What an amazing and self-sufficient to a fault the Kiwis (New Zealanders) are. The young country and its four million inhabitants are far removed from the rest of the world, it being situated in Australasia. Their food and agricultural environment is well respected globally. Kiwis had to fix everything themselves, so they feel they can fix anything with a wire. On the other hand, that means that Kiwis feel that asking for help is a weakness—so much so that the majority of their SMEs (Small and Medium-sized Enterprises) have no board advisors at all. And in a small country where there are really only 12 private-equity firms with investments in New Zealand companies, they still seem to discover strangers and new capital sources in their own back yard.
The 400 people who attended this very well organized event in New Zealand benefited. The SMEs benefited most, as we were half a dozen U.S. speakers talking about financing, SME policy, and capital creation. David Berkus from Silicon Valley, advising on his decades of venture-capital investments that show a 97% IRR, was welcome as a strong leading investor. We shared the knowledge of crowdfunding trends globally and the angel network developments in South America, similar in size to New Zealand, as well as the bank programs with angels led by Italian Banco Intesa Sao Paolo, with whom I recently met in Milan.
The two leading banks, ANZ and BNZ, sat down with me to discuss the innovation support and capital support they provide to early-stage firms, while identifying the challenge they see in SMEs. They shared the Boat, Bach and BMW attitude that permeates the culture. After they have their boat, Bach (vacation home) and BMW, Kiwis expend little energy to overachieve. The challenge for the banks and service providers is find and incentivize the overachievers who want more.
We heard the lack of funding is a pandemic challenge. Entrepreneurs are expected to raise money by mortgaging their homes, a fact many entrepreneurs acknowledged. Succession planning is completely lacking among entrepreneurs wanting to sell, while often their children do not want to be involved, thwarting the wishes of the patriarch entrepreneur. The wire-fixes-everything culture prevents the entrepreneurs from asking for help. This is often accentuated by their not knowing what it is they do not know. My advice was to have board advisors who would be engaged a couple of hours per week, and attend quarterly board advisory meetings where the entrepreneurs have to present and account for their accomplishments, plans and goals. Of course, the Beach Head program started by the NZ Trade & Enterprise has 85 expat kiwis all around the world opening doors. Still, a board advisory position creates more involvement and engagement.
Innovest, organized very well by Debbie Springborn, identified these issues well. It was good to learn about the challenges and the export focus this country has. Obviously, any growth has to go abroad, and the leading industries of Oil & Gas, Food & Agriculture and Programming are exported to Australia, parts of Asia and the U.S.
A board advisory is inexpensive and extremely helpful in learning what you don’t know you need to know; The best ones draw on the experience and knowledge of advisors from completely diverse backgrounds. I would advise firms to have at least 50% of their advisors having little to nothing to do with their industry. Remember, friends and family can get you advisors for just some stock options and no cash. There are also clever ways to defer cash compensation until you are earning or raising more capital. The balance of cash and options has flexibility and can get you an inexpensive executive team to help with your firm.
As a rule of thumb entrepreneurs should look at the value of cash and options for each advisor to run $30,000-$60,000 per year as a fair compensation. Friends obviously may do it for less.
David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity firm, and The Soho Loft, a global event-driven financial media company helping firms advertise for investors. He is running the Real Estate Investing and Leading Crowdfunding Conference in NYC on Nov 14, 2013. Listen to him speak together with Keynotes Dennis Irvin and Barry Sternlicht. Check out: https://thesoholoft-real-estate-investing-newyork.eventbrite.com/. You can reach him directly at David@LDJCapital.com