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Venture Capital: 2024 Guide to Tech Startup Funding

Venture Capital
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min reaD
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May 29, 2024

Raising venture capital is an important process undertaken by most early-stage startups and emerging companies. Venture capital investment serves as a key driver in the startup ecosystem, enabling tech companies to fuel innovation and grow from an initial concept to IPO.

This guide offers a deep dive into venture capital funding, tailored for entrepreneurs looking to access external investment for their early-stage tech company.

What is a Capital Raise?

A capital raise involves a company seeking financial investment from external sources to support its growth and development. This process is critical for startup companies looking to scale their operations, invest further in research and development, or enter new markets.

In the context of the venture capital industry, a capital raise often refers to securing venture capital funding from angel investors, high net worth individuals and private equity firms, or venture capital firms. These firms provide VC funding to early stage ventures and high-growth companies with the potential for high returns, in exchange for an equity stake.

In addition to accessing VC funding, Entrepreneurs engage with venture capitalists for valuable know-how, industry connections and partnership opportunities, and mentorship.

Importance of Capital

Venture capital serves as a foundation for startups, from new companies still in early concept development to those that have found product-market fit. It provides the essential resources that a new business needs to fund key initiatives at various stages of their journey.

The following are examples of such initiatives:

Build an MVP

Not all Minimum Viable Products (MVPs) are bootstrapped. Many startups developing new technologies seek venture capital from VC Firms like Blackbird and Icehouse Ventures early in their lifecycle, or partner with a Venture Studio to develop the first iteration of their software. This early investment can help fast track the process of turning an idea into a validated product offering, and depending on the investment partner, increase the odds of successfully finding product-market fit.

Fuel Growth

Venture capital can help startups take a more aggressive approach to sales and marketing strategies, accelerating customer acquisition. Investment can also support expanding operations and exploring new revenue opportunities.

Expand to New Markets

Venture capital can enable startups to enter new markets, unlocking additional revenue streams in the process. Market expansion is not limited to geographical borders and can involve exploring new industry verticals, and adapting software to meet diverse customer needs.

Attract Talent

To find product-market fit and successfully execute on an ambitious product roadmap, tech startups will eventually need to attract world-class talent and assemble a high-class product team internally. Venture capital can empower emerging companies to offer potential candidates more competitive salaries, benefits, and opportunities for growth.

Build Resilience

Access to VC funding equips tech startups with the financial buffer to navigate the inevitable challenges they will face, withstand market fluctuations, and pivot their company strategy if necessary. This resilience helps to maintain competitiveness and steer the company towards profitability.

Establish Strategic Relationships

By securing the right venture capital investment, startups can access a network of VC Firms, angel investors, and limited partners who can offer strategic guidance, industry know-how, and both financial and non financial resources to support the business with scaling more effectively.

Types of Venture Capital

When raising capital for your startup, it is beneficial to understand the various options available to ensure you select a funding approach that makes the most sense based on your startup's stage of business, growth ambitions, and the level of involvement you’d like from investors.

Equity Financing

Equity financing is a cornerstone in venture capital. It involves offering an ownership stake in your startup in exchange for capital, granting investors a share of ownership and sometimes a voice in company decisions.

While this pathway brings essential funds into your business it can also open doors to the investors' strategic expertise, expansive industry networks, and potential mentorship opportunities. It's a route that can catalyse growth by connecting you with seasoned professionals who can guide your decision making along your journey.

Debt Financing

Debt financing offers an alternative route for startups looking to raise capital without diluting ownership. Much like a mortgage, this method involves borrowing capital that is to be repaid over time with interest. It's a mechanism that maintains your autonomy and control over the business but comes with the obligation of regular repayments.

For startups with steady revenue streams and the capacity to service debt, this can be a strategic option to fuel growth while retaining equity.

Convertible Securities (SAFEs and Convertible Notes)

For startups in their initial stages, particularly those building somewhat complex new technologies, a Simple Agreement for Future Equity (SAFE) or convertible notes can offer a simple and efficient alternative to traditional equity financing or debt financing.

These instruments initially function as debt but convert into an ownership stake during a future financing round, typically at a discounted rate agreed in advance. This approach is attractive during early-stage funding as it allows tech startups to delay the process of valuation until a more mature stage, minimising early dilution and aligning interests between founders and investors.

Venture Studio Partnerships

Partnering with a venture studio can provides startups with world-class support, expertise in building and scaling a tech company, operational resources, access to a wider network and sometimes venture funding or help to find venture capital.

Venture studios offer their services, in exchange for an equity stake or combination of an equity stake and a reduced fee. This model is beneficial for those startups looking to increase their odds of success and engage strategic partners who will actively participate in their growth journey.

Grants & Subsidies

While not traditionally considered venture capital, grants and subsidies from government entities or industry-specific organisations can provide non-dilutive funding to early-stage tech startups focusing on innovation in sectors like healthcare, fintech and artificial intelligence.

These funds are particularly valuable for early-stage companies that are bootstrapping and tackling challenges or opportunities that align with the objectives of grant-issuing bodies.

Alternative Funding Options

Startups can also explore alternative options like private equity and crowdfunding — each of which have varying levels of involvement, levels of dilution, and funding capabilities.

Stages of Funding

When embarking on a fundraising journey it’s helpful to have an understanding of the different stages at which a business might raise capital. This insight helps to avoid shortsighted thinking, ensuring equity is not diluted too early in a business’ lifecycle.

Pre-Seed

At the pre-seed stage, startup founders typically rely on personal savings, contributions from friends and family, high net worth individuals and accelerators to secure $50k - $300k to fund early product development and prove a need for your product. Startups should explore small business grants, which can provide essential non-dilutive funding without giving up equity.

