Author: Dan Khan
Today marks a landmark event for our team with the official launch of our new virtual accelerator and incubator programmes, bringing entrepreneurship support, resources, and mentorship to anyone in New Zealand no matter where they are.
It’s been a long time coming for us, and is the evolution of a vision that I started over 10 years ago with a small group of passionate startup community leaders, that have since gone on to launch Startup Weekend throughout the country, then Lightning Lab, and are now evolving those models to provide the next step on a structured pathway to entrepreneurship.
We’ve been thinking hard about what we see and hear in the startup ecosystem in New Zealand, and aimed to innovate the tired old Silicon Valley or Israeli approaches to growing companies that we feel aren’t the best fit for Kiwi founders.
Our mission instead is to build a new model of startup success that is aimed at making more successful, innovative New Zealand companies focussed on growing revenues rather than investment, no matter where they are in New Zealand.
We figure focussing on revenue-first startups is a much sounder strategy for growing your company here and feels like a smarter, focussed playbook for entrepreneurship in New Zealand. The current narrative that forces you to go big or go home, and exist on large chunks of venture capital so you can chase rainbows and exits might work in Silicon Valley, but rarely does it work for the majority of companies we see here.
To make an exit-first investment strategy work, you need a local oversupply of deep-pocketed enterprises wanting to buy startups and acquire their early technology or product teams, but our corporate innovation sector still needs some maturity to get to this point. So building a startup and taking exit-focussed money (and most of it will be whether you realise this or not), doesn’t seem like the most sensible starting point. But this is often so implicit in our community that many founders rarely stop to question if this is the best capital strategy for their ventures.
That’s why we built the ZeroPoint Model, to embed a different mindset from their own zero point onwards.
We’ve noticed a growing undercurrent of people overseas realising that traditional venture capital isn’t the only way to grow their ventures, and that maximising shareholder value above all else isn’t a fit for everybody.
“I can’t imagine anything less interesting in business than maximizing shareholder value. Yet this is what public companies are pressured — if not legally required — to do. A lot of non-public companies follow the same path towards performance and results.”
— Jason Fried, A loose rant on maximization
Startups being built today have different operating models to what they did in the past. They’re often bootstrapped for longer (take Atlassian, Campaign Monitor, Buffer, and 37Signals as examples); they’re leaner, and require less costs to get up and running, using rapid development techniques like agile, MVPs, and continuous deployment to make updates and quickly learn as they go.
With the advent of SaaS and the proliferation and competition in many markets, we’re seeing companies being able to exist on smaller total addressable markets, whereby they don’t need to enter a market and dominate as much as they did when the Internet had just kicked off and everyone was vying for dominance.
This means that it’s much more reasonable to generate and exist completely on hundreds of thousands of dollars worth of monthly recurring revenues rather than the millions required to return value to a Silicon Valley-style VC.
The ZeroPoint approach is to help startups get to sustainability and profitability faster, to give them optionality over how they grow in future.
When starting a venture, there’s so many different pathways you can choose, all of which have unknown bumps along the way and uncertain outcomes. It’s like trying to solve a depth-first search of a huge computational tree, where only a few of those end leaf nodes result in success. Locking yourself to any particular strategy is super risky, especially one that relies on requiring more and more venture capital to succeed.
So instead of raising money from investors, we’re pushing people hard to raise money from their customers (i.e. good old sales). It’s often the piece of the validation puzzle that many founders leave to the last point, but someone wanting what you’re building so much that they’re willing to pay for it today, is the ultimate test of whether you’re building something someone wants (and as we know that’s the biggest failure of most startups)!
In the #TheNewWay we believe companies we will be built much more on evidence and actual proof that a business exists rather than people assuming it will because of social proof (e.g. my mate invested so I will too).
The two biggest resources most entrepreneurs have are their time and focus, so spending those unwisely working on the wrong product is by far the final nail in the coffin for a founder, whether that’s VC funded or otherwise. We believe that being accountable to evidence and learning objectives of what proof actually looks like is a smarter way to derisk your journey ahead.
In a recent ecosystem review, one of the big capability gaps Callaghan Innovation identified that stymies the success of our founders is the lack of experienced and capable people sitting on boards and mentoring those companies, especially after they’ve raised money.
Our approach to actively working with ventures instead of being hands-off, creates a more dynamic, coaching relationship, whereby we can better guide companies to collect the evidence required to meet the next stage of their growth. In our experience, passive -investment or -governance is not what these companies need, that’s why we’ve committed to work with startups longer and closer to help them reach that meaningful revenue goal.
The Road to Product-Market Fit
When I used to finish up with companies in traditional accelerator programmes, I’d ask them where they thought they were on the way to ‘product-market fit’ and always, companies over-estimated their progress.
So we designed a clear model of innovation accounting that allows us to take the subjectiveness out of where a company is, by creating evidence-based stage gates, so that a company has a clear guide to whether they’re collecting the proof needed to get through each growth stage.
We’ve embedded this pathway in our startup support programmes, reinventing the traditional notion of the classic incubator so that it rightfully covers the very nascent stage of your company and idea development, before finding a product worth building and accelerating.
After running a small pilot last year with a mainly online-focussed programme, we’ve re-developed our programmes into a clear pathway that are more mentor-led with an experienced startup coach working with you during the programme, giving you objective support to the evidence you’re collecting throughout that journey.
The programme is delivered online, with a cohort of other participating ventures, allowing us to bring in expertise from overseas, or other parts of New Zealand as required.
As part of the programme, you’ll get access to our online platform allowing you to track your progress and submit the required evidence to our programme coaches, who’ll then engage in group and 1:1 sessions with your cohort to help you push forward into the next stages of development.
