Exploding Crowdfunding myths

Once again, New Zealand is leading the way in business reform. New laws allowing equity crowdfunding fundamentally change the way that private companies can raise funds, and give them a meaningful, cost effective and efficient way of doing so.

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Startup – Angel Investment Intel shows growth

Angel investment surged in 2013 with a record $53.2 million invested into young New Zealand companies in 2013, reflecting growing investor confidence in the technology and innovation sector, according to New Zealand Venture Investment Fund’s chief executive Franceska Banga writing in the latest issue of Startup, the Young Company Finance Report.

Marcel van den Assum Chair of Angel Association New Zealand agrees. “The substantial increase in investment last year shows the enthusiasm angels have for supporting entrepreneurial endeavour and the economic value this generates. The high level of follow on investment re-enforces angels’ commitment to businesses with potential, and recognises that it takes time and effort to achieve results.”

Read more from Startup, Young Company Finance, published by NZVIF

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Software & IT largest investments for New Zealand Angels

Angel investors pumped a record $53.2 million into 116 high-growth businesses last year as confidence returned to the technology sector.

New Zealand Venture Investment Fund chief executive Franceska Banga believed 2014 had started in a similar vein, saying the environment for young technology firms seeking funding was probably the best it had been in 15 years.

A form of hybrid investment that combined equity crowdfunding and angel investment might soon make it possible for non-professional investors to invest in startups alongside experienced “angels” and on the same terms, she said.

The investment by angel investors was up 80 per cent on a lacklustre 2012 and the highest since NZVIF began polling angel groups in 2006. The market had been boosted by the strong performance of companies such as Xero, SLI Systems, Orion Health and Vend, Banga said.

Angel Association executive director Suse Reynolds estimated there were about 500 individuals in New Zealand who could be classed as angels. Networks included a new one especially for female investors, Arc Angels, which has 17 members and has just made its first investment.

Angel investment grew 80 per cent to a record $53.2m last year.

There are believed to be about 500 angel investors in New Zealand. Software and IT services firm attracted almost half of the money invested.

About 80 per cent of angel investment last year was “follow-on” investment and 20 per cent were completely new investments.

The average deal size was just under $500,000.

Read more from Stuff.co.nz Business Day

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Kiwinet Commercialisation Award Finalists Announced

Finalists have been selected for the second annual KiwiNet Research Commercialisation Awards designed to celebrate success within New Zealand’s universities and Crown Research Institutes.

Innovationsfrom finalists include the Springfree™ trampoline, a rare pharmaceutical ingredient generating major export returns, titanium technologiesincluding 3D printed animal implants, pasture meters, artificial muscle technologies, precision seafood harvesting, eradicating bovine tuberculosis, controlling insects with sex, new vanilla products, and a wireless network partnership.

“The Awards celebrate the tremendous work of research organisations turning clever science into commercial value. Our 2014 finalists are some of the best at this, developing a new wave of exciting innovation that will create new companies, products and servicesto grow our economy,” says KiwiNet General Manager Dr Bram Smith.

“Many exciting stories of research commercialisation success are not well known. By putting the spotlight on the people and research organisations changing the commercialisation landscape in New Zealand, KiwiNet aims to inspire others to similar success,” says Smith.

The 2014 KiwiNet Research Commercialisation Awards finalists are:
AJ Park Commercialisation Collaboration Award
– Eradicating bovine tuberculosis with TBfree New Zealand, (Landcare Research and TBfree)
– Titanium Technologies New Zealand (TiTeNZ), (University of Waikato, Callaghan Innovation, GNS Science, University of Auckland, the Titanium Industry Development Association (TIDA) and a number of industry partners)