Seed

Startups looking to raise a seed round have typically developed an MVP and found some form of product-market fit. Funds will enable further product development, market validation, and cover operational expenses. At this stage a startup usually looks to raise $500k - $2m+ from angel investors, and early-stage venture capital investors (like Blackbird, known for their seed investment in Canva).

Series A

When conducting a Series A round, startups are expected to demonstrate scalability and the potential for significant expansion. This stage often involves refining the business model and showing investment funds a convincing approach to growing the customer base to prove long-term viability.

Series B

With solid revenue streams and proven market expansion, a Series B funding round aims to take growth to the next level, focusing on expanding market reach and further scaling operations. This stage attracts investments to support increased product offerings and entry into new markets.

Series C & Beyond

These stages signify accelerated expansion, strategic acquisitions, and working towards market dominance, appealing to investors interested in mature startups with a clear path to delivering a significant financial return. Such funding supports large-scale operations, substantial market expansion, or global scaling efforts.

IPO

An Initial Public Offering (IPO) represents a late-stage transition from private funding rounds to public market financing, offering company shares to the public and significantly increasing the potential investor pool (such as the public’s ability to buy shares in a company like Apple, Google, or Xero). An IPO provides liquidity for early investors and also marks a startup's maturity into a publicly traded company, opening avenues for further expansion and growth.

Please note that this is a simplified overview of the key stages of funding. There can certainly be additional funding rounds or variations to the process depending on specific circumstances (such as going straight from Series B funding to an IPO) and industry practices (such as partnering with a Venture Studio).

The Fundraising Process

Fundraising is seldom a swift process particularly in the early-stages when funding cannot be accessed from larger institutional investment groups who have invested in previous rounds. The timeline for raising capital can vary greatly, typically taking between three to six months, but in some cases, it can extend even longer. It’s important not to underestimate the investment of time commitment required at each stage in the process, as it will pull founders/co-founders away from overseeing the day to day operation of their business.

Key Stages of a Capital Raise

1. Preparation

  • Prepare funding strategy and terms.
  • Prepare pitch deck, key metrics, and research potential VC investors.
  • This typically takes a few weeks to a couple of months.

2. Outreach & Networking

  • Contact investors through networking, events, and platforms such as LinkedIn.
  • This is more unpredictable, typically taking a month or more.

3. Negotiation & Due Diligence Process

  • Negotiate, and undergo investor analysis.
  • This typically takes a couple of months.

4. Closing

  • Review and finalise your term sheet and other documentation, and transfer of funds.
  • This is typically a few weeks.

Variables at Play

The amount of funding you are seeking, the complexity of the deal structure, the state of the market, and the readiness of your business documentation can all play a significant role in the duration of your fundraising process.

Moreover, the type of investors you are targeting - whether they are venture capitalists, angel investors, or financial institutions - can also affect how long the process takes. Generally, raising larger sums of capital or dealing with new institutional investors involves greater complexity and can be more time-consuming.

Common Fundraising Mistakes

Securing venture capital requires more than a great idea; it demands a well articulated strategic approach to avoid common fundraising pitfalls. Below is an outline of several mistakes startups commonly make when raising capital.

Lack of a Clear Business Plan

Investors want a well-defined business plan that clearly outlines your vision, company strategy, market opportunity and analysis, founding team and strategic partnerships, and financial projections.

Inadequate Market Understanding

Thoroughly understand your target audience, key industry trends, and notable competitors to demonstrate market viability.

Targeting the Wrong Investors

Research and target investors who align with your industry, business model, and long-term vision for the company.

Lack of a Strong Team

Build a competent team with diverse expertise, and where possible, a track record of success building successful technology companies to inspire investor confidence.

Poor Financial Management

Demonstrate financial discipline and articulate your financial strategy to instil investor confidence in your business' sustainability.

Overvaluing or Undervaluing your Business

Determine a fair and realistic valuation based on market research, industry standards, and professional advice.

Ignoring Feedback & Advice

Listen carefully and be receptive to investor feedback as their insights and experience can contribute to your growth and fundraising success.

What Investors Look For

While every investor is different, there are certainly common themes they will consider when assessing a new investment opportunity. To increase your chances of securing startup funding, consider these practical tips:

Clear Business Plan

  • Develop a detailed pitch deck outlining your strategy, market approach, competitive advantage, and growth trajectory.
  • Showcase a clear business roadmap demonstrating how funding will achieve specific milestones and ultimately generate a return on investment.

Validation & Market Potential

  • Where possible, gather data to validate a demand for your technology - testimonials, revenue, surveys, user feedback, and industry partnerships.
  • Conduct thorough market research to support claims of the size of the market opportunity and your unique point of differentiation.

Strong & Committed Team

  • Highlight team expertise and track record, emphasising passion, prior experience, dedication, and resilience.
  • Show investors that your team can overcome the inevitable challenges of building a successful technology company and execute the business plan.

Unique Value Proposition

  • Clearly articulate what sets your business apart from competitors.
  • Showcase competitive advantages such as innovative technology, disruptive models, industry know-how, or superior customer experience.

Addressable Market Size & Growth Potential

  • Define the target market size and demonstrate growth potential, especially when considering high-growth markets like China and an American audience.
  • Explain strategies for market capture and expansion, presenting a scalable business model.

Execution & Scalability

  • Showcase execution ability, highlighting achievements, partnerships, and customer acquisitions.
  • Present growth projections that demonstrate scalability and high returns on investment.

Exit Strategy

  • Communicate your exit strategy, whether IPO, acquisition, or other liquidity events.
  • Present a compelling vision aligning with investors' need for return on their investment.

