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Investment is all about focus, proof and people: Insights from the Next program

Wednesday, 16 October 2013 | By Rose Powell

This week’s session of the Next start-up development program was focused on investment, with Adventure Capital co-founder and partner Darcy Naunton presenting to 27 start-ups about investment strategies and business development.


Naunton told StartupSmart he was impressed all of the start-ups were tackling genuine problems, and therefore had real potential if they focused their idea on one target market.


“The focus in my answers last night was on the need to target and hone in on one market. It’s much easier to test by defining your best market and going after them,” Naunton says. “It also means the number of players and stakeholders you need to get onside are much lower.”


Naunton says once an idea is proven, you can approach angel or venture capital investors, and begin expanding across verticals.


“Having traction within a single vertical is enough to approach any investor for funding, provided you understand the similarities and differences of the verticals that are next on your list. This is pretty important, because each market has its own dynamics and culture of doing things,” Naunton says.


The presentation also explored the changes that are required once a start-up founder takes on investment, adding they are considerable.


“You need to be ready for the obligations and cultural change that come when you take on investment and become responsible for someone else’s money. From then on, as director of a company your single goal becomes to maximise shareholder value, even if that’s a detriment to your own goals and lifestyle,” Naunton says, adding most investors expect to be able to exit within five years.


Naunton says for new founders with limited track records, it helps to get in touch early to start building relationships before approaching for funding.


“Investment is a people game, and getting comfortable with your investors should be your top priority. Get in early and set some goals, and then achieve those milestones and communicate it back before approaching for funds,” Naunton says.


He adds it was great to see the start-ups were approaching possible investment pragmatically.


“I was refreshed to see they weren’t all indoctrinated into the Silicon Valley mentality, and the idea that a good idea has the right to investment and enough persistence will make it happen sooner or later,” Naunton says.


According to Naunton, online marketplaces are one of the most common ideas emerging across all levels of the start-up ecosystem, from start-up weekends to accelerator s to funding pitches, but many misunderstand how complicated these are to scale.


“Because it’s quite an easy to understand business model, we keep seeing a lot of marketplace ideas. But they’re really hard to build and scale, and very few successful ones have emerged from Australia,” Naunton says, adding 99designs was the stand out in this space.


Naunton added Adventure Capital saw a lot of value in business to business ideas, especially those that focused on delivering and using data such as business intelligence softwares.


“Another really interesting area is ideas that follow on from the Amazon web services model and carve out particular aspects of the business process, refine it and turn it into a business of its own,” Naunton says.