Messaging for founders and investors

The AANZ have put together below a few pithy points about what it’s important to remember in the current challenging climate. Feel free to lean on these, use them in your own coms or let us know if you think we’ve missed anything critical.

Suggestions for right now for all portfolio founders to help them focus on the right things to protect their venture

  • Engage customers … be proactive in supporting them to ensure best chance of being paid. Engage with the CEOs of those customers. Churn costs more than lost sales. Segment your customers. Who is likely to be in business in six months and who isn’t? It’s harsh, but invest in those likely to survive
  • Retain staff … both for the company and wider society it is critical we keep people in work. This needs to be a balanced approach and effort that is shared by shareholders, the government and the company. But look to reduce hours or find other ways to reduce staffing costs
  • Extend cash … develop tactics to reduce costs as well has accessing funding to bridge from survive to sustain to thrive. The sustain piece is important. This will pass. And companies that get out the other side will be a in powerful position.
  • Preserve value … weigh up short term loss versus long term gain with a view to leading the recovery. Out of chaos comes opportunity – every time there has been an economic downturn (1929, DotCom bust, GFC) some massive companies have been created including Xero, Lanzatech and Vend.

Suggestions for founders who are thinking of raising or who will need to raise in the next six months

  • research and know your investors – it’s all about relationships, now more than ever
  • so reach out personally and individually – offer vidconf updates, be authentic, be empathetic
  • if you were thinking of using a convertible note, SAFE or KISS then switch to equity
  • think about valuation resets – but be sure it’s in the context of your (revised) capital strategy and ensuring that when you get to a liquidity point you still have 30-40% of the cap table
  • think about what investor friendly terms you can offer – but give more emphasis to economic terms (eg full ratchet anti-dilute and preference shares) than control rights (eg letting the investor director be totally in control of hiring and firing or imposing unreasonable limits on how and when the company makes expenditure decisions)

Suggestions to investors

  • the rationale for angel investment remains as valid today as ever – from a head and heart perspective. From a ‘head’ perspective valuations will be down and the ROI that much higher out the other side. From a ‘heart’ perspective you are helping to grow businesses that are creating great jobs and making the world a better place.
  • be aware of emotion overriding reason – don’t feelings of scarcity chew you up
    that said, angel investment should only ever make up 5-10% of your NET wealth
  • review your portfolio to assess which ventures have the best chance of surviving, sustaining and thriving
  • make value based decisions – back founders growing ventures which are truly additive to the world, which are developing products and services people genuinely want and which have sound business models
  • support the founders you’ve backed – say yes or no quickly, even small(er) cheques can make a difference
  • be generous with contacts, intel and emotional support
    • you’re an angel investor, now is the time to act angelically !!

Investing in challenging times

Avid Legal’s Bruno Bordignon shares some key considerations:

Start-up world is often counter-cyclical when it comes to the financial markets – let’s not forget many of the current cohort of successful starts-up were born out of the 2009 GFC.

So what makes them more attractive in challenging environments? Here are my thoughts:

(1) pain has a price – most start-ups evolve out of some pain point that they have found an innovative way to solve, however trying to get market traction and people valuing that “pain” in good market conditions is difficult. We see many great start-ups with killer solutions, but when faced with selling that solution are hit by organisations who would rather status quo (even if it costs more!) than solving their pain. Times like these force people to rethink the status quo.

(2) agility is priceless and even better creates time – the fact that start-ups have never been comfortable and always cash-poor means that they keep iterating on themselves and are agile in their approach to knowing their business and understanding their market. This gives them the opportunity to be smart with cash, and run small iterations (or tests) on the market in an efficient manner – being able to rapidly iterate in this way extends their runway and time – where larger businesses and competitors sometimes don’t have the luxury (with their locked in cost structures).

(3) control over destiny – often investors will revert back to investing more in start-ups in times of unstable financial markets as they feel that they have more control over their investment. Now we aren’t talking about veto rights at a board level, but knowing that they are involved in a start-up that they can directly impact and influence through their thinking – and being part trying of a team executing on a vision. When combined together with the right set of people can be immensely powerful. There are plenty of investors out there right now looking to have a direct impact on start-ups lives – in more halcyon times, it is often difficult to get the full attention of investors, so now is the time for start-ups to truly tap into smart money.

While all of the above represents a significant opportunity to start-ups, challenges still remain. The key ones from my perspective are:

(1) team attrition – behind every great start-up there is a great team, and retaining that team will be critical. In recent discussions with Phil McCaw he was already cognisant of the “flight to safety” reaction experienced by start-up teams where people are tempted to go back to a perceived safer corporate job. Start-ups will need to work on ways on keeping their team tight and revisit how much they have allocated in ESOP as part of looking at ways to retain that talent.

(2) being heard – with all of the noise in the market around COVID-19, most corporates tend to be focussed on the immediate problem and not some of the solutions waiting to emerge. Getting to get to the right people within organisations to sell has always been difficult, and now if you manage that, getting that persons attention will be the next challenge. Perhaps the sometimes unconventional sales approach of start-ups might just win out here!

(3) telling the story – with so much disruption in markets, it can also sometimes be difficult for start-ups to articulate their proposition – too many opportunities can be as much as a curse as too few. Start-ups now more than ever will need laser focus on their story, purpose and proposition – this is not just limited to customers, but also to investors. Start-ups will need to be using every piece of data on their business (and their market) and demonstrate the learnings from their iterations to show how they will emerge as a lead player in their market.

While cash is always king, we have seen from previous experience in the 2009 GFC that investment runs counter-cyclical and there will be investors looking for a home for their cash. Expect to see a return to syndication, and people sharing a lot more for the collective good – this can’t be a bad thing, right? So let us all practice more random acts of kindness and work together to seize the opportunities ahead!

Two capital-ivating days in San Francisco – by Katherine Sandford

The best business trip I’ve been on in over five years has left me grappling with how to compile my screeds of notes into a one-pager (well, maybe two or even three) that makes some sense! Oh my goodness – talk about gold! So much insight, so many gems!

Hosted by the Edmund Hillary Fellowship in conjunction with the Angel Association of New Zealand, I was part of a delegation to San Francisco of NZ companies looking to expand into the US market and/or raise capital there. Our group of ten included founders and investor directors of five very diverse companies, so the networking from that part alone was a great start. We were escorted around the city and the Valley by a couple of outstanding fellows, yes real ones – EHF Fellows, Josh Hannah and David Yuan. Over the course of two days we engaged with a number more Fellows or friends of Fellows – we even had lunch and a chat with EHF Founder and CEO Yoseph Alele, who happened to be visiting from Wellington. Dinner with Silicon Valley Bank was a bonus, but it was the real and honest experience and insights that we heard from Kiwi Founders, including Victoria Ransom, and a broad spectrum of VCs, that really have made an impact – and I’m still pinching myself as I re-read my scrawled notes that I was actually there!

First stop, Matrix Partners where we met Kiwi Founder of Predict HQ, Campbell Brown, who’d relocated his family from NZ to the US in order to test the hypothesis that he was onto something big, and that he could secure US venture capital. He checked out Seattle as a potentially easy landing spot, but ultimately the amount of capital in San Francisco made it a no-brainer.

Campbell is a guy who loves a challenge – he’s a go getter who claims to like a lot going on in his life all at once – yeah right, like moving countries, and growing a business with no local resources and raising money and adding a baby to the family – all at the same time!

Setting himself up in a co-working space, not really knowing anyone, Campbell networked like crazy with founders. He figured that those who had successfully raised capital would be the best connections to make warm introductions to potentially friendly VCs.

And for Predict HQ, Campbell’s hunch was right. On the back of securing Uber among other large enterprises as customers, the company secured US$10M in a Series A round late in 2018. Campbell said it was a warm introduction that landed him a meeting and ultimate VC investment.

From what he’s learned, Campbell says that US VCs are looking for the following attributes in their search for their next investment:

  • A known entity, or at least an introduction from another founder
  • Net new revenue
  • Ability to expand the business – the best investors are looking for $100M potential and the ability to IPO from there
  • Victoria Ransom puts this slightly differently as the need to have a huge nascent
    market, and that you need to think global from day one with your go-to-market
    strategy
  • A solid team and culture
  • US location, preferably San Francisco

So how did this founder-centric shortlist stack up as we met with VCs over the next couple of days? This quote fairly well sums it all up. “We are looking for a kick-ass team, building a kick-ass product in a large-ass market”. And in our final meeting at General Catalyst, Trevor Oelschig’s list of the big pitch mistakes is further confirmation.