Identifying the Right Investor

In the same way that an investor will consider their investment options carefully, so too should you when evaluating potential investors for your startup. The right investor can help you open doors, enhance your reputation, and scale your company, while the wrong investor can dampen your enthusiasm, slow your growth, and even defraud your company.

Leverage industry events, networks, and online platforms to identify potential investors and fund managers that make sense for your business and evaluate your options using the criteria below.

Industry Alignment

Particularly in the early stages, seek investors with industry-specific knowledge and experience (such as an investor specifically focussed on financial services or artificial intelligence) who understand your business's unique opportunities and challenges ahead.

Startup Experience

Look for investors experienced in supporting earlier stage investment into tech startups, as they can offer mentorship, guidance, and valuable connections.

Value Alignment

Ensure potential investors share your company's values, culture, and long-term goals to encourage their involvement and foster a strong partnership.

Network & Resources

Evaluate potential investors' networks and resources, including their connections in key hubs like New York or San Francisco, as well as their ability to open doors to potential partnerships opportunities.

Track Record & Reputation

Research past investments made by potential investors and the relationships they have with with their portfolio companies to ensure credibility and commitment.

Investment Criteria

Understand investors' preferred VC investment size, their stage investment, and geographic scope to align with their criteria. Some investors may only be active in New Zealand and Australia while others also have a global footprint with offices in Silicon Valley, Boston, California, and New York.

Key Takeaways

Raising capital is about more than just securing money to fund your operation; it's an opportunity to make a strategic partnership that will accelerate your startup's journey and help increase your chances of becoming a market leader.

As you prepare to fundraise, here are a few key takeaways from this article to help guide you.

Define Why You’re Raising Capital

Capital can enable you to build an MVP, expand your market reach, recruit top talent, and strengthen your business against unforeseen challenges. Be clear on the purpose of your startup’s fundraising.

Consider the Different Venture Capital Avenues

Whether it's through equity, debt, convertible securities, or partnerships with a venture studio, the type of funding you choose will have long-term implications for your venture.

Know Where You Are in The Journey

From initial pre-seed funding to Series A and beyond, each stage of investment is a stepping stone towards your ultimate goal—an IPO or a robust, self-sustaining business. Recognise where you are in your longer term journey and avoid short-sighted decision making when raising capital.

Plan Your Fundraising Process

Fundraising is a nuanced process that can stretch over months, it almost always takes longer than expected. It's a commitment that requires a deep understanding of investor expectations and a readiness to adapt your strategy to market dynamics and investor feedback.

Avoid Common Mistakes

Be clear about your business plan and financial needs. Avoid overestimating your startup's valuation and underestimating the importance of a cohesive, skilled team. Investors are looking for startups with a clear vision, market understanding, and sound financial management.

Understand what Investors Want to See

Investors seek startups with a well-defined strategy, a validated business concept, and a capable team. Present your startup as a solution to a market need with the potential for scalability and attractive return on investment.

Choose Your Investor(s) Carefully

The right investor relationship can be transformative. Look for alignment in industry experience, startup expertise, shared values, and strategic resources. An investor's track record and their investment criteria can also be telling of a potential fit.

Scott Kennedy
Co-Founder & UX Director at Edition
Scott has a rich agency background supporting global brands with digital transformation. Today he’s committed to helping ambitious founders shape tomorrow with technology. Weekends are spent gardening with 90's hip-hop in his ears.

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Venture Capital
SAFE notes are a popular financing instrument used by founders of early-stage startups looking to simplify the process of raising capital.
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Raising seed capital can be a significant hurdle for the founders of a new technology company. The Simple Agreement for Future Equity, or SAFE note, offers a straightforward path to funding, standing as an alternative to traditional financing methods or a convertible note.

This article explores SAFE notes, how they function, their key differences from convertible notes, and why they might be a great option for your tech startup.

What Is a SAFE Note?

The SAFE note was first introduced by Y Combinator in 2013 to simplify the funding process for early-stage startups.

Unlike traditional funding methods, SAFE notes eliminate the need to value the business. This is particularly beneficial for entrepreneurs who may not be able to justify a short-term valuation to investors when the company has not yet found product-market fit.

SAFE notes also remove other complexities, such as interest rates, maturity dates, and loan obligations that come with convertible debt. Investors provide capital or services upfront in exchange for future equity in a startup, typically at a discount. The transfer of equity takes place only if a conversion event occurs in the future, such as a financing round of at least $1m, helping to avoid early equity dilution.

How Do SAFE Notes Work?

SAFE notes are designed to streamline the way early-stage startups engage with investors.

Here's a breakdown of how they work:

Initial Investment

Investors provide startups with capital or services upfront, but instead of receiving immediate shares in the company, they receive a promise of future equity. This is where the "simple" in SAFE note comes into play, as it cuts through the complexities of traditional investment terms.

Trigger Event

The note converts into equity only if a defined trigger event, also known as a conversion event, occurs. This event could be the startup's next priced equity round, an IPO (Initial Public Offering), a liquidation event, or another significant event. The conversion is based on a simple set of predefined conditions that aim to benefit the investor, acknowledging the early investor’s support with favourable terms.

Valuation Cap & Discount Rate

These are the two critical elements that dictate the conversion terms.

Valuation Cap

The valuation cap sets a maximum valuation at which a SAFE converts into equity, ensuring they receive a fair share of the company relative to their early investment, even if its valuation skyrockets.

Usually it will be set at the expected valuation at the time of the next trigger event. For example, if you believe you are likely to raise capital for your Series A round at a $20m valuation in 12 months, $20m might become your valuation cap.

Discount Rate

The discount rate is another mechanism that aims to provide investors with equity at a lower price than that offered to investors in the next round of financing. Again, this serves as a reward for the SAFE note holder’s early investment risk.

