It was only last year that Josh Daniell and 3 Fonterra employees started their equity crowdfunding platform Snowball Effect, with the goal to help Kiwi companies raise funds from the public, and provide a channel for the public to invest in early stage, high growth companies.
10 months on, Snowball dominates over 75% market share of New Zealand’s equity crowdfunding space and has an impressive line-up of companies under its wings.
Now as one of the judges for the Westpac Business Growth Grant programme, Josh is using his business experience to help identify and help grow 10 promising Kiwi SMEs, and says there's 3 key things he looks for when assessing a company for investment.
1) The size of the opportunity
“We like to see the size of the opportunity," Josh says, "so that's looking at the product, looking at the market, and understanding where the fit is and what the size of the potential is.”
2) The team behind the idea
Josh says understanding the team’s skill sets and whether they've got what it takes to put the investment to work is the next thing he looks for.
“A good team will have deep domain expertise, strong commitment to the business, commercial nous, and will know when to engage external advisors.”
3) Customer traction
“Sales, and repeat sales, are very important reference points for investors. We like to see that a company actively seeks product feedback during its growth phase and is responsive to customer demands.
“Fitting in with the whole lean methodology you want to understand that your product is going to work for your customers before you invest too heavily in it and find out you’ve gone down the wrong track. However, for some companies it’s not possible to get customer feedback early in the piece.”
One example of this problem Josh has seen was with CarbonScape – a company that raised funds through Snowball Effect.
“They are developing a process to create a carbon-neutral form of coking coal to sell to steel mills, and there’s no way to actually put that product in the hands of customers during the development phase. But there are other ways to demonstrate traction and product/market fit.
"In CarbonScape’s case, they had a supply agreement with NZ Steel which is conditional upon the technology working at scale in the pilot plant. So investors can get a sense of customer demand in that way.”
But that's not all
Of course there are always more ways you can make your business an attractive investment option, with some validation points Josh points out including:
People on the board
Any investors that have come on the journey so far
“A real wow for me would depend on the company, but it would include a team that has a really clear focus on what they want to achieve and how the investment is going to help with that.
"They can demonstrate the alignment between the company’s business plan and creating value for investor.”