The Series A No-No’s (aka the BIG pitch mistakes)

  • Not being able to articulate your go to market motion
  • Not being able to talk about your competitors
  • Inability to attract the right talent at the right time
  • Inability to articulate your path
  • Not knowing your numbers cold
  • Not having spoken to enough customers

And there was even more evidence to show that Campbell’s list is well, pretty much on the money!

A Known Entity
Ultimately it comes down to personal relationships and who knows who. Word of mouth, trust and the network are your friends. Good content will result in VCs following you and reaching out to you, unsolicited. When they’re doing research, investors love seeing logos out there as it shows traction and piques their interest. For GV (formerly Google Ventures), introductions to companies depend on their networks – many Googlers route companies in. Other VCs advised that we should be visiting San Francisco regularly for “pre-meetings” without any investment pressure, to build credibility and relevance – and importantly to build trust over time.

Net New Revenue
The ease with which you raise capital is directly related to the progress you’re making – not with product, but in the market with real customers. Companies need proof that they have (1) product market fit, (2) raving fans, aka referenceable customers, not a team that loves the product they built or are planning to build, and (3) a growing pipeline of real opportunities.

Ability to Expand the Business
Companies need to show repeatability to demonstrate that there is a big business to be built. It really matters what sort of traction you have and whether that’s increasing. One VC even went as far as to say that he finds it difficult to imagine a market that doesn’t exist yet – so we need to be sure that we are clear on the existing problem that we are solving for a proven and potentially massive number of customers. I loved Victoria’s comment about being able to be a salesperson and “make your company seem as big as you can, without crossing the line”.

A Solid Team and Culture
GV uses analytical input into their process, but Graham Spencer, Managing Partner, was hesitant to answer whether GV uses any sort of analytics tool to assess entrepreneurs! An experienced team, who have had prior exits and many years in the target industry reduces VC risk when assessing an opportunity. Transparency is important – and founders must be able to present real candour about the challenges they are going to face – confidence in knowing that there will be obstacles that are going to need support to work through. The ability to recruit and retain people is key, so it’s important to have a unique set of values and attributes that attracts people to your company.
Founders must be likeable – the humble kiwi attitude serves well. And making that first impression is everything – you don’t need to fly to meet in person but make those first few moments on the phone count.

US location, preferably San Francisco
Ramzi Ramsey at Softbank said it well – “US early stage VCs are lazy, and distance is a problem”. He went on to say that the investor’s greatest resource is time and if they are wanting to add value then the more cost/time it takes, that just leads to it being more effective to do it locally.

And there was more support among the VCs we met for a San Francisco location, with them saying things like – Every geography has lost mindshare to San Francisco, so being local is best. Ultimately the US is a giant market and to win there means you need to be there. The more specialized the market, the more important it is to be US-based. On the other hand, if you are building a consumer product for India, then perhaps the US is not so important. Generally, a C-corp in the US is the preference as it’s lower risk. If the company’s NZ-based, but prepared to flip to the US, relocating the founder/CEO and the sale team and leaving the R&D team in NZ, then that would be acceptable.

Some parting thoughts mixed with a bit of advice
So I’ll just say that I think the insight gained in our first tour engagement is pretty much spot-on when assessing what San Francisco VCs are looking for in their investments – known entities, with a solid team and culture, traction in a market with a massive opportunity, and preferably with the founder located or relocating to San Francisco. There are always exceptions, but I reckon that it’s likely much tougher going for those in the minority.

Kiwi founders need very big ambitions and to think global from the outset, then be open to making the move. They need a board that supports that, so be sure early investors are aligned with those ambitions. The brave ones who have gone before have proven and are still proving that San Francisco is where (most of) the action, and (most of) the capital, is.

VCs are generally looking for reasons to say “no” and 99% of interactions get that outcome. To stand out, in addition to getting to product market fit and building a meaningful customer base preferably in the US, founders need to be networked in, known in advance and publishing regular content. “Content is a honey-pot for VCs” – one said we’d be shocked at how much they read.

As a founder, be prepared to tell your personal story, in person, not in slides – “the authenticity of the moment you decided [to start your business] is very important. This is VC Candy”.

When at the point of taking on a VC, or any investor for that matter, ensure they have the same stomach for risk. In the words of Ling Wong, EHF Fellow and General Partner at Sealane, regarding risk appetite, “Past behavior is a great indicator of future behavior in that case. When things go bad, as they invariably will, then you want them to work through that with you.” So, be thorough in your VC due diligence before accepting capital into the company and know what sort of relationship you’re getting into.

Relationships are everything. Common sense really, but it is important to cultivate them, building interconnected and robust networks. These take time and effort to develop, but this is one of the most important things for a founder to be able to do. So, find ten founders that are one step ahead of where your company is at and engage with them. Their knowledge, insights and connections will help you to take that next leap – chances are each of them can introduce you to a whole bunch of VCs.

And finally, at yes, the end of page three – if anyone reading this has the opportunity to participate in a future delegation of this nature, I cannot recommend it highly enough. I’m guessing I won’t be allowed on the next one – but I’d certainly go again, given the chance. Thanks EHF and AANZ for a truly capital-ivating tour.

Words by Katherine Sandford
November 2019

Why I became an angel investor, and why you should too

Lou Donnelly-Davey chats to Katherine Sandford from Enterprise Angels in Tauranga to get the low down on what drove her to become an angel investor and what some of the key considerations are for those thinking of doing the same. 

Katherine’s a woman of many talents. A kind, smart and obviously ambitious woman who not only reached great heights in her 23 year global career in customer support, sales, and general management, but who was, once introduced to angel investing, hooked. 

Katherine gave up a long term international tech career to come back home to New Zealand where she took up a role with New Zealand Trade and Enterprise (NZTE) as a Customer Manager. Knowing this would help reintroduce her back into the New Zealand business ecosystem, Katherine took every opportunity to attend events and network noting she’d often take three coffee meetings in any given week. Her time at NZTE enabled her to ease back into the NZ business landscape, plus gain valuable connections and learnings.Throughout this time she was exposed to elements of angel, venture capital and other funding mechanisms along with the associated programs on offer to New Zealand early stage ventures. This all came in handy when her investment advisor suggested that she might look at angel investment as part of her overall investment approach. 

Why should you consider Angel Investing? 

For Katherine, it was all about considering angel investing as part of an overall investment portfolio. When her investment advisor suggested that she add angel investing to her portfolio she somewhat brushed it aside, believing she didn’t necessarily fit the archetype of what she considered an angel looked like in New Zealand. Her local angel network did fit the traditional picture, however after attending an Auckland angel event, she saw lots of younger professionals getting involved which opened her eyes to the fact angel investing isn’t just for people of a certain age or a certain demographic. She realised it can be for anyone who has the capacity and willingness to do it, so she jumped in. 

She says, if you’re looking for big returns in a short period of time angel investment is not for you. As a small part of a balanced portfolio for people with the requisite interest and risk appetite, there is a good fit however. 

 

“Angel investing is not restrictive. It’s not for a certain age, or gender, or demographic. It’s for anyone.”

 

The other, possibly more compelling reason for Katherine was the opportunity to give back. Or in her words, the opportunity to be of service. 

 

“Giving back is probably an overused phrase, in my own context I don’t feel like I want to necessarily “give back”, for me it’s more about “how can I help? How can I best serve the business and leverage the knowledge and experience that I have?”

 

Katherine says there is a huge opportunity for those who have had experience in business – onshore or offshore and particularly in the tech space to give back. Offering support and insight to fledgling businesses as part of a broader investment scenario makes so much sense. 

What are some of the key things potential investors should know before they start?

Think, Portfolio: Angel investing is not a one off activity. You can’t just make one investment and expect to get returns. You must think of it as building a portfolio over a longer time frame.

