There’s only one thing that governments should be doing to help drive innovation and assist the growth of startups, Zetta Venture Partners general partner Ash Fontana says.
In an AMA run by Blackbird VC, Fontana – an Australian venture capitalist who helped launch the fundraising business at AngelList – says governments should focus on something simpler than trying to change culture: “spending money”.
“That’s it. If you ignore the hagiography about cultural visions and brilliant curricula, you will see that startup hubs like Silicon Valley were spurred by massive government spending,” Fontana says.
“Ideally the government would spend money on areas in which the country already has a competitive advantage.”
This doesn’t mean the government has to spend extra money either, Fontana says, but rather to reinvest it in more important areas.
“I’m not arguing for the government to have more money to spend, just that if it does have money and wants to spur innovation then it should spend that money rather than use its power for other things that will get in the way of growth rather than fuel it,” he says.
Fontana has been working as a VC in Silicon Valley for more than seven years now, and shared a number of useful pieces of advice and wisdom during the Q&A session.
What he looks for in a startup
Fontana has a “very long list” of things to check off before investing in a startup “for the long run”, including:
- What’s the evidence that the company has an ability to raise prices?
- Do the founders have special access to a stream of talent?
- Is the company signing up faster than door-to-door? Charm doesn’t scale; quality product and marketing does.
- Is the product high quality? I spend a lot of time assessing the ‘look and feel’ of a technology product to figure out competence and attention to detail, just as you would assess an industrial designer based on the quality of the joins in a chair.
How an Aussie startup can close a funding round in Silicon Valley
For an Australian startup to successfully secure funding in Silicon Valley, the team needs to get feet on the ground for a long period of time, he says.
“The first step is to be in the Valley for at least three months,” Fontana says.
“One generally cannot meet enough people or hold enough meetings to form a great partnership with an investor or investors in less than three months. Once you’re here, all the usual advice applies.”
Why it can help to give away equity
While there are a number of things that founders should be looking out for, giving away equity in exchange for an advisor could be beneficial in the long run, Fontana says.
“Young companies should give up equity if they can clearly articulate the value they will receive from it and accordingly set expectations with the potential advisor,” he says.
“Look out for advisors that won’t invest their own money in the company, aren’t willing to commit to some sort of milestone of hours or months and don’t provide any value before committing.
“There is often a very strong reason to give advisory shares. Valuable people value their time and smart people will appreciate that value.
“Giving shares to a few key advisors with direct industry experience and great connections usually works out to be more valuable and cheap, in aggregate, than giving 7-10% to an incubator for $100,000.”
The growth of the Australian ecosystem
According to Fontana, the current Australia startup ecosystem is virtually unrecognisable from just five years ago.
“There are now great firms funding companies from angel to incubator to seed to Series A,” he says.
“These firms have the cash, management, competence and capital allocation ability to grow world-class companies. There was perhaps one such firm five years ago.”
What a founder needs to know
Startup founders need to be able to articulate their product-market fit and know their potential customer base intimately, he says.
“I think that a founder should be able to explain a problem of commercial consequence in great detail – they should be able to paint a very detailed picture of their potential customer,” Fontana says.
“They should be able to do this far better than almost anyone on the planet to be able to form a strategy that will yield a competitive advantage.
“You don’t need experience in an industry to understand a problem. Often, understanding a problem by asking the right questions is harder if you start with a bunch of related assumptions generated through personal experience.”