The most common discount rate used by startup companies in Australia and New Zealand is 20%. However this varies depending on factors such as founder experience, the industry, and whether the trigger event is expected to happen very soon or if it’s unlikely to happen for a long time.

Transfer of Equity

When a trigger event occurs, the notes convert into preferred stock or common stock depending on what was agreed. The conversion price favours the investor by converting at the more advantageous option between the valuation cap and the discount rate outlined in the SAFE agreement.

Benefits of SAFE Notes

There are several founder-friendly reasons SAFE notes make sense for early-stage startups, particularly those who have yet to establish a pre-money valuation, and their investors.

Benefits for Startups

Flexibility

Capital raising through SAFE notes offers the flexibility to secure capital without setting a pre-money valuation, streamlining the fundraising process.

Speed

SAFE notes enable faster closing of funding rounds. This speed allows startups to secure capital when needed quickly and helps new investors join your cap table efficiently.

Simplicity

With fewer complexities than convertible notes, SAFE notes reduce paperwork and legal fees.

Growth Focus

With no interest or maturity dates, startups can concentrate on scaling their business without the burden of debt repayment.

Solvency

Depending on the terms, SAFE notes are typically treated as equity on the balance sheet, rather than debt, thus removing their impact on the balance sheet solvency test.

Benefits for Investors

Early Access to Investment Opportunities

SAFE notes offer investors a chance to back startups early, by simplifying the process of making an investment.

Potential for High Returns

Given the discounted equity and potential for significant valuation increases, investors can achieve high returns on their initial investment if the startup performs well.

Alignment with Startup

The conversion of SAFE notes into equity links investors' success with the startup's growth. Pro rata rights also allow investors to keep investing in later rounds, fostering a partnership-focused approach.

Discounted Equity

Investors might benefit from a discount rate on future equity, enhancing potential returns as the company's valuation increases.

Disadvantages of SAFE Notes

SAFE notes present unique benefits to both founders and investors. However, they also carry specific limitations that founders and SAFE investors should seek professional legal and financial advice to understand fully.

Disadvantages for Startups

Equity Control

Using SAFE notes might result in unexpected equity dilution, reducing founders' ownership stake in their business.

Investor Misalignment

Differences in company valuation and equity conversion expectations can emerge, leading to potential conflicts between founders and investors.

Future Fundraising Complexity

Managing several different SAFE notes with varied terms can complicate later funding rounds.

Disadvantages for Investors

Ownership Dilution

Conversion of SAFE notes into equity can dilute an investor's stake, especially with subsequent fundraising rounds.

Valuation Cap Challenges

Valuation caps might not accurately reflect the startup's potential value, especially if its valuation significantly increases.

Indefinite Returns

With maturity dates, the timeline for realising returns on SAFE notes is predictable, which can complicate investment strategies.

Equity Dilution

Converting SAFE notes into company equity can dilute the existing capitalisation table, potentially deterring some investors.

SAFE vs. Convertible Notes

SAFE and convertible notes are both popular methods used by early-stage startups looking to raise pre seed or seed capital from investors. While similar, there are some critical differences in their structure and terms.

SAFE Notes

  • Equity-like instruments; no valuation is required.
  • Simple and flexible; ideal for fast cost-effective fundraising.
  • Convert into equity during future financing.
  • No interest or maturity dates, minimising direct financial pressure.

Convertible Notes

  • Convertible notes work as debt instruments that convert to equity later.
  • Convertible securities are generally more complex, with potentially higher legal costs.
  • Have interest rates and maturity dates, increasing structure.
  • Offer more protections to investors, like liquidation preferences.

How to Issue a SAFE Note: Step-by-Step Guide

1. Consult Legal Advisors

Imagine your Fintech startup (structured as an LLC) is looking to raise $100,000 Pre seed funding. Although not always necessary, you should ideally consult a law firm that specialises in startup finances and understands the nuances of your industry. They'll help you kick off the SAFE note issuance process by drafting a document tailored to your situation.

2. Define Key Terms

You and your legal team determine critical terms for the SAFE note. In our example, let’s imagine you opt for a $3 million valuation cap, and a 25% discount rate. It is obviously important to ensure these terms are attractive to investors while protecting your startup's future growth potential.

3. Draft the SAFE Note Agreement

Draft the SAFE note with legal guidance to include your chosen terms alongside the specified conversion or trigger event, such as an equity financing round of at least $1 million. You might also consider including milestones that, when achieved, adjust the valuation cap or discount rate.

For a practical starting point, we suggest utilising the SAFE Note template provided by Kindrik Partners.

4. Present the SAFE Note to your Investor

Offer this SAFE note to your potential investors such as angel investors, venture capital firms, or a venture studio. Naturally this needs to accompany a detailed overview of your business and growth strategy, usually in the form of a pitch deck—VCs and other investors must understand the investment vehicle and the vision they're investing in.

5. Execute the Agreement

Assuming your investor is happy with the terms you have presented, you would solidify this through a formal SAFE Note agreement and distribute the signed document to all parties to keep for their records.

6. Equity Conversion

Now let’s imagine 12 months later your startup raises a $1m Seed round of funding at a pre-money valuation of $5m from new investors. This causes an equity conversion to be triggered, as the capital raise meets the $1m trigger event.

To determine the valuation at which the SAFE note will convert at we take the lower of:

  1. The discounted valuation; the seed round valuation of $5m less the 25% discount, which is $3.75m.
  2. The valuation cap; which was $3m.

In this case the valuation cap of $3m is less than the 25% discount on the pre seed valuation of $5m, so this valuation will be used to determine the conversion value. This means the $100,000 SAFE note will be converted to the relevant number of shares at a $3m pre-money valuation.