Get Involved: You’ll get the most out of it if you’re prepared to put yourself into it. It might be that you will need 20+ investments to get a reasonable rate of return. You obviously can’t be involved in all of them, but you should be prepared to get involved in at least some on a deeper level. That might be at different stages, it might not necessarily be at the beginning, but later on in various forms. This could be as simple as being part of a due diligence team at the beginning of a deal or it could go as far as working as an executive or in Katherine’s case as an investor director, and eventually, Chair of the Board. That’s pretty full on immersion!

People First: Think people first, idea second. Always look for a founder who you can see yourself working well with, assess their ability to be coachable, and to build and motivate a team as much as their potential to develop the business. Often an average idea can go the full distance if it has the right human input. 

 

 “I tend to make my decisions very quickly and it’s almost always about the level of connection I feel with the person pitching” 

 

Match Your Values: The more you put in, the more you get out of it. It’s really important to get a match with the companies you are choosing. Katherine says she’s learning as she goes along that alignment with her values is really important. Initially, she says she was looking at almost anything, but as she’s maturing as an angel, she’s now more conscious of aligning her investment strategy with her values and the things that are really important to her. Overall, have a plan. Think about what you actually care about and go from there.

 

“Over and above a great team and idea, it has to be solving a problem in a space that I care about.”

 

Alignment of Purpose and People: Align yourself with an Angel group that suits you. Do your due diligence on various clubs and groups. Your local group is a great start and will enable you to participate at the local level, and get involved in local opportunities. But as you learn and grow as an investor you become aware that the various groups have different approaches and there might be others that might suit you better and better align with your goals and objectives. The people that are involved, the way they go about things and the fee structures vary from club to club. Find one that feels like a good fit for who you are and what you are looking for. 

Katherine Sandford

How do you get started? What is the first thing you need to do if you’re considering becoming an angel investor? 

Go to a meeting and a pitch night if you can, ask plenty of questions and find your tribe!

The first step is to get along to a member meeting, probably in your local area for a start. Angels are incredibly generous in terms of the information they will share, so ask lots of questions about the good, and the bad. Ask current investors about their strategy and approach to investing and what motivates them to be a part of this ecosystem. 

Get a feel for how things are run and whether you feel like you’re part of that tribe or not.You’ve got to feel like you’re in the right place. 

 

“I found it pretty intimidating at first – I was nervous, wondering do I really belong here? Sitting amongst who I thought were all these very wealthy people and thinking ‘that’s not me!, but the thing is, the whole construct of the angel investor is really quite warm and quite lovely.”

 

Katherine also recommends getting along to a pitch night to get a sense of how this works. It’s incredible to see things in action. And you’ll get a true sense of the real and raw aspect of what is actually happening. She adds that the level of human engagement is really quite exceptional. 

 

“There was one particular pitch night I went along to and I thought “oh I quite like the look of that!”… It was right then that I got hooked really.”

 

The actual due diligence process process itself, working as part of a team of really capable people from different areas of functional expertise, was another great learning opportunity, Katherine explains. She goes on to say that, not only do you have the opportunity to invest in companies and great founding teams and ideas, but if you engage, you get to work with super talented people which results in incredible learning from a broad perspective.

What sort of people and what type of personality traits make a successful investor in your opinion? 

In general, angel investors are givers, not takers. The most successful angels have a good nose for business but are also incredibly generous with their time. Katherine goes on to say, that those who take the time to get involved with the companies they are supporting get the most out of the experience both financially and from a broader perspective. That might mean a simple email of support off the back of a shareholder update or the time and attention that is devoted to supporting founders. 

The top traits that make a great angel according to Katherine are someone who is deeply committed and extremely humble, someone who is almost invisible, behind the scenes, but in fact is making a real difference, someone who exudes warmth and humility and lastly, a person who has a genuine regard and care for people, as well as business.

What does success look like for you as an angel investor? 

Success is two-fold for Katherine. Contributing to the success of New Zealand business is key. Katherine prefers to invest in companies that have a global trajectory and ambition, rather than those with a domestic focus. 

Of course there is the financial return. But that’s certainly not the key driver for Katherine. She gets more of a buzz out of being involved and knowing that she’s adding value. 

For Katherine personally, with her investment in Utility Electric Vehicle (UEV) company UBCO, she started with due diligence, got involved as an executive and board advisor, then became a director and now chairs the board.

 

“It’s been a real journey. I feel like a part of the team.”

 

It’s a feel good factor for Katherine, the fact that she knows that she is making a difference. Notwithstanding the financial and altruistic benefits, it has to be fun! Sometimes it’s definitely not, but that’s generally short-lived, and if you have a great relationship with the team and founders, she says you can make the most out of any situation. 

Katherine used to think people who put angel investing on their profiles or on public platforms like Linkedin were a little pretentious and never thought it would be for her, but now she’s proud to be part of the angel community. She says angel investors fill a crucial gap in the ecosystem, which goes way beyond the club or local level. 

 

“I now have a high degree of comfort being associated with this ecosystem and actually being called an Angel. Ten years ago I would have never imagined it.”

 

Be careful though! Angel investing can get you hooked and for Katherine this has led to her becoming a much more serious investor. 

 

“I got hooked! Thats the great thing though, if you can find a great fit, the potential is limitless.”

AANZ’S NEW CAPITAL RAISING TEMPLATES – Calculating the ‘Issue Price’ per share

from Avid Legal’s Murray Whyte

The new AANZ Term Sheet clarifies how the issue price per share is usually calculated. Even some experienced investors, companies, and entrepreneurs have struggled with the concept under the NZVIF templates, so it is worth clarifying this in more detail here.

The issue price per share for a capital raising round is usually derived from an agreed company valuation on a “pre-money” basis.  That is, the company’s valuation immediately before the investors pay their investment amount to the company.

The issue price per share is then calculated by dividing this pre-money valuation by the number of existing shares in the company (again, before the investment is made), on a “fully diluted basis”.

A “fully diluted basis” ordinarily means treating all unexercised options, convertible loans, and other securities, whether currently issued or otherwise reserved by the Company, as if they have been converted into shares.

Most typically, “fully diluted basis” will include treating all convertible securities as if they’ve been converted. However, the template also provides some flexibility to negotiate away from the general understanding of this term depending on the context of the investment.

Two examples have been provided below that illustrate how this can play out in practice.  Both are based off the following hypothetical investment round:

  • $1,000,000 investment;
  • the company’s agreed pre-money valuation is $3,000,000;
  • there are 3,000,000 existing shares (before the investment is made); and
  • the company has reserved 300,000 shares for an Employee Share Scheme / ESOP (and I’ll presume that no shares have actually been issued under any scheme).

Example: Fully diluted basis

Most of the time “fully diluted basis” will include shares in any Employee Share Scheme / ESOP.  This would mean the issue price would be calculated as follows:

i.e. (if rounded to 5 d.p.):

Therefore, the investors will be issued 1,100,000 shares for their $1m investment, and the relative percentage ownership of the company post-investment would be:

  • Existing Shareholders:  3,000,000 shares (73.17%)
  • New Investors:  1,100,000 shares (26.83%)

For the sake of completeness, if the 300,000 shares reserved for the Employee Share Scheme / ESOP were subsequently fully issued, then:

  • Existing Shareholders:  3,000,000 shares (68.18%)
  • New Investors:  1,100,000 shares (25%)
  • Share Scheme Employees:  300,000 shares (6.82%)

As you can see, the dilutive effect of the Employee Share Scheme / ESOP is shared amongst existing shareholders on a pre-investment basis when the Employee Share Scheme / ESOP pool is included in the meaning of “fully diluted basis”.

Example: Fully diluted basis excluding Employee Share Scheme / ESOP

Agreeing to move away from the general understating of “fully diluted basis” will result in a marginally higher issue price and a lower number of shares being issued to investors, despite using the same pre-money valuation.

Under my hypothetical investment, by fully excluding the Employee Share Scheme / ESOP the issue price becomes $1 per share, with the investors being issued 1,000,000 shares for their investment.  This results in a relative percentage ownership of the company post-investment of:

o    Existing Shareholders: 3,000,000 shares (75%)

o    New Investors: 1,000,000 shares (25%)

If the 300,000 shares reserved for the Employee Share Scheme / ESOP were subsequently fully issued, then:

o    Existing Shareholders:  3,000,000 shares (69.77%)

o    New Investors:  1,000,000 shares (23.26%)

o    Share Scheme Employees:  300,000 shares (6.98%)

By excluding the Employee Share Scheme / ESOP from the meaning of “fully diluted basis” the dilutive effect is shared amongst both existing shareholders and investors.

