that will IPO are business-to-business (B2B) oriented.

What’s that mean exactly? All the talk about the Silicon Valley “bubble” we may – or may not – be in is focused on the business-to-consumer (B2C) model. These are the companies out there getting the seed money that you’re hearing about. Seed money is “scattered” around in the hopes that a few of the companies will sprout. Most will not. But those that do can reap huge rewards for their investors.

B2C oriented businesses are typically very capital-efficient so we’ve seen them proliferate in countries like Australia where there is scant venture capital.

However, there are also many B2B companies in Australia, New Zealand and other small markets that fit the description outlined in the VentureBeat story.

“…founded in the late 1990s and throughout the 2000s…overnight success isn’t the norm; many of the most successful B2B companies have been around for decades, and have experienced ups and downs…these companies go through tough times and emerge stronger.”

And this is exactly what we’re seeing now – companies emerging with solid revenues, global applicability and at a tipping point where they must move to a large market to find the customer base and investors they need to reap the benefits of their hard work.

Viki Forrest is the CEO of ANZA Technology Network. If you are an Australian or New Zealand B2B business looking for more information on how to expand into the US market. Email Viki at viki@anzatechnet.com for more information.