Stefan Preston, former Bendon CEO, who runs the consultancy, Ingenio with his wife Leslie talks to Gill South. Ingenio has 50 per cent or more shareholdings in four start up businesses - Bachcare, lingerie brand Rose & Thorne Design, yoga lifestyle brand, We'ar and high end NZ design firm, Essenze.
On financing a start up:
Until a company is profitable and paying market rates for all its resources, like rent and salaries, it's basically a prototype or experiment in company formation. I think it's very dangerous to take on third party investment at this stage because you cannot help having a blurred picture of value.
NZ is a very difficult market for new venture formation mainly because the proximate market is so small. Third party investors take this into account and seem to require huge equity stakes for very small investments. This is made worse by the entrepreneurs needing to raise capital before their companies mature while still in the bootstrapping phase.
The best way to keep your equity is to have an efficient start up plan that mitigates risk quickly and uses minimal cash. This is very challenging to achieve. Early stage businesses are very fragile. Once the model is proven and you can show potential for efficient scaleability then third party capital can be a much cheaper way to grow.