There are, of course, many other ways to negotiate in this area. The examples above just an illustration of two ways to go about it. If in doubt, seek advice from someone experienced in growth company capital raising.

_____________________

NEW CAPITAL RAISING TEMPLATES – Key Changes

Angel Association NZ has taken over stewardship of industry templates from the NZ Venture Investment Fund for angel and early stage investment transactions. We have recently released 5 new equity investment templates, which you can find here, that update and replace those originally developed over a decade ago. These documents include:

  • Term Sheet (equity investments)
  • Subscription Agreement
  • Shareholders Agreement
  • Constitution (for companies with ordinary shares)
  • Constitution (for companies with preference shares)

A year or so back the AANZ convened a working group of representatives from half a dozen law firms led by AANZ sponsor Avid Legal to update outdated industry templates. We are particularly grateful for input and support from Simmonds Stewart, Chapman Trip and Simpson Grierson. Below is a summary of the key updates and the rationale for these changes.

Explanatory footnotes 

Like all templates, these new documents are only a starting point.  The aim is not to impose a fixed set of terms on parties which may result in an agreement that is out of alignment with the context and intention of their investment.

With this in mind, explanatory footnotes have been included in the new term sheet.  These footnotes are not exhaustive, but aim to provide enough information for new users to:

  • understand the optionality and high-level impact of the various terms;
  • undertake further research, or seek independent advice, on the purpose and consequences of those terms; and
  • have greater confidence amending or removing terms that are not appropriate in the context of the investment.

As always, if in doubt, it is recommended that you seek independent advice from someone with experience in early stage company capital raising.

More efficient structure for follow-on investment rounds

A key structural change has been the move away from a combined “Subscription and Shareholders’ Agreement” to a separate:

  • Subscription Agreement – focusing on the present-day subscription for shares (investment conditions, payment terms, warranty and disclosure regimes etc.); and
  • Shareholders’ Agreement – governing the enduring relationships between founders, investors and the company.

Most early stage companies (and particularly tech companies) will go through a series of capital raising rounds as their capital needs grow over time.  Separating the documents allows the shareholders’ agreement to stand alone from the initial subscription terms so it is more easily (re)used and/or updated/amended, saving parties time and legal costs over multiple capital raising rounds.

Updates for recent market trends and law changes

Those familiar with the old templates will notice a number of shifts in the AANZ templates to align with recent market trends. At a high level, the AANZ templates display a softening of investor rights.  Again, it is important to emphasise that these positions are just suggested starting points.  Where parties land on various deal terms depends on the context of the investment, and the relative negotiating power of the parties. It’s very important to be aware of these factors when agreeing terms.

Some noteworthy changes include:

  • Calculating the issue price per share: The new term sheet clarifies how the issue price per share is usually calculated. Even some experienced investors and companies have struggled with the concept under the old documents. A separate blog post on this topic will follow soon if you wish to delve into the detail further.
  • Board composition:  The AANZ term sheet introduces a more flexible approach to board composition arrangements.  Under the old templates, some founders felt shoe-horned into losing control of the company’s board without giving the issue proper consideration.
  • Tranchingand milestones:  The AANZ templates move away from tranching investments unless the context provides sound reasons for doing so.  If tranching the investment is agreed, then the guidance is that proper consideration should be given to developing appropriate milestones.  The aim is to avoid unintentionally incentivising the company to pursue a milestone where that milestone is no longer in the best interests of the company.  Milestones should be linked to the company’s planned growth path, and align with key commercial objectives.
  • Anti-dilution:  If anti-dilution protections are agreed, then a “broad based weighted average” provision is suggested as the starting point.  This is comparatively more favourable to existing shareholders than the “narrow based” or “full ratchet” provisions that were seen in earlier templates.
  • Founder vesting:  Founder vesting provisions allow the company to take back a portion of a founder’s shares if that founder leaves the company within the vesting period.  The point of founder vesting is that:

o    it is unfair to the rest of the shareholders, particularly the other founders, if the founder leaves very early on in the life of a company; and

o    it may allow the company to use the equity (acquired from the departing founder) to recruit/incentivise the person who picks up the departing founder’s responsibilities.

The portion of founder equity at risk is often negotiated, and the AANZ term sheet provides general guidance based on recent market practice.  However, context is everything and vesting arrangements may be inappropriate if the founders have contributed significant cash, if there are appropriate vesting arrangements already in place, or if the company is at the more mature end of the spectrum.

  • NZVIF specific provisions:  The NZVIF specific provisions have been pared back to just the core reporting rights and prohibited business restrictions to align with NZVIF’s investment mandate. This allows parties to negotiate terms such as co-sale rights if it is desirable.
  • Simplified preference rights:  If preference shares are agreed, the AANZ template’s starting point is a 1x non-participating liquidation preference right without dividend preferences.
  • Regulatory updates:  The AANZ templates have been updated to reflect amendments to NZ’s Companies Act, and incorporate the requirements under the FMCA regime (including suggested safe harbour and eligible investor certificates to assist with compliance).

We intend to review the templates on an annual basis, and have a dedicated email address ([email protected]) for any comments to be submitted to the templates committee for consideration in such reviews.

We believe investors, companies, entrepreneurs and advisers will find the new equity templates user friendly, and a worthy addition to the NZ capital raising landscape.

 

Angels support “Growing the Pie” report

Angel Association New Zealand (AANZ) whole heartedly supports the findings in Callaghan Innovation’s “Growing the Pie” report released today.

Overseas investment in high growth kiwi start-ups is a critical component of their success and our success as country that grows innovative, globally competitive businesses according to AANZ.

“We need to be aware that it’s not just the capital that is important to ventures looking for fuel for their growth but it’s the connections and experience that comes with that capital that our ambitious start-ups need to be able to scale successfully,” said John O’Hara.

Addressing other points in favour of overseas trade sales and investment John O’Hara noted allegations of so called “selling too early” miss the point. Early trade sales are an important part of our maturing and growing ecosystem and these ventures are part of the pipeline needed to generate unicorns.

“We need these deals to grow our founder experience and expertise. It’s a powerful and legitimate strategy for smaller businesses to grow their market presence via investment and sometimes sale of the business to larger multinationals. These businesses and their founders are part of the pipeline we need to grow the future Xero’s and RocketLabs. The expertise Rod Drury gained in growing and selling AfterMail was absolutely deployed in the creation of Xero,” said John O’Hara.

The recycling of capital and experience feeds more growth and innovation.

“It’s been my experience that not only do exited founders go on to start another business or invest in other founders but most investors in those exited businesses reinvest in other start-ups. We know that 80% of any returns generated when angels are part of a trade sale are channelled back into more start-up investments,” concluded John O’Hara.

To read the report click here.

Puawaitanga & Kotahitanga Award Winners 2018

This year the Angel Association New Zealand’s Puawaitanga Award recognises the founder and investor-director who best exemplify what can be achieved when committed people draw on their collective skills and experience. This award celebrates an angel-backed venture achieving world-class success. This venture has excellent governance, a compelling business proposition and a well-defined strategy for exponential returns.

Puawaitanga – ‘best return on integrated goals’.

The Kotahitanga Award recognises those people in the angel community who have made an outstanding contribution to the industry. It acknowledges those who have selflessly given personal time and energy for a sustained period and contributed to the professionalism, profile and reputation of angel investment in New Zealand.

Kotahitanga – ‘unity and a shared sense of working together’.

______________________________

The Puawaitanga Award has been presented to Dexibit’s founder Angie Judge and investor-director, Dana McKenzie.

Dexibit analyzes visitor behavior and venue performance at the world’s visitor attraction institutions such as museums and galleries. Since Angie Judge founded Dexibit in 2015, the company has secured customers like the National Gallery in the UK and The Smithsonian in the USA and, here in New Zealand, the Auckland Art Gallery and Te Papa. Dexibit has won two prestigious High Tech Awards for Innovative Software and Best Technical Solution for the Creative Sector and been a finalist in a number of other categories. Dana McKenzie has Chaired the Board of Dexibit for the last three years and is a true champion for the company and its team, including Angie.

