Category: Marketing Insight

A potential investor asked if we have a company registered. I answered an honest “No”. Turns out, this is a good thing. Depending on the deal your strike company structures vary significantly. If you already have one in place it just makes it harder.

Investors prefer a clean slate and honesty. Not two blokes in a garage pretending to be a company who still haven’t sold anything.

Don’t waste your time chasing government grants in Australia. You are wasting your valuable time.

Unless you have a unique technology or patent, they simply don’t want to know you. If you don’t make anything in a factory or employ people, they don’t get it. The type of business that has a chance in the new world they won’t rate. They fail to understand the knowledge economy. They’re bureaucrats for heavens sake, of course they don’t get it. Forget the fact you will be paying your 30% corporate tax rate, or potentially providing employment. It’s also irrelevant that you may have paid hundreds of thousands in tax in the preceding 10 years. No give and take, just take. There is no cash available for people trying to improve themselves or be less reliant on society. Sorry, cash in Australia is only handed out to people who make no economic contribution. 

Any business concept that has a chance in the new world, wouldn’t get Gov funding. Your business needs to live on the precipice. They don’t understand consumer innovation, only production innovation.

 We spend the best part of two months chasing a specific Australian Grant called COMET. The maximum funding available was $50,000, of which it had to be paid back, once the business could afford to do so. It simply turned into a phone call circus and department re-routing exercise.

They want to see two things:

1. Revenue
2. Employees

Oxymoronic,  for a start up.

Type of business’ they want to see:

• Anything to do with China
• Alternative energy
• Assisting indigenous populations
• Apprenticeships
• Patents
• Environmental technologies

All valid in their own right. However, does this mean all future opportunities in the globe pertain to these domains only? No. Don’t let this discourage you. If you feel your passion and ideas are strong. Chase it. I am guessing the Government get it wrong occasionally!

As an entrepreneur invest tour time talking to potential partners, customers, business angels. They will help you get your cash quickest. They are opportunists. The Government are administrators.

Advise, don’t depend on the government. In a politically stable environment such as
Australia they will not determine your success.

During the struggle to get the cash the ‘close knit consortium’ was proposed. It works as follows;

Decide on the size of the raise. Determine how much equity you are prepared to forgo. Determine the number of participants. For example $500k for 40% share, from 20 people. Hence, one parcel of $25,000 would then equate to a 2% stake in the firm. Participants can buy multiple parcels.

Important: More than 20 investors requires a prospectus. 

Your best bet is colleagues. Those who’ve been telling you for 10 years to go out on your own.

The reason is 2 fold:

1. They believe in you and your potential.
2. Vicarious living is alluring.

In addition, you’ll feel less guilty losing the money of a grand standing corporate vassal.

Family – I wouldn’t take their money, as I value our relationship more than their bank balance. If you can only get it from them, you might need to question your business proposition. Two guys in a garage must realise that Macquarie Bank  is hardly about to invite you into their boardroom. You have to leverage connections and be audacious.

When engaging prospects tell them about the 90/9/1 reality:

• A 90% chance of losing their money
• A 9% chance of getting it back
• A 1% chance of making 10 times their cash

The law of candor is largely underrated.  

You will be able to reduce your cost of capital considerably by selling risk in smaller chunks. Risk is bought exponentially. The larger the chunk of risk, the higher the cost of capital.

This is easier than you think. While broaching the topic of funding many of my colleagues have said they will invest a small bundle of cash of $10k – $20k. This is a small risk for bragging rights and the potential to own a bit of the dream. it could be likened to owning shares in a race horse.

Currently we have a list of 20 names ready to go. However, It’s our backup plan. Remember 20 colleagues funding your widget won’t give you expert mentoring, but you may end up with 20 unwanted CEO’s.

It is also possible to put in buy back clauses for their share. Who wouldn’t be hapy with 5 times their initial investment in 2 years?

If any friends are telling you to just do it and stop mucking around, just say “Sure thing, write me cheque for $500K and I will start tomorrow!”