The Press, May 2013
Amidst regaling my teenage son about triumphs of yesteryear, he stopped me with a pithy, “CSB, Dad, CSB.” I discovered CSB stands for ‘Cool Story Bro’, a sarcastic dismissal of stories seen as long winded and boring.
The CSB syndrome has affected the hi-tech industry for many years, and been one reason we have traditionally struggled more than other sectors to attract investment. That’s changing as local tech companies get smarter about the way they explain value.
And they need to. San Francisco based marketing expert Hal Josephson talked at the recent Technology Innovation Week conference about the explosion of ideas for new tech businesses creating intense competition for investment cash.
Online businesses especially can be created for virtually nothing, and can promote themselves quickly and broadly using social media channels like Twitter, Facebook or LinkedIn.
That has led to the threshold for investment rising, meaning business plans that would have been funded at a relatively early stage by a venture capitalist or angel investor only several years ago, now need a much stronger case to get the money.
The good news is that plenty of Kiwi tech companies are telling the right stories, and getting the money. This is being led by accounting software provider Xero, a NZX darling that has blown through a $1.5 billion market capitalisation, on recently announced revenues of $39 million, double the previous period.
Founder and Chief Executive Rod Drury, now worth a cool couple of hundred million on the back of his company’s value, recently exhorted fellow geeks to ‘man up’ and list.
Diligent, a provider of software for managing board meetings, is another other listed company that investors love.
New offers are starting to come thick and fast too. E-commerce search provider SLI Systems are listing on the local share market this week, with their offering already fully subscribed.
Corporate travel software provider Serko and Jade spin-off The Wynyard Group have also indicated they will be offering shares in their firms publicly, to much business media excitement.
So bullish is the NZ Venture Investment Fund about tech listings that they are predicting that in five years around 10% of the companies they invest will list on the NZX.
It’s not just at the big end of town that tech companies are attracting cash. Vend, a provider of point-of-sale software for retailers, recently closed a funding round of $8 million, and wireless electrical charging company PowerbyProxi secured $5 million.
Even at the start-up level, good stories are attracting solid investment interest. Wellington recently hosted the finale of the 12 week Lightning Lab “accelerator” programme, where nine companies (selected from a field of 80) received $18,000 each in seed capital to develop and pitch a new business idea. The fledging ventures attracted more than $3 million in angel investment, according to programme organiser Creative HQ.
So what constitutes a tech story that investors actually like?
Pundits love to talk of glamorous sounding terms like MVP (minimum viable products), blue ocean strategies or disruptive propositions, but great investment tales have a lot more substance.
Fundamentals like a quality management team, a strong financial model and an attractive exit plan, can be taken as given, but what tech companies can struggle with is the ‘market’ part of the story. If all other things are equal, a clear case about why your technology will sell makes the difference for an investor.
Four ‘Cs’ make a strong sales story: category, customers, challenge and compelling.
An investor needs to understand what broad category you operate in. They want to back something that is differentiated from competitive technologies, but not so different and unfamiliar they can’t understand it.
You must be able to articulate who the potential target customers are. What are the segments you will focus on, where are they and how big, how will you locate and service them? How focussed can you be and still build a profitable and scalable business?
For those people you need to be able to identify and articulate the challenge they are facing. What is the huge problem they have, or need they are looking to meet, that your innovation satisfies. Is it a big enough problem that they will be willing to part significant cash for?
Finally, how are those people satisfying that need now and why is the way you solve it so compelling that they would be willing to make the effort to adopt it? Are you a cheaper, faster, easier or a higher quality alternative?
Building these kind of stories can’t be done just by interviewing Google: they exist mostly in the minds of your existing or potential customers. Companies that attract investment understand this and have talked to tens if not hundreds of people to test and refine their ideas.
Doing this is the difference between having a ‘Cool Story Bro’ that will keep investor wallets closed, and what my son would call a “sick” story that attracts those much needed funds.