In making the award, Angel Association Chair, John O’Hara said Angie and Dana are great examples of what alignment and mutual support can achieve.

“No one scales value in a high-growth tech company on their own. To get traction both the founder and the investors need to be committed to the same end-point. This has clearly been the case with Dexibit. Dana and Angie have been working together to generate stunning progress in terms of revenue generation, customer acquisition and to secure capital to amplify that growth to support Dexibit to generate exponential returns for the investors and just as importantly, for the New Zealand economy,” he said.

The recipient of the Kotahitanga Award is Matu Managing Partner, Greg Sitters.

Greg has been involved with capital raising for early-stage deep-tech ventures in New Zealand for over a decade. He was an early employee at Sparkbox Ventures and then worked for its successor GD1, before setting up Matu. Matu was founded earlier this year to provide seed and early stage capital for disruptive scientific and IP rich startups. Greg has given countless hours of his time to literally hundreds of budding and early founders, including in his tenure as a long standing member of the Return on Science and Uniservices’ Investment Committees. Greg is a founding member of the Angel Association and served on the Council since its inception in 2008. In this role he has given freely of his time to dozens of professional development initiatives and to represent the early stage industry at events not only all over New Zealand but around the world.

“Greg exemplifies the generosity of spirit that imbues the New Zealand angel community. His depth of knowledge about what it takes to scale a deep tech venture is unsurpassed and has been invaluable to companies like HumbleBee, Lanaco, Objective Acuity and many more,” said John O’Hara.

Dave Moskovitz named NZ Arch Angel 2018

One of New Zealand’s true champions of kiwi start-ups and angel investment, Dave Moskovitz, was awarded the Angel Association New Zealand’s (AANZ) Arch Angel Award at the 11th Anniversary NZ Angel Summit in Blenheim.

The Arch Angel Award is the highest honour in New Zealand’s angel investment community, and recognises individuals who reflect the qualities of the best angel investors and who are champions for the endeavour.

The award recognises the significant amount of time and money angels contribute to startups and early-stage companies – and specifically to their founders and teams – to help them reach their potential while also recognising angels who make a significant difference to New Zealand’s start-up ecosystem. The recipient is chosen by the previous years’ winners.

Dave has been investing in early-stage companies for a decade and been an investor director for a number of the ventures he has backed including ShowGizmo, The Appreciation Engine and Jaipuna. Most notably he was at the helm of peer-review publishing platform, Publons as Chair when that venture exited to UK-based Clarivate Analytics last year.

Dave has held governance roles with Wellington-based AngelHQ and was one of the founding fathers of New Zealand Start-up Weekends. He has mentored for 9 accelerator programmes helping dozens of ventures to secure funding and grow their businesses. Dave is an active member of InternetNZ, a member of the council of Open Polytech and was recently appointed to the Ministerial Advisory Group for Digital Economy and Digital Inclusion. He is also New Zealand’s representative to the Global Business Angel Network.

Former Arch Angel winner, Andy Hamilton, says one of the hallmarks of Dave’s work has been the importance he places on the role of empathy in business success.

“Dave takes a very genuine interest in supporting not just the success of the founders he backs, but also their wellbeing,” he said, noting that being a founder can be a very personally challenging role.

2012 winner, Movac’s Phil McCaw, who has worked with Dave over the years in the Wellington start-up and early stage investment scene, said Dave’s contribution to angel investment and start-ups in New Zealand is significant.

“Dave has freely given up countless weekends and evenings to work with people from all kinds of backgrounds who want to create new businesses. Making a difference and leaving the world better than he found it are integral components of Dave’s purpose. In investing in a number of these start-ups, he follows through very tangibly to deliver on that purpose.”

Speaking earlier in the year to Simon Morton on Radio New Zealand, Dave spoke with deep and personal insight about how successful angels and founders recycle skills and capital generating a virtuous cycle of further start-ups and cutting-edge roles in disruptive industries. He also spoke enthusiastically about the role start-up methodology could play improving the delivery of government services.

Dave received his award at the 11th Anniversary NZ Angel Summit, held at Marlborough Vintners in Blenheim and attended by 150 delegates. The annual event provides a hub for angels to learn and network, and is recognised as one of the world’s top angel events.

American born, Dave came to New Zealand over 25 years ago. He attended the University of California, Berkeley where he majored in computer science. He is one of three migrants to win the Arch Angel Award.

Former Arch Angel winners include The Warehouse founder and long-time angel investor Stephen Tindall; Andy Hamilton, chief executive of The Icehouse and member of IceAngels; US super angel Bill Payne; veteran angel investor Dr Ray Thomson; prolific AngelHQ member, Trevor Dickinson, former AANZ Chair, Marcel van den Assum and ardent angel investor, Debra Hall.

On track for another record year

First half year results show angels are investing at rates on a par with previous years. The upward trajectory continues. It’s likely the formal part of the market will hit $100m into high growth start-ups this year.

Reporting on the activity of its members tracked by the NZ Venture Investment Fund, Angel Association Chair John O’Hara said $30.8m dollars was invested in 46 deals in the first six months of the year compared to $20.2m into 29 deals in the same period last year.

More detail and deeper insights can be found at www.pwc.co.nz/startupmagazine in the second edition of Startup Investment New Zealand; a collaboration between Angel Assn and PwC.

Mr O’Hara noted there is always a substantial uplift in activity in the second half of the year, in part inspired by two of the country’s larger angel networks, Ice Angels and AngelHQ, holding their annual venture showcases in September.

“This year Ice Angels’ showcase attracted 1000 guests and that level of enthusiasm has been reflected in capital commitments to the ventures presenting. AngelHQ’s showcase attendance numbers were also up,” said Mr O’Hara.

“We are seeing increasing valuations and amounts raised, and in many cases, start-ups are now appearing to be fully valued. While this is positive it comes with some challenges,” said Mr O’Hara.

“Start-ups that are too well funded can lose their edge and correspondingly high valuations put pressure on founders to deliver the requisite valuation uplift to ensure the next funding round is successful,” he noted.

These sorts of issues were discussed at the Angel Association’s first ever event for founders and investor-directors held the day before the industry’s annual summit in Blenheim on Wednesday 31 October 2018. Called “The Runway”, the day-long event brought together over 35 founders of high growth ventures and the angels who have backed them. As well as building a cohort of like-minded founders who support each other as their ventures scale, the initiative began to build tighter alignment and awareness of what it takes to scale an angel backed company.

Key metrics for assessing an angel deal

This is a terrific article setting out key metrics to ask about when assessing an angel deal from David Jackson, a Committee Member of Sydney Angels Inc. Some great tips on how to be an effective angel investor are also embedded.

“Let’s say you have a brilliant idea for a startup.

You know your Hats-for-Cats app is going to take the world by storm. And while you may be half-starved, you have a whiteboard and a T-shirt with your logo on it, and the energy, guts, and grim determination to make it happen.

But the funds scraped together from friends, family, and savings for market research and a demo are now completely exhausted. The credit cards are completely maxed out. You’ve realised it may be time to find an angel investor who can lay enough runway for a developer and the go-live phase. The good news is: angels want to give you money. That’s our job.”

Read more

International angel experts descend on Summit #AANZ18

The big event in the calendar for the Angel Association New Zealand is the annual Angel Summit.

This year our Summit focuses on the power of diversity and how it delivers better outcomes.

The world has changed significantly since we began over ten years ago. This year we acknowledge the changes and discuss how we can adapt, focusing on amping up the power of angel investment through diversity and inclusion to deliver higher value outcomes. We will be welcoming aligned VCs from NZ, Australia and Singapore to join the conversation and discuss questions like;

Why and how does a more feminine approach, both as founders and investors, add value?
What values do different ethnicities bring to angel backed ventures to increase the prospect of success?
Why is it important we include millennials in our ventures?

Joining our discussion will be;

Randy Komisar
Last year Randy Komisar, managing partner from Kleiner Perkins attended the summit with support from NZTE and Spark Ventures. Randy’s fireside chat at the end of the summit was one of the top rated presentations. As a direct result of his visit Randy was inspired to write “Straight Talk for Startups – 100 rules for beating the odds”. The book is currently ranked no.1 on Kindle’s Business Technology section. His return to NZ is intended to amplify the connections he made last year and he will play a lead role in The Runway event for founders and investor directors and spend a couple of days in Wellington.

