Solar-Gem CEO Khimji Vaghjiani, winner of last month’s Australian Innovation Shoot Out in California, presents a checklist all international entrepreneurs should consider before sitting down with US venture capitalists.
Many Australian companies set their capital raising sights on California’s Silicon Valley, as the availability of venture capital funds there is much greater than in Australia. There are many reasons to seek funding in the US, and not all of them involve preparation for entry into the American market (my company, for example, is seeking funding to help us expand into the Indian, Asian and African regions instead of into the US market).
Today, a growing population of VCs in Silicon Valley hails from Australia, China, India and Singapore, among other countries. And because of this, these US-based investors are more willing than ever to invest in international companies that have a global vision. So even if your intention isn’t to move into the US market itself, the VC community there can still offer major support toward your goal of expanding in other international markets.
Last month, I was given the opportunity to participate in the G’DAY USA Australian Innovation Shoot Out — an event that connects Australian technology startups with investors and potential partners in the United States. There I received the extreme honour of being named Australian Innovator of the Year. Through the experience, I not only established valuable connections with US-based VCs — I also learnt quite a bit about the ins-and-outs of the US venture capital market.
Australian entrepreneurs seeking US venture capital need to be sensitive to the significant cultural differences that exist between Australia and the United States. If not handled properly, these can create serious roadblocks between your company andUS VCs.
For instance, US VCs want to know — first and foremost — what is your competitive strength. In other words: What makes you different and why? In order to answer these questions, innovators need to understand the global landscape of competition for their business. US VCs want to know upfront if you’re a leader in the market and, if so, how long you will be able to maintain that leadership.
As part of the Innovation Shoot Out journey, I’ve had the opportunity to work closely with ANZA Technology Network — an organisation that connects Australian entrepreneurs with people and programs to help companies maximise their US market potential and prepare for success in the US. In addition to what I observed from the US VCs, ANZA offers the following six considerations for Australian companies trying to raise capital in the US:
Six tips for raising venture capital in the United States
- Drive-bys don’t work. In order to raise capital in the US, you have to establish yourself there. VCs like to be close to their investments, and they more often invest in companies that own the IP they are investing in. US VCs often take a board position and expect that board to have the final say on company matters … not take direction from a ‘parent’ company in Australia.
- Think global, think BIG. Projecting $10M revenue in Australia is considered a reasonable success metric, but this number will not interest a US VC. In the US, $100M revenue projections are common and 10x returns on investment are expected.
- Know your competition. Spend time familiarising yourself with your competition in the US market. If a VC names a competitor that you have not heard of, close your laptop and leave — the meeting is over.
- Team. Option 1: You have the best team, proven track-records, no question that your team is the right team to execute the plan. Option 2: You have team gaps, you know it and one of your criteria for selecting your investor will be that you believe they can help you build the team.
- Focus, focus, focus. Since Australia is such a small market, a company has to sell broadly across many market sectors in order to be considered successful. In the US, however, this could become a company’s downfall. Large, complex markets (like the US) need focus. Your VC wants to see a laser-sharp market entry strategy that will take the company to the next level (profitability or next investment round) as quickly as possible. Be prepared to give the ‘blue sky’ opportunities, but don’t make this part of your pitch.
- Learn from every meeting. There are hundreds of quality VCs in Silicon Valley alone. Every meeting will provide you with invaluable advice and ideas that you can incorporate into your pitch and plan for the next meeting. Ask for feedback, and you’ll be able to improve your pitch with every meeting.
If your business is like Solar-Gem’s — i.e. not necessarily focused on the US market — there’s still great value in building VC connections in the United States. As I’ve already learned, your passion, business insight, sincerity and ability to learn with experience will win you goodwill. And this goodwill will expand your horizons in your search for business partners and funding.
KhimjiVaghjiani is the CEO of Solar-Gem and the winner of the 2010 G’DAY USA Australian Innovation Shoot Out. Solar-Gem provides solar-powered off-grid lighting and electricity systems, pre-pay tariffing systems and high-efficiency LED lighting modules targeting the 1.6 billion people without access to power.