Right Click Capital
There comes a time in the lives of many start-ups when they need to tap investors for funds to grow. They may need to bring on board expertise they haven’t had by hiring new talent, buy equipment or move out of the garage and into office space. Whatever the reasons, they need to pitch their business to investors and outline why they should part with their money and take a slice of the company. A critical part of any pitch is the pitch deck, a slide show that outlines the essential details of what the business is about. For Gavin Appel from venture capital firm Square Peg Capital, it’s important that entrepreneurs look professional without going over the top with information overload when it comes to pitch decks. “A simple slide deck outlining the key points that investors want to see will lead to sparks of interest and engagement in a conversation to learn more,” he tells StartupSmart. We asked three leading venture capital investors, Appel, Anne-Marie Birkill from OneVentures, and Benjamin Chong from Right Click Capital, what are the key things they want to see in any pitch deck. Here are their responses. Problem Appel says a key question is what is the specific problem a business is looking to solve? “What makes them unique in their approach, how defensible is it, and what does the competitive landscape look like.” Chong says investors wants to know whether the problem is real. “Investors want to know if the problem you’re solving is a big one. They want to know if it’s a large market. They want to know who your customer is. Some investors are very keen to know if it’s a global problem you’re solving.” Solution Birkill says investors want to know how an entrepreneur’s solution will meet a market need. “It is important that the company has a solution that stands well ahead of its competitors to give it the best chance of capturing market share,” she says. “We also need to have a realistic understanding of the state of readiness of the product, as obviously this impacts on the capital requirements of the company.” Birkill also says she wants to see how the solution sits alongside competitive solutions. “I like to see a simple matrix that compares the solution against competitors based on key characteristics that are important to future customers,” she says. Chong says investors want to know if a solution will really solve the problem and if it’ll be difficult for competitors to replicate it. Market size How big is the market opportunity? Birkill says answering how big the market opportunity is, why it is unmet and what portion of the total market a business can address should be part of a pitch deck. “We aren’t interested in investing to address niche markets – we want to know there is a significant market opportunity and that this has been validated through thorough market research,” she says. “We don’t want to hear motherhood statements like `the market opportunity is $1 billion and if we just get 2% of that …’ We want evidence that there has been a thorough and considered evaluation of the market to give us confidence that the opportunity is significant.” Story continues on page 2. Please click below. Appel also says market size is important. “Outlining the size of the market the entrepreneurs are targeting and whether they have a vision for local or global growth will help investors understand the size of the opportunity in front of them,” he says. Traction Is the business already making sales? Chong says investors want to know if the company is already taking cash from customers. “The more cash you’ve taken from customers the more validation you’ve received. They’ll want to know how you’ll keep making sales and the channels of those sales,” he says. Appel says whether the business’s product is in research and development or has been commercialised will determine what stage it’s at. “Based on the stage, outline the key metrics which will vary for each business demonstrating traction achieved and how sustainable the model is,” he says. Traction could also incorporate elements of the company’s business model. “We need to be able to see that the product or service can be delivered into the market at good margins and at volumes that drive a profitable business,” Birkill says. “Too often we see businesses with good traction in their target market that have little prospect of making a profit because (for instance) they don’t understand how to cost their overheads into their pricing model.” Team Who will deliver the business? Who are the management team and what’s their track record? Appel says it’s important to outline to investors who the team is that’s building and running the business and why they’ll succeed. “We are investing in the entrepreneur’s vision, passion and their ability to execute, which combined, are critical elements in our assessment process,” he says. Birkill says that assuming a business’s market opportunity is real and the technology solution is solid, team is most important consideration. “We need to feel we really ‘gel’ with the key managers,” she says. “Does the team have the right skills and experience to deliver the business? Are they passionate and motivated? Can we work together over the next two to five years in a collaborative fashion?” Chong asks how team members will help a business get to its destination. “I like teams with technical and business backgrounds,” he says. “I also like teams where there’s someone who has domain knowledge expertise – they either know the industry or have experienced the problem first hand.” Financials Birkill says these should be “top level” in terms of detail and include key assumptions around things such as market penetration, pricing and staffing. She says this section will also include how much money the company is seeking to raise. Appel says it’s important to understand where the funds raised are going to be spent. “Is it growth capital, in which case the funds will be spent on product development and international expansion,” he says. “Or is it to be focused on marketing to build awareness for customer acquisition? The answer to this will depend on the stage the business is currently at.” Chong says there should be “a clear ask”. “Investors want to know how much money you want and what you’ll use it for,” he says.