The SAFE note would convert first, so the $3m pre-money valuation would become a $3.1m post-money valuation. The SAFE note investor would therefore get 3.23% of the company, this is calculated as $100k/$3.1m.

After the SAFE note has converted, the new seed investment capital would come in causing the SAFE note investor to take part in the equity dilution. The new investors would be investing in a $5m pre-money valuation which would become a $6m post-money valuation. For their $1m investment they would get 16.7% of the company, this calculated as $1m/$6m.

The Future of SAFE Notes in Startup Financing

Adoption

While SAFE notes are very common in Silicon Valley and more mature startup ecosystems they are not yet as common in New Zealand and Australia. We anticipate that SAFE notes will continue to gain traction in Australasia as our startup ecosystem matures. Their appeal lies in their simplicity and the benefits they afford both parties which is crucial for the tech sector which needs to prioritise speed and innovation.

Evolution

SAFE notes will likely continue to evolve. We expect to see new types of SAFE notes that address the changing needs of startups and investors alike, potentially incorporating more standardised terms and offering nuanced investor protections.

Alternatives

SAFE notes will likely inspire the creation of new financial instruments. These alternatives could refine or redefine the terms of engagement between startups and investors, providing more tailored solutions to industry-specific challenges. It will be interesting to see Blockchain technology's impact on startup fundraising.

Continued Relevance

At their core, SAFE notes embody the principles of flexibility, efficiency, and alignment of interests. These qualities are highly valued in the startup ecosystem and are likely to ensure their continued popularity and relevance.

Key Article Takeaways

SAFE notes have become an important funding tool, especially for early-stage companies. They protect startup founders from premature equity dilution and avoid having to value a business on day 0. They also provide an efficient mechanism for investors to invest in high return opportunities without upfront negotiation on valuation.

Read some key takeaways from this article:

  • SAFE notes are legal instruments used in seed-stage financings that give investors the right to convert their investments into equity at a later date.
  • SAFE notes offer advantages for startups, such as flexibility, streamlined processes, and no interest or maturity date. They also offer discounted equity and potential preference during asset distribution for investors.
  • While SAFE notes have risks and limitations, conducting thorough due diligence and seeking professional advice can help mitigate potential drawbacks.
  • SAFE notes differ from traditional convertible notes regarding interest payments, repayment, company valuation, and debt versus equity representation.
  • The future of SAFE notes in startup financing looks promising due to their simplicity, flexibility, and investor-friendly features.

Venture Capital
Looking to raise capital? Explore NZ’s top Venture Capital firms fuelling technology startups in 2024.
min reaD

In the last decade, New Zealand's tech startup ecosystem has experienced an extraordinary surge. Venture capital (VC) firms have emerged as instrumental partners, reshaping the trajectory of technology startups and propelling them toward significant valuations and IPOs on the NZX and beyond.

However, despite an abundance of VC firms eager to invest in innovative and forward-thinking startups, information on New Zealand's venture capital and angel investment landscape remains elusive, scattered, and outdated—with crucial insights hidden behind paywalls.

In this article, we present a comprehensive guide, shining a spotlight on the top VC players that are actively supporting and fuelling the growth of technology startups in Aotearoa in 2024.

Aera VC

  • Stage: Seed, Series A, Series B
  • Focus: Climate & Sustainability, Deep Tech
  • Notable Investments: Solugen, 54Gene, Aqua Cultured Foods
  • Location: Auckland (NZ), Singapore
  • Website: aera.vc

Aera VC stands at the forefront of deep technology and sustainability investments, propelling the world towards a brighter future. They proactively identify and support visionary founders and teams dedicated to addressing pressing global challenges like climate change. With a VC fund that has a global network and unwavering commitment to positive change, Aera VC positions themselves as an exceptional partner for early-stage ventures tech startup companies striving to make a meaningful impact on a global scale.

AirTree Ventures

  • Stage: Seed, Series A, Series B
  • Focus: Technology, SaaS
  • Notable Investments: Canva, Linktree, Employment Hero
  • Location: Sydney (Australia)
  • Website: airtree.vc

AirTree is driven by a mission to provide unwavering support to Australian and New Zealand founders from the very beginning, firmly believing in their audacious visions. As dedicated long-term partners, AirTree Ventures goes beyond funding; they actively assist portfolio companies in essential recruitment endeavours, offering expert guidance on organisation design, employee experience, and compensation strategies. Additionally, founders gain access to a valuable network of experienced individuals who understand the intricacies of scaling startups.

Blackbird Ventures

  • Stage: Pre-Seed, Seed, Series A, Series B, Growth, IPO
  • Focus: Technology
  • Notable Investments: Canva, Zoox, SafetyCulture
  • Location: Melbourne (Australia), Sydney (Australia), Auckland (NZ)
  • Website: blackbird.vc

Blackbird Ventures, one of the largest and most active venture capital funds in Australia, focuses on supporting ambitious startups with a vision for global impact. They target technology companies that have the potential to generate over $100 million in annual revenue and have a strong track record of success. With a discerning eye for tech-driven startups with a lean capital requirement and high potential for rapid scaling, Blackbird Ventures commits to supporting founders from inception. They provide an exhaustive suite of resources, networking platforms, and programs to enhance startup success. Though they often lead investment rounds, they're also open to co-investment with other venture capitalists and making initial investments alongside angel investors through their angel networks.