Researcher Entrepreneur Award
– Associate Professor Iain Anderson, StretchSense – entered by UniServices, University of Auckland
– Alistair Jerrett, Seafood Technologies, Plant & Food Research Minter Ellison Rudd Watts Research and Business Partnership Award
– Heilala Vanilla, entered by Massey University
– Controlling Insects with Sex, entered by Plant & Food Research
– Precision SeafoodHarvesting, entered by Plant & Food Research
– Wireless Network Partnership (University of Canterbury and Tait Communications), entered by

University of Canterbury Commercial Deal Award

– Springfree™ Trampoline, entered by University of Canterbury
– Kifunensine, entered by Glycosyn, Callaghan Innovation
– C-Dax Pasture Meter and Massey University’s Centre for Precision Agriculture, entered by Massey University

The BNZ Supreme Award will be presented to the entry which demonstrates overall excellence in all core areas of research commercialisation.

The KiwiNet Awards judging panel comprises Dr Andrew Kelly, Executive Director at BioPacificVentures, Sharon Hunter, one of New Zealand’s best-known business women and Director of Hunter Powell Investment Partners, professional director and ex-Angel Association Chairman Dr Ray Thomson, and director and executive advisor Helen Robinson, the founding CEO of TZ1.Lead judge Dr Andrew Kelly says, “It’s great to see another strong new set of applicants this year,
demonstrating that innovation is continuous in this country. These innovations are important as the next generation of the science and technology successes our economy is now seeing like Xero, A2 and Pacific
Edge.”

Kelly adds that the bigger pool of entries has been stimulated by the expansion of KiwiNet, ‘which is now the driving force in research commercialisation in New Zealand.’

Paul Stocks, Deputy Chief Executive of MBIE’s Science, Skills and Innovation Group, says MBIE supports KiwiNet’s collaborative approach to commercialising innovative research. “Research commercialisation is vitally important for New Zealand, as it can be a major driver of economic growth. KiwiNet is helping to
create greater commercial outcomes from our publicly-funded research, which will benefit all New Zealanders.”

The Kiwi Innovation Network (KiwiNet) (www.kiwinet.org.nz), is a consortium of 13 universities, Crown Research Institutes and a Crown Entity established to boost commercial outcomes from publicly funded research. KiwiNet partner organisations include WaikatoLink, Plant & Food Research, Otago Innovation Ltd, Lincoln University, AUT Enterprises, AgResearch, University of Canterbury, Callaghan Innovation, Viclink, Landcare Research, Cawthron Institute, ESR and NIWA. Principal support is provided by the Ministry of Business, Innovation & Employment (MBIE).

The Awards are the pinnacle of KiwiNet activities designed to build awareness and inspire research commercialisation success. Sponsorship support is provided by BNZ, Minter Ellison Rudd Watts, AJ Park, MBIE and Sciencelens photography.

BNZ director – value chain Jason Lewthwaite says New Zealand is increasingly recognised for its innovation, design and engineering which creates a huge opportunity for boutique products and services in overseas markets.

“The early stage innovation commercialisation that KiwiNet fosters combined with market contacts and experienced business partners such as banks and business organisations will allow New Zealand businesses to bring valuable new products and services to niche markets internationally.”All finalists will deliver a presentation in the final stage of judging on 11 June in Auckland. Winners will be announced at a reception that evening.

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PolyBatics initiates field trial of cutting edge ag-tech

Tags: Ag Tech

PolyBatics, Inc., whose novel biobead platform offers applications for diagnostics, antigen delivery/vaccines, bioseparations and many other uses, today announced the start of field trials of a unique tuberculosis (TB) skin test based on the company’s bionanoparticle technology.

The Ag-tech field trial is being conducted over a next few months in New Zealand cattle under the leadership of TBfree New Zealand and the Hopkirk Research Institute. The DIVA skin test was developed in conjunction with Dr. Bryce Buddle, Adjunct Professor of Infectious Diseases, Hopkirk Research Institute and Principal Scientist, Infectious Diseases Team, AgResearch, using PolyBatics’ technology.

