update Even in the face of the global financial meltdown, investors are still on the lookout for innovative technology to pump resources into, according to a venture capital (VC) expert.
Giza Venture Capital, for example, has plans to accelerate its level of investment in the region from early 2009 onwards. Headquartered in Israel, the venture capitalist specializes in the communications, IT and life science sectors. Yishai Klein, Giza's managing director for the Asia-Pacific region, told ZDNet Asia in a phone interview that the company has a "very interesting agenda" in the next few months. Within the region, Giza is currently active in markets such as China, Japan, Singapore and Taiwan.
Pierre Hennes, deputy chairman of Business Angel Network Southeast Asia (Bansea) and co-founder and partner of Upstream Ventures, on the other hand cautioned that investors may opt to "hold cash tight in the short term, waiting for the dust to settle". This scenario could last another four to six months, he said.
In spite of possible market restraint, the next two to three years will be "a great time" to invest in companies at their early stages, added Hennes. This is due to factors such as valuations facing downward pressure, greater availability of talent as a result of contractions in the job market, and the fact that returns to early-stage venture funds will only materialize some three to six years later.
Klein and Hennes outlined some tips for promising startups in the Asia-Pacific region to consider before knocking on doors of investors, in order to pitch the right business proposal.
1. Address a market need
Companies have to be able to demonstrate they are answering a need, addressing pain points or inefficiencies, or filling a current gap in the market. "Companies that want to attract VC funds have to demonstrate they can address an issue in the marketplace," said Klein.
Apart from articulating the innovation and uniqueness, the startup must also address how its product or service can scale.
2. Ensure the market for your product or service is not too niche
Some companies offer a product or service that may be very effective in addressing a market need, have the right people to manage and execute, and could deliver reasonable revenues, but still fail to attract investors' attention because the market is too niche and therefore, small.
3. Work those sums
Companies need to be prepared to show that "there is a clear path to revenue" and eventually, profit, as investors are looking for "a significant return", noted Klein. While the timeframe for profit realization depends on the industry and region or country, VC firms typically expect a player in the mobile content or Internet space to execute its strategy within two years, while a company in the chip sector could take up to four years to roll out an actual product.
Hennes, on the other hand, pointed out that companies also need to conserve resources, especially in the light of the current economic environment. "Spend wisely and focus on what you can achieve. Only when the company is healthy can you afford to experiment.
"Aim to reach a state of cash flow positive quickly so you don't need to rely on investors [as] raising funds often takes longer than you think," he added.
4. Have the right leadership and vision
Investors want to be assured that the startup's leaders are able to execute the vision. Even if the leadership is not in place, the company should acknowledge the management gaps it has, and indicate its plans to recruit the right leaders on board. "Investing in a company is essentially investing in the people," Klein pointed out, adding that the right leadership plays a part in the company's realization of its vision.
VC firms typically also look out for "entrepreneurial residents"--individuals with a track record of founding new companies or developing new technologies, he said.
According to Hennes, consistent networking is also important. "VC funding is a sales process, not a pitch. Your best bet to securing funding is to network in your relevant industry as well as the financial community," he said, adding that candidates should attend industry and investor networking events to not only meet peers, but also "get a feel" of how presentations are conducted and what investors look for.
5. Have a unique strategy, or identify barriers to entry for competitors
Of Giza's funding portfolio in Israel, "many of the companies have an inherent uniqueness" about them, said Klein. The companies are either able to demonstrate that they have a significant first-mover advantage, or possess a special business formula to succeed in the market.