Raising capital, whether through angel investors, high-net-worth individuals, venture capital or private equity firms, is a complex process. EV smart charger manufacturer and software developer, Evnex, and New Zealand’s largest online pet specialty retailer, Petdirect, have both recently concluded successful, and substantial, funding rounds. We asked for their insights to help other business owners seeking investment.
For company founders wanting to know how to make their company attractive to potential investors, NZTE has some sage advice.
NZTE’s InvestNZ points to needing a clear link between your business strategy and the money you are asking for; the possible returns for the investor (how are you demonstrating that your business is scalable); your company’s competitive advantage; that you understand the risks facing your business and that you have an easy-to-understand product/service that solves a problem.
But perhaps most importantly NZTE also points out that investors are looking for a passionate and trustworthy founder.
“Investors want to know who they are backing. You will need to show you have the drive and capability to lead your business through growth,” it says.
And for many business founders seeking investment it seems fair to say the relationship they have with their investor(s) is probably the most important factor when considering an investment.
Petdirect CEO, Dave Anderson tells NZBusiness it’s critical that there is alignment between the business goals and the investors’ investment goals.
“The board plays an important role post-investment, and a strong working relationship and functional board is key.”
Earlier this year, Petdirect received a substantial injection from Pencarrow Private Equity, a firm it has had a relationship with for many years.
“Early on in the Petdirect journey, we built relationships with a handful of parties who were interested in supporting Petdirect. Pencarrow was one of these parties.”
Asked why he felt Pencarrow was interested in his company, David notes the pet category is large and growing, and pet specialty (where Petdirect plays) is experiencing high growth.
“Petdirect has proven that its proposition resonates with consumers – it is now the largest online pet specialty retailer in New Zealand. In addition to growth opportunities … we have a strong management team, infrastructure, and systems already in place to allow the business to scale.”
Pencarrow holds a 42.47 percent shareholding in Petdirect.
Meanwhile, New Zealand EV smart charger manufacturer and software developer Evnex is poised to expand across Australia and accelerate product innovation after a strategic investment in mid-2024.
The Christchurch-based company secured funding from Australian private equity firm Adamantem Capital’s Environmental Opportunities Fund, which partners with organisations that deliver positive environmental impacts.
Evnex founder and CEO Ed Harvey says the investment will unleash growth at a pivotal time as sales for electric vehicles increase.
He agrees that the relationship between investee and investor is hugely important, noting that things can go sour when there is not the right alignment.
But, he says, the longer you can go without raising capital the better.
“That gives you the flexibility to be choosier about who you bring on board [as an investor]. You will need to be working very closely together.”
He says too, you need to be very straight with investors about where you think you will be in 12 months’ time. If you are not, and overstate your prospects, that is often when things can go awry with those putting capital into your business.
Ed tells NZBusiness that Evnex had talked to Adamantem previously but only a few months before seeing them about raising capital.
He explains the boutique private equity firm, which has about $2 billion under management, had an earlier interest around electrification and charging and had looked at a company a bit similar to Evnex, so they had already done their due diligence on the sector before talking with Evnex.
While he can’t say how much they have invested, Adamantem will be taking a majority stake in the business.
The most important steps
As to Dave’s advice to other companies looking to raise funds and what he believes are the most important steps they can take, he says potential fundees should get prepared well ahead of time.
“Ensure there is a business plan, actions identified and monitored, financial management accounts and financial forecasts regularly prepared, key KPIs tracked and reported on, key contracts in place with customers/suppliers, and relevant trademarks secured.”
He says essentially, it means ensuring the business fundamentals are in place.
“From there, it becomes easier to pull together compelling materials about the business, talk to investors confidently, and get a deal across the line.”
Ed says it is a tough environment at present to be raising capital and a lot of good companies are not getting funding.
The first thing he would say to other founders seeking funding is that cash is king. Having revenue and being able to demonstrate that customers are willing to pay for your product/service is important.
Some companies will be looking for capital pre-revenue and will need leading indicators to show how you will be successful.
His other point is around readiness, having materials ready to go to angel investors, private equity and VC funds such as a one-to-two-page summary which covers the high-level details about your business, along with a ‘pitch deck’ – 10-15 slides containing more detail.
Ed notes NZTE recommends both these bits of collateral and having them ready to go before you start seeking capital.
What not to do
As to what he would advise other company owners not to do, Dave says the biggest mistake he sees is companies raising funds too late “when they desperately need the capital”.
“Capital raising often takes much longer than people expect, from preparing materials, pitching to potential investors, getting comfortable with the parties involved, negotiating terms, conducting due diligence, finalising deal documents, and then closing. It generally takes six months, depending on the size and complexity.”
He says by not starting early enough “companies may face tight deadlines for when capital is needed, which shortens timelines and can lead to poor outcomes, as they compromise on things to get the deal done faster”.
When considering his advice to companies on what not to do, Ed says that what investors are investing in, is in the founder and the team, so you need to demonstrate that as a founder you and your team are set up for success.
Investors may be looking for complimentary skills within the leadership team. He says he perhaps went about it the wrong way with his first three team members all having tech backgrounds.
“I am sure we could have been faster [to get funding] if we had offered complimentary skillsets such as sales or marketing, He says while you are at the stage of building a product, founders tend to bring on people with a similar skillset, but if you are all on the, say, tech side of the business you are not really testing the market for your product.
When to say no
But are there times when a company should turn away offers of funding? Dave says it really depends on the needs of the company.
“If the company has the right debt/equity structure based on its profitability and risk profile, and founders have taken capital off the table at appropriate stages to diversify risk, then I would question the need for further capital, outside of strategic investments to open up new channels, markets, acquisitions, or expertise to accelerate business growth.”
He says essentially there needs to be a compelling reason to take funding, “not just because you can”.
Ed says there are definitely occasions when you should say no to funding. It is hard if you have only got one investment offer and if there is not a strong alignment with that potential investor around strategy and culture.
He suggests companies bootstrap for as long as possible, and hope they are in a position where they can get multiple offers. “A bit of competitive tension [between possible investors] is incredibly important.”
Another piece of advice Ed offers is that going global as early as possible is important, so you are not relying on NZ’s very small market.
“It’s one of the things we didn’t do well – not looking outside the NZ market fast enough.”
He says it is important to think about how to scale the business and demonstrate to investors you can do so.
“Too many companies try to do too many things, but occupying a hyper-focused niche and taking that to a wider geographical area can make all the difference. We did the opposite of that and tried to do too many things.”
The firm is now very specialised, focusing on home charging for electric vehicles.
At the time of receiving the latest funding round, Ed had said the company’s mission was to deliver the world’s best home EV charging experience, with the lightest impact on earth “…and we’re now in a stronger position to do exactly that.”
Evnex has installed more than 6,000 home and business chargers across New Zealand and Australia, and forecasts an additional 7,000 units to be sold over the next year across both countries. Its smart chargers are manufactured in New Zealand, featuring locally-sourced components and assembly.
This article was originally published in the September 2024 issue of NZBusiness magazine. To read the issue, click here.
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