Business Tantra

Sarah Arnold-Hall and Yoeri Dassen are entrepreneurs who help startups grow through coaching and funding.

OPINION: 2022 is the ideal time to become a startup entrepreneur.

Before the pandemic, the standard model for building startups was to have your core team based locally in Silicon Valley. Now, due to a huge and rapid global shift towards working from home, Kiwis can create or become part of international startups without leaving their home offices.

Today, starting and running a company entirely remotely is not only possible, but often preferable, because now that you can raise money internationally and hire internationally, you’re able to partner with the best talent in the world.

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Even the most revered startup accelerator, YCombinator, has gone fully remote and allows startups from all over the world to join its programme where successful applicants receive a US$500,00 (about NZ $750,000) investment just by passing their written screening and a 10-minute interview.

Their alumni include giants like Reddit, AirBnB and Coinbase – which opens the door for the next billion-dollar company to be founded, funded and built by people based full time in Aotearoa.

Fundraising has also become significantly easier in the past year. Tech startups raised US$621 billion (NZ$926b) in 2021 compared with US$294b in 2020.

Startup valuations are multiples of previous year’s valuations, and some founders we know are raising millions on just an idea. This is because the wider acceptance of online meetings has meant that many investments are being made remotely.

As a startup investor, Yoeri was able to allocate more than US$1.2 million (NZ$1.8m) from 7 per cent ventures into three startups we work with, without meeting the founders in person.

With investments flowing and visas no longer required, now is – without a doubt – the best time in history to become a startup founder. To help you take the plunge, we’ve boiled down some key concepts we’ve learned after helping dozens of startups grow over the past two years.

Here are five essential lessons that every entrepreneur should know in 2022:

Simplify your business plan: sell first, then build

In our digital era, we sometimes forget that business has been around for thousands of years. You don’t need a website, business cards, a logo, an email list, social media, launches or a sales funnel to get started.

Focusing on these elements can slow your business growth in the beginning. Many entrepreneurs waste their time and money on these nice-to-have extras, and set up what looks like a company externally without actually having a sustainable business model internally or any customer validation.

Instead, make a short list of the essential, non-negotiable steps for your business, and constrain your focus to only those steps. The simplest plan: connect with people, and offer to help them. That’s how to network, how to get funding, how to market and how to sell. Don’t overcomplicate it, just get out there.

Network internationally

Since the pandemic began, most networking has gone online via Zoom, so there’s no reason to limit yourself to a local customer base.

Ninety per cent of our clients are overseas, and we’re working with startup founders who create robot arms and self-driving trucks. Those kinds of networking opportunities weren’t available for people living in New Zealand two years ago because it just wasn’t accessible. Now it’s not just about who you know, it’s about who you can get to know.

Jump on LinkedIn, Lunch Club, Meetup, or any other networking site, and ask to set up conversations via Zoom. Don’t do it to sell your idea, do it to get to know people.

Once you’ve created genuine connections, people will often refer you to the people they know who might be able to help you. If you specifically want to connect with people in the startup world, consider helping out at online hackathons, or volunteering for startup events.

Quit your job at the right time

Before we had full-time businesses, we had the idea that extra time was what we needed. If we could just quit our jobs, then we would have more time and energy and our businesses would suddenly take off.

But it turns out, quitting your job without money is like letting the air out of a rubber dinghy in the middle of the ocean without any duct tape. Time helps, but it’s not enough.

Without money and resources, following your dream can turn very quickly into a nightmare. Make sure you have significant savings, or see if you can reduce your “burn-rate” (the amount of money you spend every month).

People we know have moved back in with their parents, volunteered a few hours to get food and accommodation, or even shared a room for a while when starting their business. The good thing is that most people “fail upwards”, so even if their initial idea for a startup doesn’t work, their new skills and wider network often creates even better business opportunities than they had before.

As a small-business owner, it can be tempting to quit your job and “go all in” from day one. However, this usually creates more problems than it solves, because new businesses tend to guzzle money.

If you’re self-funding your business, it’s best to quit your day job when you have a runway of at least six months of living expenses in your bank account (rent, food and bills), as well as some cash to invest into growing your business (for materials, marketing and other business expenses).

However, if you intend to build a billion-dollar startup (a so-called “unicorn” because they are so rare), rapid growth matters more than a profit. Venture Capital and angel investors are happy to trade short-term profit for rapid growth.

For example, Amazon took 14 years to become profitable, and Uber has yet to become profitable. It’s all about the big exit, and gaining market shares is important for that.

Need funding? Think like an investor

It helps to put yourself in the investor’s shoes when you want to raise funds – would you put money into your startup if someone else pitched it to you? Why or why not?

One way investors evaluate a good investment is by how many of the tasks could be done in-house. Elon Musk ensures SpaceX and Tesla can produce their components 80 per cent to 85 per cent in-house and therefore avoid many layers of markup fees stacking up.

The ability for a startup to produce products in-house is a strong signal to any investor. If you’re not able to build a product end-to-end yourself, partnering with a technical co-founder can mean that even if your startup runs out of money, you and your co-founder can continue to make progress without spending anything other than your time.

Consider ‘investor stacking’

Raising money can be tricky if you don’t have any other investments on board yet, as investors face the risk that your business might not have enough money to reach its next milestone, forcing them to add more money later or risk their investment failing early – a risk they especially don’t want to face at this stage in the pandemic.

To solve this issue, you can use a technique we call investor stacking. Some angel investors (early individual investors) may be open to giving you a smaller cheque with the agreement that you’ll also raise a larger one.

When Yoeri helped one particular startup raise millions of dollars, it initially had this problem, and a smart investor offered to put in $500,000 if the startup raised at least $500,000 more. This helped convince other investors to put smaller cheques in, because they knew their investment was safer if other investors put in money too.