Dr. Paul Livingstone, Manager of TB Eradication and Research for TBfree New Zealand said, “We are pleased to be supporting this study using a cutting edge technology and in the process, reaffirming New Zealand’s place at the forefront of managing and eliminating tuberculosis in wild animals and in our farmed livestock.”

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FMCA FAQs for Angel Groups

Angel Investor groups will have a number of key questions about the Financial Markets Conduct Act 2013 (FMCA).

This note sets out to answer a few of them. The new laws are detailed, however, and complex in places – specific advice may be needed for your circumstances.

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NZ leads Europe on University R&D Commercialisation

Unlimited’s report on Australasian University Research and Development Commercialisation puts New Zealand ahead of Europe but behind the US.

Professor Phillip Butler of Canterbury University and his son Dr Anthony Butler commends early stage funds for the role they play in catalysing ventures and bringing skills contacts and experience to startup ventures. “I’ve been in the university system for less than ten years, and even in that short time I’ve noticed a cultural shift,” Anthony says. “It’s no longer the view among academics that you only get involved in commercialisation to make money. There’s now a recognition that if you have a good idea or product and you want it to have an impact on society, then you need to take it through to commercialisation.”

Phil Butler says the development of technology transfer organisations such as Canterprise and UniServices at Auckland has been essential to help spinout companies like theirs get cracking.He is also of the view that New Zealand leads Europe on commercialisation, while lagging behind the US. “There are a variety of mechanisms out there now and I think that variety is a strength.”

Yet there is still plenty of room for improvement, according to the Butlers. The notion that the process of commercialisation involves two distinct phases in which the scientists step aside for the money men is a persistent fallacy, Anthony says.

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NZ Technology aims high with business software, not social

Tags: technology

Reuters reports that New Zealand technology firms are rolling into global markets, selling software to businesses that locks down mundane tasks like accounting and expenses, rather than developing slick social media apps that consumers download free of charge.

Led by Wellington-based Xero Ltd and its self-styled “beautiful accounting software”, the South Pacific island nation’s blossoming cloud-based tech industry is now the country’s third-biggest export earner behind dairy and tourism.

The practical New Zealand approach diverges from the mass consumer offerings developed by some counterparts in the United States, like messaging service WhatsApp or photo sharing site Instagram. 

Read more from Reuters

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Pledgeme starts crowdfunding equity

Anna Guenther from Wellington, founder of two-year old crowdfunding platform PledgeMe, has announced the move into equity crowd-funding.

There would be no investor caps for equity crowd-funding, although there was a $2 million cap on what a company could raise through crowdfunding each year.

Companies no longer needed to prepare a prospectus or investment statement before raising funds from the public.

Ms Guenther, a graduate of the University of Otago’s Masters of Entrepreneurship programme, said PledgeMe’s equity platform could start trading anywhere from mid-April.

”We definitely see ourselves as almost the Trade Me of social good, helping people fund things they care about,” she said.

There was plenty of interest in equity crowd-funding and Ms Guenther believed the challenge was to educate both investors and businesses in what it meant and how it worked.

Read more from Otago Daily times

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Aussie Angel Investment research report launched

StartupSmart, an Australian news and advice resource reports that a North American investment research group plans to partner with an Australian angel investor network to reports on Australian private investment activity.

Representatives from the Angel Resource Institute (ARI), which publishes the quarterly Halo reports, and the Australian Association of Angel Investors (AAAI) will sign a contract and commit to expanding ARI’s research.

“ARI has worked with AAAI for years, and we are excited to formally partner with them on the Halo Report: Australia,” said ARI chairman Michael Cain in a statement. “Angel investing is a global market, and now our research will reflect that same internationalisation.”

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ACA Report 3: Corporate Acquirers & Acquisition Strategy

Another instalment from ACA Summit 2014.

This session on corporate acquirers was sponsored by Procter and Gamble. Steve Baggot represented the company on the panel. Also on the panel were Frank Ball from New Dominion Angels who moderated the session. Michael Loria from IBM and Peter Rosenblum from Foley Hoag Law Firm also spoke.

