Rodney Adler, leading Venture Capitalist answers questions relating to venture capital lending and provides an exceptional insight into what the job is like, his career and expertise gained from working in this space for over 40 years.
Question 1: How can people prepare themselves to get the best deal?
Rodney Adler: In my opinion the best way to prepare is to be open, honest, sincere and forthcoming. Depending on the business, projections are valuable, but they are most often projections based on assumptions, especially with start-ups. Two years of projections is really all that is necessary when presenting your business plan or pitch deck to your potential capital investors.
The other thing that can really assist when preparing to get the best deal possible from your possible future partners, is a complete knowledge of the industry and competitors. This and a good understanding of the profit per product or per service and any risks involved is essential. Imparting all that information to your potential audience through a great pitch deck and a well prepared presentation and business plan will help you close the deal and show your commitment to the venture.
Question 2: Should people or businesses seeking capital look for an Australian investor or someone from overseas and does this matter?
Rodney Adler:In 90% of the cases, the entrepreneur looking for capital does not really care where that capital comes from so long as they achieve their desired capital input. However, there are advantages and disadvantages in having a venture capitalist who is in a location that is relevant to what you are trying to achieve. If you wish to expand overseas and that is an important part of the business plan then having an investor that has particular country knowledge and associates, or who lives in or is from that country, can be of great importance. However having an Australian investor in an Australian company means that access to that person’s experience and knowledge is much easier. Six of one and half a dozen of the other!!
Question 3: What can you expect to lose (percentage wise) when getting venture capital? Is there some type of formula or does it always differ?
Rodney Adler: I don’t believe there is a formula, every investment must be analysed on its own merit, its capital needs, current structure, its cash burn rate per month and number of employees. An important aspect to understand is the time taken to become cash flow positive and then net profit positive. A number of companies in the last decade have had a philosophy of gaining critical mass at the expense of profits which ensures that they must go back to the market to fund their overheads and growth. Thus, making a big difference to the success or failure of that business.
Question 4: What are the various options for venture capital lending?
Rodney Adler:There are many different options for the venture capitalist and therefore for the entrepreneur. It can be a combination of debt and equity with instruments that tie the equity to the projections. If these projections are surpassed then the venture capitalist receives less equity.
There are so many variations when it comes to venture capital. You are really only limited by your imagination and the metrics of the business.
Question 5: Where is venture capital lending going in Australia? Is there a lot of investment from overseas?
Rodney Adler: Venture capital investment is growing at a huge rate. Australia is seen as a mature successful market and we are the only country in the world to have 26 year of continuous growth without a recession. We are also seen as a mature capital market despite being quite small in comparison to other countries. Finally, we have a stable political environment and we are a highly educated society which all goes in our favour when seeking capital.
As a country, sitting on the doorstep of the fastest growing region in the world, Asia, has also helped in our growth in this industry.. Our currencies stability and recent increase is in many ways due to the Chinese increasing the value of residential and commercial property over the last few years in Australia, and their investments into businesses. Our relationship with China is extremely important to trade and investment and it is an ever expanding two way street.
Question 6: What industries are people mainly looking to invest in?
Rodney Adler: I don’t think there is an answer to that question, everyone has their own preference. The great thing about venture capitalists and the venture capital industry is that it is a combination of many different personalities, people, ethnic background and level of education.
What entrepreneurs need to bear in mind when they approach a venture capitalist is that they are selling their vision and they are asking the venture capitalist to buy into that vision. A venture capitalist is a person that helps make the entrepreneur’s dream come true. The entrepreneur needs to understand that the venture capitalist needs to do their role and back them. At the same time, the entrepreneur’s role is to be diligent, honest and responsive to keep the venture capitalist completely up-to-date with the news, whether it is good or bad.
Rodney Adler is one of Australia’s leading venture capitalists and is a regular contributor to Australia Business News. If you would like to know more visit his website or reach out to Rodney himself.