GD1

  • Stage: Pre-Seed, Seed, Series A
  • Focus: Deep Tech, SaaS, Hardware, Connected Hardware, Healthtech, Web3
  • Notable Investments: Foundry Lab, Zenno, Orbica, Dawn Aerospace, Auror
  • Location: Auckland (NZ)
  • Website: gd1.vc

GD1 (Global From Day One) is a VC firm that adopts a "bottom-up" approach, supporting exceptional insights-driven, science and engineering-anchored New Zealand companies within Aotearoa’s vibrant, diverse tech ecosystem. GD1 boasts a globally experienced team (ex-founders, operators, engineers, and investors). Their portfolio companies gain access to leading global technology hubs and extensive connections to support market entry on a global scale. GD1 also provides comprehensive support from in-house advisory experts specialising in various aspects of the growth journey, from capital raising to go-to-market strategy and operational excellence.

Hillfarrance

  • Stage: Pre-Seed, Seed
  • Focus: Gaming, Software, AI & Machine Learning, Climate Change
  • Notable Investments: Scannable, Partly, In Game Collectibles
  • Location: Auckland (NZ)
  • Website: hillfarrance.com

Hillfarrance is an early-stage VC firm that invests in audacious Kiwi founders driving innovations in media, gaming, artificial intelligence, and climate change. With a strong emphasis on the pre-seed and seed funding stages, Hillfarrance provides invaluable support through connections, networking, and operational expertise. Setting themselves apart, they allocate 20% of their returns to portfolio company founders, fostering a collaborative environment and shared success. Additionally, they offer assistance in areas like connections, business development, human resources, and founder/co-founder well-being support.

Icehouse Ventures

  • Stage: Pre-Seed, Seed, Series A, Series B, Series C
  • Focus: Sector Agnostic
  • Notable Investments: Halter, FirstAML, Hnry, Sharesies, Caruso
  • Location: Auckland (NZ)
  • Website: icehouseventures.co.nz

Icehouse Ventures is a VC firm dedicated to supporting brave Kiwi entrepreneurs in their journey to build global companies from New Zealand. Icehouse Ventures looks for founders with unique insights and deep domain expertise, aiming to build industry-disrupting global companies, particularly in the tech sector. They have a team of experienced advisors and investors who are committed to providing guidance and helping innovative businesses grow and thrive—with a specialised community, called First Cut, for founders under 30. Their portfolio companies gain access to a wide network of resources, including other portfolio companies and investors, for talent acquisition, guidance, follow-on capital, and valuable insights to help their company thrive.

Movac

  • Stage: Pre-Seed, Seed, Series A, Series B, Series C
  • Focus: Medical Devices, SaaS, Deep Tech, Healthcare, Aerospace
  • Notable Investments: Vend, TradeMe, Mint Innovation, Dawn Aerospace
  • Location: Auckland, Wellington (NZ)
  • Website: movac.co.nz

Movac stands as one of New Zealand's most experienced technology investors, having actively supported Kiwi entrepreneurs since 1998. Their mission centres around tackling challenging problems in large markets, providing comprehensive support to tech teams throughout their entire journey. With a wealth of functional expertise, global connections, and extensive experience in commercialising and growing businesses, Movac is dedicated to empowering startups to reach their full potential.

NZ Growth Capital Partners

  • Stage: Pre-Seed, Seed, Series A, Series B
  • Focus: Technology, Healthcare, Clean Energy
  • Notable Investments: LanzaTech, Narative, Kami
  • Location: Auckland (NZ), Wellington (NZ)
  • Website: nzgcp.co.nz

NZ Growth Capital Partners (NZGCP) is a government-owned investment firm dedicated to supporting innovative and high-growth businesses and driving innovation in New Zealand's entrepreneurial ecosystem. With a commitment to fostering economic growth, they provide patient capital and strategic guidance to help companies realise their growth potential. NZGCP offers tailored investment funds for different stages of a company's development. Through their impactful investments, NZGCP plays a pivotal role in fuelling economic growth and propelling New Zealand's innovation landscape forward.

Outset Ventures

  • Stage: Pre-Seed, Seed, Series A
  • Focus: Deep Technology (Energy, Hardware, Biotech, Aerospace, Advanced Materials)
  • Notable Investments: Open Star, Dennison Technologies, Vertus Energy
  • Location: Auckland (NZ)
  • Website: outset.ventures

Outset Ventures is a dynamic venture capital firm and deep technology incubator specialising in specialising in early-stage founder-led science and engineering startups. They are the only New Zealand based deep technology investors with an in-house laboratory and workshop facilities. Their experienced team and investment committee bring capital, a vast network, and industry expertise to help their portfolio companies thrive.

Pacific Channel  

  • Stage: Seed, Series A, Series B
  • Focus: Climate & Sustainability, Automation, Food & Beverage, Industrial, Deep Tech
  • Notable Investments: Tasmanion, Geo40, CropX
  • Location: Auckland (NZ)
  • Website: pacificchannel.com

Pacific Channel is a New Zealand-based venture capital firm dedicated to supporting groundbreaking science and advanced engineering deep tech companies that address significant global challenges. With a thematic focus on improving quality of life, future of food, sustainable economy, and automation, they provide capital, expertise, and networks to companies at various growth stages. Pacific Channel's portfolio reflects their commitment to solving complex problems and driving positive change for a better future.

Phase One Ventures

  • Stage: Pre-Seed, Seed
  • Focus: SaaS
  • Notable Investments: Cotiss, Sugar Wallet, EasyRent
  • Location: Auckland (NZ)
  • Website: phaseone.ventures

Phase One Ventures is not just a venture capital fund. It's a community of early-stage company founders, a product and growth incubator program, and a committed supporter of the next generation of innovative New Zealand businesses. With a vision of creating a thriving and vibrant startup community, Phase One Ventures helps founders achieve product market fit, crystallise their vision, and identify growth engines. They provide pro bono support through mentorship, expert sessions, social catchups, and bi-weekly office hours, while also providing investment opportunities to companies that demonstrate significant progress.