CORPORATE ACQUIRERS – how to engage, deal sizes, commoneerrors and what breaks deals

Steve Baggot from Proctor and Gamble, said they do a deal every three days. JVs, licensing etc

Foley Hoag – Peter Rosenblum noted his firm help clients create strategy around deals

IBM’s – Michael Loria said his firm try to approach opportunities without determining structure of the deal until they understand the opportunity. More and more they are seeing the need to incubate an opportunity they have spotted. Sometimes they may buy an “option opportunity” in that business and often want access to customer base and sales team. They tend to “either have to drive or absolutely sit in the back seat”. This then means they can have quite a long relationship with the opportunity before they buy it.

Building a relationship is vital. It’s a long process. Using relationships as a runway to an acquisition.

What happens to the people? At P&G many people are there from acquisitions.

Most of the opportunities they are looking for are ‘what is keeping people up at night’ – problems the company is trying to solve. Steve likes the things that are serendipitous, but these still have to meet the test of strategy and business fit.

Law firms like Foley Hoag often help with the match making between venture and acquirer. But specialised law firms are better at the strategy than the match making. They can also help with investment banker identification. But be wary of whether you actually need these guys.

How do acquirers communicate their needs? Check their website. But this is generally only a slice of what they need. Always be on the look out for big acquirers looking to Invite people to share what they are working on.

It’s often a good idea to contact regional offices. Most will have entres into the acquiring dept of the big corporate. Odds of reaching the relevant person or even the acquiring team or department on your own are about zero. Look for someone to provide an introduction.

Make sure your legal or investment banking teams have credibility with the acquirer. Make sure they know the acquirers strategy and market, intimately and practically. Be wary of the business development guys at investment banking firms. They can become conflicted. And be sure, in the same way you appreciate the conflicting drivers when you are talking to the sales team at a corporate acquirer too.
Neither care about how big the company is that they are acquiring.

Almost all corporate acquirers won’t be getting into DD until they are quite sure it is a strategic fit. Then if it is a fit “about 10 billion” people will show up on your door step. And will they require tons of data. Internal data and intel about the company and about your market.

They will then review the business fit to be sure the acquirer can extract the value. Some deals take 21 days, some two years.

One of the first questions to ask a potential acquirer is do you have people and budget for acquisition – you need a “yes” to both questions and dig a little deeper on this too. Be sure the answer is “yes”. Strategic and resource fit are important.

A lot of deals fall over on IP issues. Sometimes trade marks. Corporate acquirers generally want all IP in the company but not always. Software business – big bump in a deal is often caused if the relevant software is open source. Most big companies don’t like it. Contracts are another bump in the road. Distribution relationship can be a potential land-mine if it’s with a competitor of the acquirer. Even some existing customers can be a problem to an acquirer, especially if you can’t get rid of them easily so that your acquirer can sell to their own customer base.

As an Angel Investor director you have to help your companies understand how they will manage the business while acquisition is going on. So often the company falls over while a deal is being done… often running out of cash because they neglect sales generation.

The modern style of doing a deal is to set up an electronic data room. Be sure you know which things you should and shouldn’t show the acquirer. Some things they shouldn’t see until they have bought the business

Valuation is the biggest derailer. Passion gets in the way of a clear eyed view of the real value. Based on data and research plans. Ask yourself, how do we learn together to get to an aligned view on valuation. Look at comparables in the market. And look at the risk. What is it worth to us. But every case is specific.

The heart of the issue for Angel’s is  – what can we expect our Investee to do in the buyers environment – not necessarily what it is doing in its current environment.

It’s not about what you have but how the buyer might look at it.