Jeffrey Paine
Jeffrey Paine is a founding partner of Golden Gate Ventures based in Singapore. Since it’s inception in 2011 Golden Gate have invested in 30 companies across Asia. GoldenGate consider any ventures expanding into Asia and will invest between $US1-10m in early stage and series A rounds.

Wendee Wolfson
Wendee Wolfson co-founded one of the first angel networks in Washington DC, New Vantage Group with ACA Chair Emeritus, John May. She has chaired the US Angel Capital Association international exchange for the last seven years. Wendee is currently working with the Next Wave Impact Fund and has worked with the predecessor fund, Rising Tide, to educate and engage more women in early stage investment and will spend time in Auckland during her visit.

Marisa Warren
Marisa Warren is from Elevacao which has gained profile and traction in Australia, San Francisco and New York helping woman founders to scale and attract investment. Marisa has deep experience in corporate M&A and extensive networks.

Dr Sean Simpson
Dr Sean Simpson is one of the co-founders and current Chief Science Officer for Lanzatech which is ‘revolutionising the way the world thinks about carbon waste’. Sean has a tremendous depth of experience and belief in New Zealanders’ ability to change the world and will talk about lessons learned along the way as he led a team taking Lanzatech to the world. Dr. Simpson served as Leader of the Biofuels initiative at AgriGenesis BioSciences Ltd.

John Henderson
John is a Partner, Head of Venture and Business Development from Airtree Ventures based in Sydney. Airtree has made over 50 investments, including a number of NZ companies and had over a dozen exits.

We will also be privy to valuable input from a wealth of local early-stage investment experts including; the experience and insight of Marcel van den Assum, former Chair of the Angel Association and currently chairing a number of high growth ventures such as Wipster and Merlot Aero; the marketing chops of Vic Crone, CEO of Callaghan Innovation; the investment strategy of Richard Dellabarca, CEO of NZ Venture Investment Fund; and insights about fast track of growth from Janine Manning, Chair of Crimson Consulting, one of New Zealand’s most highly valued angel backed ventures.

This 11th annual Angel Summit will deliver a unique opportunity to learn how to invest to create a bright future for New Zealand, its talented entrepreneurs and drive returns so we can re-invest.

What will I come away from the summit with?
Friends and super relevant contacts, pithy, practical insights on how to be an angel with more impact, a great little goodie bag, and as is customary when you descend from a summit… arms full of inspiration!!

Check out the draft programme here.

Angel investment rises 26% to reach record level

Startups in New Zealand received an unprecedented level of funding last year, with $86 million flowing into early-stage businesses across the country. That’s according to Startup Investment NZ, published by PwC New Zealand, the Angel Association of New Zealand (AANZ) and the New Zealand Venture Investment Fund (NZVIF).

“It’s exciting to see such a large number of deals coming through to support early-stage companies. We’re seeing investment levels that are almost three times what we saw just five years ago” said Anand Reddy, Partner at PwC New Zealand.

John O’Hara, AANZ Chair, endorsed this sentiment noting that membership of angel networks continues to grow with a new network established in Marlborough last year and a budding network getting started in the Hawkes Bay.

Established networks like Ice Angels in Auckland, AngelHQ in Wellington and Enterprise Angels in Tauranga are also experiencing growing memberships.

Driving the growth in investment dollars is an increasing number of larger deals in 2017, compared to the year before. The number of deals in 2017 held steady at 111 – one lower than the 12 months previous – the total amount invested has risen by $18 million, a 26% increase.

Offering some insight on the larger number of dollars being invested in a similar number of deals, John O’Hara suggested it reflected a maturing ecosystem.

“A number of the ventures angels have backed are now looking for larger capital injections to fuel their growth. With a thin VC industry, it’s not surprising we are seeing larger deal sizes.

John also offered a word of caution to investors and founders.

“The market’s a little frothy right now. We’re seeing some strong valuations. Entrepreneurs have to be sure they’re not setting the bar too high with their forecast results. If they fail to meet these, it’ll make it make it harder for them to get the next round of funding.

“And investors will be similarly impacted. Flat and down rounds do not impact well on portfolio return prospects.”

Click here to find out more about how the startup sector is evolving, and where it’s heading next.

Click here to dive into the data about this asset class.

The network effect: NZ angel networks drive funding

Of the $86 million invested into young companies in 2017, over half ($49 million) came from angel investment networks, rather than individual funds or institutional investment.

“The strength of our angel investment networks in New Zealand is growing every day, which helps to explain why they’re responsible for a growing share of overall funding” says AANZ Chair John O’Hara.

“They’re responsible for over double the funding that’s coming through the next most-popular channel of angel funds.”

Raising funds from angel networks can take a little longer than other sources of early stage funding (such as mico-VCs and high networth individuals) given that sometimes over a dozen individual investors are collaborating to complete DD and gather the investment. Angel networks also tend to be run with a large component of voluntary input so founders and lead investors need to be committed project managers.

John notes that not only do networks tend to bring a larger pool of connections and expertise than single source funding options, they bring deeper reserves of connections for follow on funding.

“Angels are inveterate travellers and networkers and have connections in markets across the world which can be tapped for sales channels, in-market insights as well as follow on funding recommendations,” said John.

“Nothing beats getting on a plane with a line-up of carefully targeted meetings. New Zealand founders and investor directors need to spend more time in-market and be preparing for the founder to be based there,” John added.

He concluded by noting that lining up an in-market Board member was also an important component of scaling into offshore markets.

Click here to find out more about how the startup sector is evolving, and where it’s heading next.

Click here to dive into the data about this asset class.

Software the top sector for NZ angel investors

More than half the investment made in early stage companies in New Zealand last year was in the software and services space (53.8%), followed by 17% in technology hardware and equipment.

“Technology is increasingly the engine of growth for all companies, regardless of size” explains PWC’s Anand Reddy.

“It’s no surprise that it’s these areas where the most activity is happening and where angel and early-stage investors are putting their energy. This reflects global trends too. Data generated by Crunchbase notes that the software and services remains the dominant sector for investment.”

Speaking personally, John O’Hara said that his own portfolio leant towards software generated ventures.

“I am particularly proud of Ask Nicely, which produces software for NPS (net promoter score) collection and analysis. This company has already generated tangible returns for a number of the early angel investors. The company is now scaling into the US, with the founder moving to Portland, Oregon in the last couple of months.

“New Zealanders have a knack for practical problem solution and we are increasingly seeing them turn this knack into compelling business opportunities,” said O’Hara.

Click here to find out more about how the startup sector is evolving, and where it’s heading next.

Click here to dive into the data about this asset class.

Waiheke Angel Summit Reflections

The best things about this year’s angel summit…

The annual summit always reinforces why angel investment is my thing.

Angel investors are unapologetically optimistic, creative, generous and ambitious. And our community cares… to their bone marrow, those involved in early stage investment care! These people are ambitious for the success of the founders and ventures they are working with and they are genuinely ambitious for New Zealand.

Kiwi early stage investors want to see the incredibly cool stuff we do in New Zealand get out to the world, they want to help create fabulous jobs in New Zealand, they want to contribute to raising our living standards and to the creation of role models for our budding entrepreneurs.

I came away super-chuffed about the real pride in our New Zealand-ness which imbued this year’s event. It really feels like we are at the tipping point of cracking serious success. New Zealand innovators and founders are absolutely worth backing.

And guess what? At the same time as we begin to acknowledge the real value of being kiwi, we get a bunch of proof points that kiwi founders and innovation really does deliver. The ventures angel investors have been helping to scale are becoming more and more appealing to others. This year Apple bought PowerbyProxi, US-based Clarivate bought Publons and UK-based Oxford Metrics bought IMeasureU.

Key themes at the summit which will help us continue to amp up the appeal and success of angel backed companies include:
• genuinely put the founder first – be empathetic, be accessible and be truly aligned;
• start with the end in mind and work unrelentingly towards it – together;
• know what it’s going to take to achieve liquidity – deeply understand your capital strategy and potential acquirers;
• actively manage your portfolio; and
• at all times focus on adding value.