Alongside that we’ve built an online community for ventures who we don’t have capacity to work with directly during our initial programme cohorts, so they can self-serve themselves throughout the process and gain peer support from our venture community.
Who We’re Looking For
We’re looking to work with three small cohorts of ventures over the course of the coming year, allowing us to give them the right focus and maximise their chances of success in working with us.
We’re looking for founders who have an idea (and ideally an early prototype product so we can see their thinking and ability to execute), which can be realized entirely in software and targeting the mass of small to medium businesses here in NZ and abroad. Why those specifically? Because it means you can keep your sales cycles really short and your margins relatively high, and can iterate and learn what the right product is to satisfy your chosen niche.
Applications for our next incubation programme cohort open today, and close at midnight on 14th August 2017 — if you’re interested apply today
One of the key drivers when we developed this programme is how to remove the layers of risk, in what is, an inherently risky process. When we ran other accelerators in the past, you had to give up your job, move to a new town, announce to the world you were working on this thing, only for
it all to crumble down three months later at the end of those programmes (if you were not successful raising money).
Our model instead aims to give you more control over that risk, by keeping the project on the side until it can start generating you some income and you know when the time to make the switch is, but also by staying within your existing support system and community.
This last part is critical for us, as so often we see successful people head off to bigger cities or overseas once they’re ‘successful’, but this just destroys the longer term sustainability of our communities by removing the talent, mentorship, and future investment from them.
In helping build companies that can reach profitability faster and generate revenues, we hope that in staying in the local communities will not only create more jobs, but also bring revenue and focus back to that community.
After all, if you want to create a successful startup or company in New Zealand, why does that mean you have to leave New Zealand’s shores to do it?!
New Models of Venture Capital
As part of that risk, we’re in the process of launching a new way of funding this wave of revenue-generating startups, and our thesis is that these companies don’t need a lot of investor support, but they do need some.
Whilst on the road to generating revenues, there will be some twists and turns along the journey, some of which can be mitigated by keeping your day-job for a time, but eventually you’ll have to be all in on your venture to give it the time and focus necessary to succeed.
But instead of taking large swathes of venture capital and being expected to push hard, hire and grow; our model of investment is different. Instead we’ve created a model of investment that invests smaller, more risk efficient chunks into your company designed more to help you cover some of the cashflow shortfalls along the journey as you build towards sustainable recurring revenues.
To fit a more New Zealand-centric model where exits aren’t going to be the main driver for success, our model instead uses a novel approach to venture debt whereby we invest our time and money at a premium without taking equity, and if you never make it to $1MM annual revenues, there’s nothing to pay back, and if you do, we’ll slowly take our return back as a revenue share until we’re paid out (think of it like progressively paying your investors out of your company). This means that you get to keep 100% of your company from day one and decide how you want to grow and scale over time.
We believe this is a much better approach for both startups and investors, who for many investors that I talk to, often feel like they’re like a charity for startups since they never see any return. In our model investors can still participate in the upside of companies that turn into moonshots, whilst still taking a return for those ventures who tick along at a baseline level of revenue, which traditionally wouldn’t trigger a return in an investment fund.
We’re in the early days of raising our first venture fund so that our ventures don’t have to get distracted for 6 months raising capital whilst they should be head down building their businesses. If you’re an eligible investor and want to find out how to support our founders, please get in touch.
We all know that growing a successful startup takes a village, and that’s one of the key motivations around our model: how to build more sustainable startup communities in New Zealand.
That’s why we’re really pleased to reduce focus on making one massive next great success, but rather focus on making lots of little successes, measuring those by how much revenue those companies are generating back into the economy rather than how much valuation they have on paper.
We’re so pleased to have been successful through Callaghan Innovation’s Founder Incubator Support programme — in fact we were the only new provider in the marketplace to be accepted as a founder incubator partner.
On a personal note, Callaghan Innovation has come a long way in the last few years, whether that’s new leadership, new startup support team members, or finally hearing the marketplace. Their new approach, embracing new models, and taking a regional stance really shows they’re starting to get what’s needed out there for startups to flourish and grow.
We’re so glad to be working with Elena and their team to bring our vision to life and to support MBIE’s Business Growth Agenda to drive economic growth. For our part, we’re aiming to create more successful entrepreneurs that start businesses from-, and we hope, stay- in New Zealand longer to grow their local ecosystems.
And we’re finding new partners who align with our community values every day. Great to be working too with Nick, Jonah, Tracy and the crew at co-working space Bizdojo as a founding partner, who apart from being entrepreneurs themselves, literally creating the co-working movement in New Zealand out of thin air 5+ years ago, have always been massive supporters of the grassroots entrepreneurship movement in New Zealand.
As they’ve expanded up and down the country, they’ve offered founders in our programmes an option to use their facilities as they travel for work — it’s a great partnership which we look forward to doing more events, and offer more connected services with as we develop over time.
“Being part of an active, supportive startup ecosystem is key to helping our startups be more successful, so partnering with like-minded organisations is critical to the success of our ventures, and ultimately the future economic success of New Zealand.”
— Jane Treadwell-Hoye, ZPV Partnerships Lead
We’re excited to be officially launching today a smarter option for startups to grow successful cash-generating businesses using a New Zealand playbook, that we feel better reflects the unique opportunities and constraints of this beautiful land.
If you’d like any further information about our programmes or to apply online, please visit our website at https://0.ventures/
(and one final huge shout out to NZ’s best domain registrar iwantmyname.com for helping us secure what we think is the coolest domain name, 0.ventures, we’ve seen in a while 🙂