On my way home from the ACA Summit 2014, via Boulder I visited Trimble Navigation – employing over 3000 people, selling over 500 products in 35 countries and making GPS receivers, laser rangefinders and inertial navigation systems. Trimble have acquired 80 (yup, 80!) companies in the last 4-5 years. Some of these from NZ. They just recently acquired an Auckland company for $10m+. So the message is clear, American buyers are active! Good news for New Zealand Angels and their Investees.

– Suse Reynolds, from Washington, DC, USA

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ACA Report 2: John Huston on exit strategy “Driving lucrative exits is not a quick flip…”

John Huston led a session at the 2014 ACA conference (www.angelcapitalassociation.org/2014summit/) in Washington, DC, on “Driving Lucrative Investments from the Board room”.  His focus on exit strategy was clear and loud.

John, ex-Chairman of the Angel Capital Association & the Angel Resource Institute, is quite literally a walking wikipedia of Angel intel and an energetic presenter. He founded his Angel investment group, Ohio TechAngels, in 2004 after retiring from a 30 year banking career and is currently investing out of their third fund focused solely on Ohio-based technology start-ups. At 282 members it is one of the largest groups in North America.

We will be welcoming John Huston to New Zealand in October 2014 at the #AANZ Summit14 at Orakei Bay, Auckland. Register for the Summit today to hear from John in person, places are limited so be quick.

John started his ACA 2014 presentation advising “great exits start with exit-goal congruence, and therefore it is important to give founders the heads up this is where you are heading from the get go. You are both going to be building financial and entrepreneurial wealth.”

“Your message regarding exit-strategy to founders: if you want $3-5m in your pocket in about 5 years and you’ll be working 80 hour weeks. Minimum wage!”

As their angel investor you want them to see their baby grow up and be successful.

He then asked the question Angels should all ask themselves: Are you growing your “ABC” (angel backed company) to attract financial or strategic buyers? Financial exits which are 6-8x and based on ebita take too long. This is NOT what you are after. Strategic exits is about building real value.

Are VCs required for the exit? He had no good or bad answer. But noted that VC’s goals are rarely aligned with angels. They are required to balance their duty to LPs against ABC shareholders and will generally want all ABC directors off the board. And always ask is the VC director you are getting the one that PERSONALLY drove the last exit. Chances are he didn’t. VC’s are motivated by raising the next fund… and what metrics they need to demonstrate to do this.

Publicly owned companies also have very different goals from an ABC. Maxing shareholder value etc not selling the company. Share performance vs sector performance etc, ie: not big multiples.

Angels buy and sell our shares at a negotiated price and do the following:

  • Raise follow on rounds
  • Help recruit team
  • Replace CEO
  • Build strategic value
  • Drive lucrative exits (which are NOT the same as ‘quick flip’ strategies)

Other gems of Angel wisdom from John included:

Dilution kills you. So be as capital efficient as possible.

Angel Investor directors need tools training and aligned expectations.

Build a capital access plan. If you need VCs you are adding another layer of risk. You will have to increase the price and value enormously to outweigh the dilution.

Know the difference between an IRR and multiples.

Take an inventory – your strategic assets (what you own) and capability (what you do).

Identify potential acquirers. Prioritize a maximum of 5 identified by their ability to pay $50m for the company and their willingness to bid. Then work on their willingness. Can you sell anything to them and then identify the customers that will impress them? Not every customer will have the same value to the acquirer.

Track TSB (targeted strategic buyer) and attract their attention.

Engage a banker. If needed.

Have all directors take more of a role in the sale of the business so that CEO can keep driving the sales.

Alternative strategy is “build a great company and they will come!” which is not an exit strategy that has any more chance of success than build a great product and they will come.

John concluded with a bunch of questions Ohio Tech Angels have identified to ask founders, with number one on the list being the need for them to answer: Why would an acquirer want to buy your company?