In a future post I want to dig deeper into how angels best support founders to deliver the dreams they have to change the world. But to augment the take-outs from this year’s event I’ve extracted couple of quotes and insights from some of our keynote speakers.

Ian Taylor – Animation Research Limited
• Bugger the boxing, pour the concrete anyway
• Well it wasn’t a failure… it just didn’t work

Deb Hall – New Zealand ‘angeling’
• By the end of 2006, NZVIF recorded 55 deals and $30m of investment. By the end of 2016 nearly 1000 deals have been done, with $484m invested in nearly 200 companies.
• Over half the angel community spend more than a day week mentoring and supporting founders.

Phil McCaw and Andy Hamilton – what’s next
• Phil – “I see a bright future. As a country and a world we are going through a process of massive social change. The capitalist model is going to reshape and be reborn”
• Andy – “New Zealand will be way better off, the more angels we have.”

Bruno Bordignon – term sheets
• Context is everything. Always ask ‘how does this term or will this term apply to me/the stage of my venture/the sector it’s in/the growth plan I have/the liquidity plan I have.

Justin Milano – exponential mindsets and the triangle of founder expansion
• Shift anxiety and the need to control uncontrollable outcomes to selfless service and generosity. How am I being asked to serve today? There is always something you can do to add value.
• Shift from beating yourself up to a growth mind-set. Be kind to yourself. It’s all about learning, growing and embracing challenges.
• Shift from a head space of “I am my company” [or investment] and free yourself from self- importance. Acknowledge you are not your company [or investment] and instead accept that “this mission is bigger than me” and adopt a sense of humility.

Ron Weissman – the importance of capital strategy
• Don’t ignore the boring stuff like capital models and capital risks. These are the key to success.
• Key capital risks include: capital inefficiency, no follow-on investors, misaligned investors, larger liquidation preference shares, management carve outs.
• Only 15% of angel backed companies achieve an exit of greater than $US50m.

Dan Bernstein – building exit value
• Mistakes made when ventures are being bought: having only one buyer, there is internal company conflict, poor due diligence preparation, poor qualification and management of buyers, ego, greed and arrogance, maximising profit and minimising growth.

Richard Dellabarca – managing your portfolio for returns
• A lack of exits is unsustainable for the ecosystem. Capital needs to be recycled.
• SCIF2.0 will focus on returns, opportunities with a global thesis, reserving capital for those getting traction, up to $1.5m for top performers (vs $500k under SCIF1.0).
• Since 1 July 2017, SCIF2.0 has approved 59% of deals presented, with a higher approval rate for follow on deals and declines being notified within 2 weeks.

Sam Stubbs – more capital is coming
• Kiwisaver is a $42bn saving pool which will grow to $200bn by 2030.
• Kiwisaver providers want to invest in early stage but are not currently being provided with the right products and mechanisms to be able to do so.
• Bigger follow-on cheques are coming.

Arama Kukutai – corporate venture capital
• Agtech activity has more than doubled by value and volume since 2014.
• US venture capital accounts for 47% of world-wide capital invested in agtech startups.
• In the agtech sector, corporate venturing and collaboration with VCs is becoming increasingly common and more sophisticated to generate win/win outcomes.

Randy Komisar – why do this? investment motivations and M.O
• Is this the deal, are these founders and is this cause… worth failing for?
• Investing in startups is about people and value creation, not about buying low and selling high.
• Don’t emulate any other place on the planet, do your thing. Protect and promote what you have as New Zealanders.
• If you can plot success for a company, it’s probably wrong or not worth doing.
• Fighting for crumbs on the table is no way to get cake – a reference to niggling over terms.

Treatment of women & diversity in angel investment

Shabby, unkind and unprofessional treatment of women by men (and sometimes by other women) whether in venture capital or more broadly is unacceptable. While women have had the rough end of the stick for hundreds of years, being treated fairly and kindly should not be gender specific.

It is not about being a woman or a man or even religion or ethnicity. It’s about the values we choose to live by and which values give us a greater crack at success – however we define success!

How we treat each other and the importance of diversity is about a set of values and two values in particular – kindness and respect.

Supporting and scaling start-ups is no walk in the park. It’s often challenging and down right terrifying – for founders and investors. The fear of failure and rejection is always skulking in the shadows of fund raising, closing a sales deal and hiring senior employees. It’s anxiety inducing.

More kindness and respect would not go amiss. The AANZ believes both are key components of success, particularly when it comes to successfully scaling high growth startups.

We need to acknowledge that tough conversations are often necessary in our world. These may feel unkind but the pain can be minimised if respect and empathy – without bias – are at the heart of these conversations too.

Values complimenting kindness also support the importance of diversity. Kindness requires open-mindedness, curiosity and exploring different points of view. Successful founders live these values and these values are at the heart of the informed pivot and the ability to create and build value.

Kindness must underpin ensuring there is diversity in our deal flow, at our events and in our governance. Diversity mustn’t be about tokenism or ticking a box. Delivering diversity is about trying and looking harder to ensure it exists. It’s about valuing people to create value. We should select women (or Maori or Chinese or Buddhist) founders, speakers and board members based on their ability to shine and help others to shine. To do anything other than this is unkind – to everyone, and especially to the ‘box tickee’.

The AANZ Code of Conduct can be found here. We have added two clauses to the behaviours we expect. They are to be:
– Kind and respectful, and
– Supportive of diversity

As an industry we take responsibility, individually and collectively, for reflecting the behaviours set out in the Code of Conduct. We will talk quietly to those we are worried might not be reflecting these. We are not advocates of naming and shaming. That’s not kind or respectful.

The AANZ Constitution, however, makes it clear that our members must be “of good standing in the angel investment community” and there is provision for members to be expelled when this is no longer the case. The profound potential for common good inherent in angel investment is squandered when the self-interest reflected in unkindness is prioritised.

We all have circles of inspiration and impact – we must be the change we want to see – it’s powerful stuff.

Onwards…

Suse Reynolds
Executive Director

“Constant kindness can accomplish much. As the sun makes ice melt, kindness causes misunderstanding, mistrust, and hostility to evaporate.” – Albert Schweitzer

Dave Moskovitz – Publons angel exit

Like so many in the startup and early stage investment community, the AANZ is delighted to congratulate the Publons founders and investors on the company’s recent acquisition by Clarivate. This outcome is an inspirational proof point that those sometimes elusive returns are actually achievable. Publons Chair and AngelHQ member, Dave Moskovitz writes about building strategic value and all those who were part of supporting the Publons team here.

Read more

 

 

NZ Angel Values and Expectations

People do business with people. This is a universal truth, but in angel and early stage investment, the people side is writ large.

Angels and founders share a hunger for success and making a difference. It is this trait that aligns us so tightly.

There are a number of other values that underpin an angel investor’s effectiveness. A year or two back it seemed a good idea to explicitly set out these values and how we expect each other to behave, so the Angel Association agreed a Code of Conduct.

It sets out the following values as being important to us:

  • To be passionately ambitious for our ventures,
  • To be collaborative and collegial, and
  • To act with integrity and honesty.

Growing a successful business is hard work. Without passion and ambition, the knock-backs and grind of growing a business would quickly overwhelm most us. Angels share other traits with founders that are critical to success; unremitting optimism and creativity. The ability to positively and constructively address problems is powerful stuff.

Growing a successful business is never done alone. Generosity of spirit is one of the most inspirational aspects of working in angel investment. Angels bring value which goes way beyond their ability to write a cheque. Our experience, networks and expertise are the real rocket fuel. And what’s more, when a founder receives money from an investor in the formal NZ angel community, that investor is bringing over 600 people who share a generosity of spirit and values of collaboration and collegiality.

Another key component of success in the angel world is honesty and integrity. We have made it clear that communicating quickly and clearly is vital. We put great store on ‘doing what you say you are going to do’. When we commit to invest or offer to make an introduction, you should expect we will do it. If we are required to sign a document, you should expect it to be done quickly. Of course this isn’t always possible. We all know “life” happens, but you should expect that if something does get in the way of our doing what we said we would, we will communicate.

