As an investor, the chances are you’re highly unlikely to take a punt on a start-up, but there’s nothing to stop you from keeping an eye on some of the bright young things coming through.
Wellington is into its second year of its Lightning Lab – a digital business accelerator designed to get budding entrepreneurs on the treadmill of chasing commercial success. Of the 100 or so applicants they received, nine were picked to go through a boot-camp culminating in a pitch last week to angel investors for funds.
Sitting through the pitches last week, it was quite easy to see the commercial applications of each group – something you don’t always recognise when some PR guru tries enticing you with a yarn about the latest digital start-up.
It was refreshing seeing a group of largely twenty-something people throw their brains into ventures that could make life a little easier, and maybe make a buck or two – a much more productive endeavour than stereotypes of the millennial generation suggest.
All up, the nine groups were hoping the angels would stump up about $2.24 million, or which five had already secured $740,000 in commitments. That kind of funding would let them either roll out their products or give them a 12-month window to see if they would sink or swim.
It might sound like a big chunk of change to a retail investor, but for an angel, who has to be an eligible person as dictated by securities law, it shouldn’t be the end of the world. Either $2 million in assets or annual income of more than $200,000 for the past two years was the barometer Lightning Lab touted.
For their money, such investors could get either a direct stake in the various start-ups, or buy a note that would convert into equity at a later date.
This might be all well and interesting for angels who have already earned their wings, but why should the retail investor care? Because a good product is a good product - it pays to be ahead of the curve when wondering whether to take a punt.
Of the nine that came up at the Demo Day, two really stood out.
The first was Common Ledger. The group developed a platform to let accountants integrate different accounting software. That might make your eyes glass-over, but if you’re a small business owner, it means you can run your old MYOB accounts in your accountant’s flash new Xero system, without having to copy and paste.
They were looking to raise $550,000 and had attracted half of that in commitments before pitching, which would go to completing a major deal with one of the big four accounting firms, and help pay for their sales and distribution.
But the one that really stuck with me was Cloud Cannon. These two youngsters had developed a platform to make it easier for freelance web developers to create and host websites.
If you don’t hang around any web or design geeks, you probably won’t know the frustration they typically go through to send and upload their final design for a customer. Essentially it’s eight hours of pain-staking graft at the end of what’s already been an arduous process.
Cloud Cannon’s idea was to use Dropbox to cut that time to seconds, in what becomes a drag and drop process.
It’s a simple idea, but also one that would win over the scores of freelance web designers out there if they can get their product down-pat.
These two guys were asking for $450,000, and had also got commitments for half of that, which they wanted to use to hire some staff to help develop add-on products and expand their existing customer base.
Whether either of these companies go anywhere is anyone’s guess, but it’s the sort of canniness that should attract an investor’s attention, because entrepreneurs don’t tend to stop after their first enterprise.
As one of the Lightning Lab’s group mentors pointed out, the most important thing to come from these sorts of accelerator programmes wasn’t a commercially successful product, but rather a commercially successful team.