– Suse Reynolds, from Washington, DC, USA

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ACA Report 1: Dave McClure “Write a small cheques & spend time”

The AANZ’s role includes curating intel from the rest of the world for the use and benefit of New Zealand’s Angel Investors. The recent 2014 Angel Capital Association Summit (www.angelcapitalassociation.org/2014summit/) in Washington, DC, was a great opportunity to do just that.

Billed as the largest gathering of angels in the world it bought together top insights into this rapidly changing environment. Features included how social media is affecting the early-stage landscape, investment best practices, innovations in deal terms, exits – and how rules and legislation from Washington is affecting our world (and what we can do to change it). 

A highlight of the event were words of wisdom from one of its headlining presenters Dave McClure of 500 Startups.

Dave’s session was fascinating.  He is the founder of 500 Startups; a seed fund and accelerator based in Mountain View, California and one extremely colourful character. Everyone was rather wide-eyed with anticipation about how many times he would, to quote many of them, “drop the F-bomb”. He visited New Zealand in 2013 with his international Geeks on a Plane.

What follows here, and in my other report posts are notes written while attending the ACA presentations.

Dave started with $300k when he first began investing in startups

He invested very small amounts. And was very much learning on the fly. He made 13-15 investments and had 3 exits.

This took place over 4-5 years and he learned that “most of the time you’re wrong”! Getting something back is good.

But doing a lot of little investments was a good strategy. It allowed him to explore ideas and companies he pretty much stumbled into.

Then the Founders Fund gave him $2m and two companies have delivered 100x.

Dave is firmly of the view that the minimum portfolio size must be at least 20. And you must be prepared to admit you’re wrong… A LOT.

“Diversification is the one and only message I would leave you with.”

If you have $200k to invest, then invest the first $100k in $5k amounts into 20 companies.

Save the second $100k to identify the ones kicking on and do some follow on in slightly larger amounts.

He’s had lots of small exits and learned that valuations matter a lot. So keep them as low as possible.

Don’t play for ownership play for valuation.

Dave had a interesting DD tip which he’s learned makes a a great deal of sense – there is more to be gained from looking for upside opportunity than looking for downside risk. So don’t spend too much time looking what can go wrong.  Explore the extent to which this deal can genuinely disrupt a market and make lots of money from it.

In his view Dave figures if the founding team can make a product, sell it and manage costs you’re onto something.
Even when “we might lose a dollar but might make ten” still looking at upside… this means even if the DD shows its dodgy, do it!

Dave believes the angel and startup industry is getting easier to work with. Lots more visibility on deals and investors.
And “we are getting smarter… not much, but a little”. There is so much more information out there now and this helps

Customer acquisition is getting easier.

Dave also recommended his fellow American Investors look closer at potential in international markets and gave Africa as an example – which has 20 of the world’s fastest growing countries. In next 5-10 years the whole world will have access to Internet.

Other bullet point gems of wisdom included:

Companies are going to fail on smaller and smaller budgets.

Syndicates are easier to get started. Much easier to organise and pull together than raising an investment fund.

Dave suggested most of problem is with the angels. But we are also the solution. We should be investing smaller cheques earlier and let the ones not making it fail and follow the ones kicking on

He lamented the fact that there are “lots of people with money who aren’t giving it to entrepreneurs”!

Angels and investors are part of the solution… write a small cheque and spend some time with the founder he urged us.

This next point is a good one… and bears reading carefully. Dave made it well.

“Ownership matters on a relative basis from the first cheque to the second cheque. At the first cheque you are investing without much information about the likelihood of success. You want more ownership when the perception of value is increasing but the price is not. So you are looking for where the risk has reduced but the rest of the market does not know this. You go hard here and go for ownership rather than valuation. You get to arbitrage that gap.”

Dave said you should look for product data which is backward looking to validate its quality and the market. If the product is good then the team should be too. If product is fucked up then the team probably is too.  (F-bomb dropped at last!)

Angels should be the Henry Ford for investment. There is a lot of talent out there and we should be giving it money.

– Suse Reynolds, from Washington, DC, USA

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