Sharesight founder Tony Ryburn talks about raising equity and how he got venture capital to help to grow his online share portfolio management company.
In May 2008 my son, Scott, and I launched our interactive, online share portfolio management service called Sharesight .
Our objective was to test our service in NZ and then expand globally, starting in Australia.
We saw an opportunity to save DIY share market investors a lot of time and money by automatically producing all the data they need for their tax returns and accounting records.
We soon realised that a lot of DIY investors use an accountant and providing data directly to their accountant has opened up a whole new market for us.
We also saw an opportunity to calculate the true, annualised return that people achieve on their shares including dividends and exchange rate impacts as well as capital gains. We found that many first-time Sharesight users did not have an accurate idea of the return on their share portfolios.
They were often pleasantly surprised at the performance of their shares, particularly if they were long term share investors. Without accurate data, many investors overestimate the impact of bad news and do not make adequate allowance for the impact of dividends.
Having successfully launched in NZ we realised that we had just scratched the surface. Customers loved our site and began bombarding us with requests for new features.
These are expensive to build and we were incurring further expense developing partnerships with several larger companies that wanted to work with us. Furthermore we were starting to realise how expensive it was going to be to achieve strong sales growth in Australia.
It became obvious that we needed a substantial injection of funds if we were to realise our ambitions for Sharesight.
We regularly heard stories about small businesses that foundered through lack of financial support and we could understand why. Loan finance was out of the question because our cash flow was not yet strong enough to meet the bank's debt servicing ratios and we had little we could offer by way of security. Furthermore we did not yet have a track record which would weigh against us.
We realised that our only hope was to raise equity finance by selling shares in our business. Giving up a share in our business was a big deal for us so we undertook an evaluation of 'Angel investors' and venture capital providers. We were looking for firms who had experience in the IT sector and would be able to provide expertise and industry contacts as well as finance.
Sparkbox Limited ticked all the boxes for us and we approached them because of their experience in the Information Communications and Technology (ICT) sector. Sparkbox was excited by Sharesight's potential and we negotiated a sale of shares in our business in return for the finance we needed.
Sparkbox invested in Sharesight in a 50:50 partnership with the NZ Government's Seed Co-Investment Fund (SCIF), which is part of the Venture Investment Fund (NZVIF).
This Government initiative does not seem to be widely known in the small business sector but it is an excellent arrangement for Angel investors and small business.
It allows angel investors to diversify their portfolios and reduce their risk to any one client. And it significantly increases the equity funds available in NZ for small businesses like Sharesight.
Negotiations with Sparkbox, which also acted for SCIF, were demanding but we recognised that this was essential from their perspective because they were investing a considerable sum into a new company in which they have no day-to-day involvement.
Being able to satisfy their requirements and persuade them of Sharesight's potential has been a big confidence booster for us.
Tony Ryburn