Over $US60 billion ($64 billion) worth of investment deals were done internationally in quarter three this year, up significantly from $US23 billion in the same quarter in 2012, with the Asia-Pacific region leading the average deal value with $30.4 million. According to quarter three’s Internet Dealbook produced by Right Click Capital, 985 deals were made this quarter, down from 1248 made in the same period in 2012. In the last year, financial services and transaction related deals were up by 284%, and mobile apps up by 381%. E-commerce deals were down by 36%, and software as a service by 11%. The games industry has slumped with total deal value dropping by 90% since quarter two 2013. Right Click Capital partner Benjamin Chong told StartupSmart the data revealed some interesting target industries for local founders. “There continues to be a lot of interest in mobile apps, so the acquisition and investment amounts have gone up, but there has been a big decrease on games,” ,” Chong says. “There are some amazing success stories but it appears investor appetite for games has waned. Investors are focusing more on serious apps and those that can provide ongoing value to users.” Chong says he was surprised software-as-a-service (Saas) investment trend. “I would’ve assumed software-as-a-service would’ve trended up, so this is definitely one to keep an eye on. I’m still very positive and bullish about SaaS, as for the target business market the model of pay by month makes a lot of sense and anecdotally is taking off,” Chong says. Despite the lower number of deals made, the average deal value (over $81 million) was almost triple 2012 quarter three average (over $27 million). RightClick Capital omitted the multi-billion Verizon deal from the totals as it would skew results, but infrastructure investment boomed on the back of Dell returning to being a privately owned businesses and a series of large deals including the Microsoft-Nokia deal. “Australian founders who have start-ups who can add significant strategic value to these large companies and recent deals should explore the new partnerships to create value for themselves,” Chong says.
Freelancer.com’s $US400 million takeover offer from Japanese recruitment company Recruit Co has attracted plenty of attention. It’s a hefty chunk of money for a company that grew out of chief executive Matt Barrie’s garage. If the $US400 million offer for the global online outsourcing platform is accepted, it’s likely to be one of the biggest technology company deals done in Australia this year. Here are some of the top technology deals in Australia in the past 12 months whose dollar value has been reported, from data compiled by Charles Lindop of KTM Capital: 1. M2 Telecommunications and Dodo Australia, Eftel In March this year M2 Telecommunications bought phone and internet provider Dodo Australia and telecommunications infrastructure company Eftel for $248 million. M2 said in a statement at the time Dodo and Eftel were highly complementary to its “sizeable” consumer division. “The acquisitions are an excellent complement to our consumer division and combined, our business possesses an excellent capability to grow our share of both the consumer and small to medium business market,” M2 chief executive Geoff Horth said. 2. Corporation Service Company and Melbourne IT Melbourne IT sold its Digital Brand Services division to US-based Corporation Service Company for $152.5 million in March. DBS provides online brand protection and consultancy services to global organisations. “While this was not a business that we had specifically earmarked for sale, given the value creation provided by the transaction, this was an opportunity which could not be ignored,” Melbourne IT chief executive Theo Hnarakis said in a statement. 3. William Hill and tomwaterhouse.com UK betting giant William Hill took a punt on bookmaker Tom Waterhouse’s online business last month in a deal that could be worth up to $104 million. Under the deal, William Hill paid $34 million up front, and a potential further $70 million if certain earnings targets are met. “International expansion is a key part of William Hill’s growth strategy and making Australia our second home is our priority,” William Hill chief executive Ralph Topping said in a statement. 4. iiNet and Adam Internet Internet provider iiNet offered to buy South Australia-based Adam Internet for $60 million in August. Telstra had tried to buy Adam but was thwarted by the Australian Competition and Consumer Commission. “We believe that this transaction provides real benefit to Adam Internet’s customers and staff as it aligns them with iiNet, Australia’s leading ISP in customer service,” Adam’s chief executive Greg Hicks said. 5. Webjet and Zuji Travel booking website Webjet snapped up fellow online travel agency Zuji for $25 million in December last year. Webjet managing director John Guscic told SmartCompany the deal represented a unique opportunity to substantially expand Webjet's marketing footprint, particularly in Asia. “We've known Zuji since its inception and we know they’ve built out a very attractive business in Asia and we have a desire to expand into the Asian markets and Zuji has given us the platform to achieve that,” he said. 6. SMS Management & Technology and Indicium In July SMS Management & Technology bought IT infrastructure and managed services company Indicium for $22 million. SMS CEO Tom Stianos said in a statement at the time: “The acquisition of Indicium supports our growing Managed Services and Infrastructure Consulting capability, and meets our strategic imperative to increase our annuity revenue. This is a high growth segment of the market and Indicium will accelerate SMS’ offer of managed services in the cloud market.” 