Punakaiki Fund

  • Stage: Seed, Series A, Series B
  • Focus: Technology, SaaS
  • Notable Investments: Whip Around, Vend, Timely, Couchdrop
  • Location: Auckland (NZ)
  • Website: https://punakaikifund.co.nz/

Punakaiki Fund is one of New Zealand's original and most prominent venture capital firms, known for its early-stage venture investments with high growth potential. Founded in 2013, they offer more than just funding, providing mentorship to support startup success. While Punakaiki Fund has a wide investment mandate and seeks a diversified portfolio, they find B2B SaaS business models particularly attractive and have a strong track record in this space with notable investments in Vend, Timely, Moxion and Linewize. They have a strong Socially Responsible Investment Policy that precludes them from investing in certain sectors and high emissions industries (including crypto). With their experienced team and vast international network of advisors, investors and business owners/founders, Punakaiki Fund continues to make a significant impact on the thriving New Zealand startup ecosystem.

Sparkbox Venture Group

  • Stage: Pre-Seed, Seed, Series A
  • Focus: SaaS, Diagnostic Technology, Communication
  • Notable Investments: Xero, Mish Guru, Auror
  • Location: Auckland (NZ)
  • Website: sparkboxventures.com

Sparkbox Venture Group is a prominent investor in high-growth technology companies throughout the Asia-Pacific region. Their funding programs, including GD1 Seed, GD1 Fund II, and Sparkbox Investments, cater to startups at different stages of development. With a diverse portfolio of innovative companies, Sparkbox Venture Group is an active investor, supporting and nurturing startups and playing a pivotal role in driving their growth and success. Their expertise and financial backing have created valuable partnerships for ambitious entrepreneurs in New Zealand and beyond.

WNT Ventures

  • Stage: Seed, Series A
  • Focus: AgriTech, Artificial Intelligence, Automation, Engineering, Sustainability
  • Notable Investments: Mastaplex, CarbonCrop, FoundryLab, Mint Innovation
  • Location: Tauranga (NZ)
  • Website: wntventures.co.nz

WNT Ventures is a venture capital firm that invests in ambitious deep tech founders. They provide high conviction support, connecting founders to resources, expertise, and support to build global businesses. WNT Ventures is dedicated to advancing deep technology as one of New Zealand's fastest-growing and highest-value creation sectors. They seek pre-revenue tech companies with defensible intellectual property serving global markets. In addition to capital, WNT Ventures offers hands-on support through pre-incubation funding grants, incubation programs, and valuable resources.

Summary

New Zealand's startup scene is thriving, with unprecedented growth and investment opportunities a range of potential investors. The government's commitment to fostering entrepreneurship and the increased availability of early-stage investment make it an ideal destination for tech startups.

Remember, the journey to raising capital is not just about the money or reaching a particular valuation in your seed round—it's crucial to find partner(s) and shareholders who also share your vision and can provide the support you need to succeed. Taking care in due diligence to gain the right support can pay dividends, allowing you to navigate the entrepreneurial journey and make a lasting impact on the world.

If you're a tech startup (or a small business with ambitious goals) in New Zealand, connect with the venture capital firms mentioned in this article, present your ideas, and unleash the potential of your business!

New Zealand tech startups can access a range of grants and support services beyond venture capital, such as through Callaghan Innovation. NZTE also has resources for if your business plan is to raise capital. Alternative funding methods (such as via private equity, crowdfunding, or with a venture studio) may be helpful to explore.

Looking for Aussie startup fundraising opportunities, such as Square Peg Capital in New South Wales or Startmate in Victoria? View Australia’s Top Venture Capital Firms For Tech Startups [2024].

Business
Achieving product-market fit is critical to the success of a technology startup. Read this guide for tips and strategies to help you navigate the journey.
min reaD

Product-market fit (PMF), a term first suggested by Marc Andreessen, transforms your product idea from a concept with little to no validation into a must-have solution. But what is it, and why does it hold such an essential role in the success of technology startups?

Why it Matters

Product-market fit means your product answers the needs of your customers; usually better than other available solutions. Finding this fit require you to understand what your customers truly need, and creating a good product or service that fulfils these needs seamlessly.

How does PMF impact my business?

Increases the chances of a successful product

Products that are well-aligned with their audience's needs generate more positive customer feedback and create excitement. This early momentum can be critical in shaping the future of your product.

Carves out a unique space in the market

With an in-depth understanding of your target audience, you can shape your product or MVP (minimum viable product) in a way that distinguishes itself from others. As Eric Ries tells us in The Lean Startup —the goal is not to focus on building a final product, but to test fundamental business hypotheses. This differentiation of your MVP paired with an approach of continually testing, learning, and adapting, will give you a significant advantage.

Paves the way for customer loyalty

When new customers feel that your product genuinely addresses their needs, they're more likely to stick with it. This loyalty can anchor a solid customer base, increase referrals, and drive your business growth rate.

Decoding Product-Market Fit

Product-market fit might seem like something complex that only the most well-known startups focus on. However, it's an incredibly simple concept. Fundamentally it’s concerned with ensuring your solution answers a distinct problem so well that your target audience is willing to pay for it.

So how do we get there?

There's no template or one-size-fits-all approach to building a new product, because every industry and customer problem within that industry is unique in its own right. However there are some important areas to consider.

Understand your customers’ needs

This goes beyond high-level market research, demographics, and user personas, and involves understanding the specific issues your target audience groups face in order to identify their underserved needs. Customer interviews, surveys, and focus groups are a few great ways to gain these insights. Use this information to create audience profiles for the key user groups you’d like to be using your product. Product managers are typically responsible for overseeing these processes with the support of a design team.

Slack excelled in identifying and addressing a common pain point with their target audience — inefficient communication. They understood that teams needed more than just a messaging tool; they needed a platform that could integrate with other services and streamline existing workflows.

Solve an important problem in a fresh way

Your product should not be a clone of what's already on the market—in order to find success, it needs significant market demand and novel product development. It should offer a solution that competitors haven't thought of. This will help you stand out and attract customers who are looking for a better way to tackle their problem. Designing and building an MVP (minimum viable product) with barebones functionality to gain valuable insights from your customers can really increase the speed at which you find PMF, as long as you have packaged this up in an attractive manner. Too many startups fail due to an unbalanced focus on functionality over usability.

Have a clear advantage over other solutions

This could be advanced technology, affordable pricing, or a superior user experience. It needs to be something that makes your product the number one choice for customers and early adopters (like Uber did with its tech-driven, user-friendly, and cost-effective transportation solution).

Clarity in your value proposition

A value proposition is like an elevator pitch. It is an easy-to-understand argument for why your target customer should choose your business. Your value proposition should clearly explain how a product fills a need, communicate the benefits, and explain why it's better than similar products on the market. Your messaging around this should be uncomplicated, to the point, and easy to grasp.

Signs of Product-Market Fit

Your product is out in the wild. Now you're likely wondering, "Did we hit the mark? Are we in sync with our customers?".

How you can tell if your product has found PMF

People are coming to you

Instead of you chasing them down, customers are heading your way for the first time. This shows that your product has sparked interest and it's seen as something they need.

Customer growth is quick and cheap

You're gaining customers without burning through your marketing budget. This suggests that your product appeals to people and they're happy to part with their cash for it.

Customers stick around

You're not just attracting customers; you're keeping them. They use your product regularly over time, indicating that it continues to meet their needs. A loyal customer base is a priceless asset as you plan to grow and roll out new offerings to your buyer personas.

Thumbs up from users (and experts)

Your product gets rave reviews not just from customers on social media, but across the board from experts in your industry. Positive word of mouth and expert endorsements build a good reputation for your product and can also convince potential customers to give it a try.

Key Metrics for Product-Market Fit

Understanding if your startup fits the market shouldn’t be a guessing game. Your business should adopt concrete, quantitative metrics to help you measure your progress and understand how well your product is resonating with your customers.

Once metrics have been adopted, keep a close eye on them, and ensure insights are clearly understood by your product and marketing teams.

Numbers to watch

Sean Ellis Test

Known as the "40% rule" — if at least 40% of surveyed customers would be "very disappointed" without your product, it indicates a strong market fit. This test offers a quick, quantifiable way to assess the essential value and potential sustainability of your product in the market.

Customer acquisition cost (CAC)

This tells you how much you spend on average to gain one customer. If it's costing you an arm and a leg to get customers, you might need to revisit your product and/or marketing strategy.

Lifetime value of a customer (LTV)

This is how much profit you expect to make from a customer over the duration they use your product. When your LTV is a lot higher than your CAC, it's a good indication that customers find value in your product.

Churn rate

This is the percentage of customers who stop using your product over a certain period. A high churn rate could mean that your product isn't sticky enough or failing to meet customers' needs over time.

Net promoter score (NPS)

This gauges how likely your customers are to recommend your product to others. A high NPS means your customers love your product enough to tell their friends about it, which is a solid sign of good market fit.

Product-Market Fit Checklist

Achieving product-market fit can feel a lot like assembling a puzzle without a clear reference of what you’re trying to create. It can be tough, but here’s a simple product-market fit checklist to help guide you.

Identify your target market

Know who your ideal customers are, what they need, and how your product can help them.

Solve a real problem

Your product needs to ease a pain point that your target market faces and wants to solve. It has to really matter to them in order to meet a tangible market need.

Stand out from your competitors

Chances are you're not alone in the market. Make sure your product has an edge, something that sets it apart from the competition and maximises your potential market share.

Craft a clear value proposition

Make it clear to your customers why your product is the best choice. Keep it simple, and make sure it speaks to your target market.

Measure product-market fit

Keep an eye on your metrics like CAC, LTV, churn rate, and NPS. They're your progress report, highlighting your retention and how close you are to the holy grail that is product-market fit.

Listen to your customers

Feedback is gold. Hear what your customers have to say, learn from their experiences, and use their insights to refine your product and marketing strategy to excel in customer satisfaction.

Don't fret if you're not ticking off every point right now. Product-market fit is a journey, and each step brings you closer to a product that really clicks with your customers. Keep iterating and you'll get there!

The Journey to Product-Market Fit

Much like a road trip, achieving product-market fit isn't a simple straight line from point A to B. It's an ongoing journey full of twists, turns, and the occasional roadblock. But it's also a journey filled with lessons, achievements, and plenty of growth.

New tech pops up frequently, and customer preferences are shifting with each innovation. Your product roadmap should adapt and evolve with these changes. You need to keep an ear to the ground, stay aware of new trends, and keep fine-tuning your feature set. When adding new features, a/b testing can be extra important when considering reaching PMF.

Remember, to build a successful SaaS company your product doesn't have to be everything to everyone, but it should be something incredible for someone (your target market). Strive to design and build a product they can't imagine living without.

The journey to market fit is a marathon, not a sprint. It takes patience, resilience, and true commitment to your vision. But when you finally achieve PMF, the result is worth every twist, turn, and detour.

At Edition, we're all about helping technology startups in their journey to find product-market fit and scale beyond. No matter what stage you’re at, we've got your back. If you’re building a technology company don't hesitate to reach out and find out how we can join forces to tackle your current design and development challenges.

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