7. Woolworths and Quantium The supermarket giant took a 50% stake in Quantium, Australia’s leading data consultancy, for a reported $20 million in May. Quantium said in a statement it would provide a “wide range of data, analytical, media and software services to Woolworths as well as help deliver customer insights to Woolworths’ suppliers”. And where would the Freelancer.com deal rank among deals in the world? Pretty highly according to data compiled by Australian investment firm Right Click Capital. While it’s nowhere near the $US130 billion deal Verizon Communications has made to buy Vodafone’s 45% of Verizon Wireless this month, or Microsoft’s $US7.2 billion takeover of Nokia, it’s not far off the €360 million ($US477 million) paid by French payment solutions provider Ingenico for online payment provider Ogone in January.
Investment opportunities for Australian web and tech start-ups appear to be brightening with new research showing the Asia-Pacific region is leading the way for deals, as North American investors search for global opportunities. Internet DealBook is a global database that tracks angel, venture capital and private equity investment, along with M&A activity, across internet and technology-related private companies. The database is collated by Sydney-based venture capital firm Right Click Capital, which collects all the information from public news sources. The latest report, which looks at the first quarter of 2013, shows Asia-Pacific leads the regions with an average deal value of US$22.8 million, up from $17 million in Q1 2012. The Asia-Pacific was the only region to experience growth in average deal values when comparing Q1 2013 to Q1 2012, the report reveals. Right Click Capital partner Benjamin Chong says the strength of the Asia-Pacific augurs well for Australia. “A lot more people want to invest in the Asia-Pacific region and that’s being driven by investors in the US, and a smattering of European investors as well, but in large part North American investors wanting to get into the fastest growing part of the world,” Chong told StartupSmart. “Australia is one of the more advanced users of technology in terms of broadband penetration, and in terms of quality of businesses and their maturity in various markets. “For me, Australia has to be up there with the other top five countries in the Asia-Pacific.” A total of 910 deals were tracked from public sources in Q1 2013, down from 925 in Q1 2012. According to the report, North America continues to account for the vast majority of the deals tracked, recording US$7.2 billion, or 75%, out of the US$9.6 billion recorded for all regions. Chong says an increasing number of North American investors are looking at Australia as a gateway to Asia. “Australia, in one sense, is a good place to establish a beachhead operation because they understand the rules of the law. They understand the language here too,” Chong says. “Australia is not a bad place to make your first entry in this region because it’s also in the same time zone [as Asia].” With regard to deals by sector, the report shows the average deal values have fallen in all sectors except in media and eCommerce, which recorded increases of 14.1% and 17.9% respectively when compared to Q1 2012. “What I’d say is that these days, to get involved in an eCommerce-type business, if you’re going to be moving boxes, it requires quite a lot of investment,” Chong says. While the eCommerce sector saw average deal values increase, the number of investments actually decreased. The number of investments also fell in hardware and infrastructure, and mobile and apps. “For me, it was surprising that the games market and eCommerce were down on last year. I think games still have a way to go. “I thought there would be a rush of gold digging not only in computer gaming but mobile gaming… I would say we need to have a look at Q2 data before we come to any conclusions. “Maybe it goes to show – this is speculation – but maybe it’s because there have been a bunch of these game developers that have come [up with other funding] sources.”
Australia had the sixth highest deal volume of any nation last year, according to a new report, which shows total acquisition value in the Asia-Pacific rose 258% from 2011 to 2012.
If you want to secure investment for a technology start-up, it’s natural for your gaze to instinctively settle across the Pacific upon Silicon Valley.
The Asia-Pacific is the second top region for global deals in the internet and technology sector, a new report reveals, with US investors becoming increasingly interested in Australian companies.