We also expect professionalism. Dealing professionally with each other sets the standard we expect of ourselves and our ventures as they grow into world-beating enterprises. Time and energy can be scarce resources in this setting. Sometimes this makes it challenging to operate at the levels of professionalism we are used to in other parts of our lives, but we strive for it nevertheless. Angel investors are also by definition actively involved in the business and with the founder. This level of familiarity also requires us to be sensitive to the need for professionalism.

These principles serve as the foundation for our dealings with each other and are the standards others working with us, such as founders and professional service providers, should expect.

What does this look like in practice?

If you are seeking angel investment should know that our members are looking for a credible entrepreneur with aspirations to grow an internationally competitive business with a well-defined product, customer and market. You should expect professional, prompt, objective and constructive guidance from our members, whether or not you ultimately secure capital.

Ends

Suze Reynolds

Mahuki – bringing innovation to the global GLAM sector

Te Papa launched its first acceleration programme, Mahuki, in August. The programme is now nearing the half way mark.

There are ten start-up teams focused on innovating the GLAM sector (Galleries, Libraries, Archives and Museums). It is an in-residence programme and the Mahuki hub is located within Te Papa. The teams are working closely with museum experts, museum visitors and other cultural institutions to validate their ideas and build sustainable global businesses.

Given the size of the New Zealand market and our distance from bigger economies, Mahuki aims to take a ‘global from day one’ approach. To explore market opportunities, Mahuki will take these teams on a two week trip to the US towards the end of the programme.

The GLAM sector represents prestigious customers and large markets (it represents 4.3% of GDP in the US – larger than the construction industry). There are more museums in the world than MacDonald’s and Starbucks combined. There are in fact an estimated 75,000 of them, with 35,000 located in the US.  And while numbers of museums are still modest in China, that market has developed rapidly with a new museum opening every day.

The cultural sector is ripe for transformation – but entrepreneurs don’t necessarily know how to access the sector, how to best meet its needs or even recognise it’s potential.  At the same time, the experience economy is booming. However, no matter how large or attractive a market is – this means nothing if you don’t know how to access it.

The Mahuki programme has been designed to build the capability of businesses to deliver effectively to this valuable sector. Some of the key innovation trends and opportunities being seen in the sector include things such as augmented and virtual reality, gamification, location based services, mobile and BYOD, natural user interfaces, personalised goods and services, and wearable technology.

Mahuki can be translated as “perceptive” and it relates to the “wellspring of inspiration”. The Mahuki.org website provides more details about the programme, and you can get a small taste of the ten teams here –  http://www.mahuki.org/about/participants

Te Papa will host a Mahuki showcase event on Monday 5 December and an invitation will circulate Angel groups soon.”

 

 

 

Amplifying NZ’s kotahitanga – working together for our people

One of THE best days I’ve had at work this year was the one I spent with fellow judges, Robin Hapi and Ian Taylor, talking to the finalists in the inaugural Maori Economy category of the HiTech Awards.

Without exception these finalists were not only great businesses – spanning startups to mature enterprises – they were also being run by talented, wonderful people.

What excited me though was how vividly clear it was that the values under pinning these businesses were shared by New Zealand’s angel investors.

As I said in my last post, we know angel investors join our networks for the following reasons:

  • To lift New Zealand higher – economically and socially;
  • To be actually involved in doing this – by contributing money, expertise and connections;
  • For the cool company – to be involved with like-minded, positive people; and
  • For the rich rewards – of course they hope for a financial return but the “psychic return” of doing good and contributing to lifting NZ higher is also a key reason why people become angels.

These values align with key values in Maori business such as:

  • Puawaitanga – the best possible return is sought on integrated goals, including but not just financial outcomes;
  • Kotahitanga – unity and a shared sense of belonging to work together for the benefit of your people;
  • Whanaungatanga – acknowledges the importance of networks and relationships, of developing, managing and sustaining relationships; and
  • Kaitiakitanga – which is about guardianship of natural resources but also extends to sustainable enterprise and taking care of assets as kaitiaki or guardians, the owners and trustees of an enterprise are responsible for protecting (and/or growing) resources for future generations.

The call for more Maori engagement in our rock star, high growth businesses and business people is getting louder. The New Zealand economy generally and the Maori economy specifically need more successful entrepreneurs. Did you know that all the net new job growth in an economy comes from new businesses?

Ian Taylor made the point during the day we spent with the finalists that our young people need more successful business role models. So true!!

Many of these budding role models and businesses would benefit from angel support. Providing capital is only a part of what angels provide. The money is just the fuel in the tank. Fuel in the tank means very little without skill behind the wheel and an experienced support crew. Experienced people who’ve been there before, who know who to talk to and where to source the best resources. And like driving a Formula One car, angel investment is not for the faint hearted. It’s a portfolio game with 90% of your returns coming from just 10% of your portfolio ventures.

More Maori engagement in early stage investment, will find the right time and place to come alive and gain momentum but the word is out now … New Zealand’s angel investment community is keen to do as much as it can possibly can to help.

Ends

 

Success focused vs. Founder friendly or investor friendly

It’s a universal truth that we achieve much more working with each other, than against each other. What’s more, very few of us achieve as much on our own, as we do together.

This is certainly true in early stage investment. In this endeavour, no one ever achieves success on his or her own. No one!

That’s why I struggle – to the point of getting pretty vexed – with the whole “founder friendly vs. investor friendly” thing. I can’t see how it helps either side to the deal; especially founders.

Pitting ourselves against each other is not a great way start to a relationship.

As angel investors we are backing founders because we think you and your business are unbelievably awesome. We want to be part of the inspirational story you are telling. We believe we can add value. We want to help.

We know investors become members of our networks for the following reasons:

  • To lift New Zealand higher – economically and socially;
  • To be actually involved in doing this – by contributing money, expertise and connections;
  • For the cool company – to be involved with like-minded, optimistic, creative people; and
  • For the rich rewards – of course we hope for a financial return but the “psychic return” of doing good and contributing to lifting NZ higher is a key reason why people become angels.

When angel investors are negotiating the terms of a deal they are not looking to ankle-tap the founder or give themselves an unduly, unfair advantage over the founder. Negotiating a term sheet is about aligning the founder and investor to give the business the best chance of success.

Ideally negotiating a term sheet is front footing discussions around economic and control rights to establish three key things:

  • What expectations do we have about the venture’s future?
  • What expectations do we have about each other’s involvement? This should be based on an honest appreciation of each others strengths and weaknesses and how the terms of the deal and our involvement with each other address these; and
  • What happens when things go wrong?

Both investors and founders must fully understand the implications of all the terms of any deal. They need to be realistic about the needs of the business at that particular point in time, with an eye to positioning the business to be in the best position for securing more investment in the future. High growth businesses invariably need more capital.

There is no such thing as a stupid question in early stage investment. So whether you are an investor or a founder be sure you understand the implications of all the terms, understand the impact they will have on future funding rounds, understand the implications they have when things go wrong and when things go well.

To be success focused we need to be founder friendly AND investor friendly. It’s all about alignment.

Governance at the coalface of the future

Hear from our very own Debra Hall (long time AANZ executive committee member) on her thoughts on Governance, the topic she delivers on so well for the AANZ Governance Courses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

I always knew that when I retired from my day job, I wanted to be a company director.  I never imagined how hard that would be – after all, if governance is at least in part about strategy, and I’d made a very good living shaping strategy for my many corporate and public sector clients, why would I not be highly desirable in the governance pool?

Read more

Project16 / Creativity in Business on Sept.1

Project ’16 will focus on Creativity in Business – how can NZ’s creative entrepreneurs and their companies most effectively start, grow and scale their products and services. Our intent is to help NZ’s go global export focused companies lift their game exponentially and take full advantage of their business potential. On September 1st, twenty visionary thought leaders from New Zealand and around the Pacific Rim will come together to share their knowledge and experience about how to best build New Zealand’s future creative businesses.

So – what’s different about the Project16?

Our speakers stay for the entire day, so they can hear what’s said and build on it. And, they are around during the of the breaks (AM/PM teas, lunch & the networking reception) to answer questions and chat.

Project16’s Creativity in Business program will address:

  • What world-class best practices can help us develop and deliver our innovative creative products, services and brands more effectively?
  • What contemporary information do we need to know to grow our creative businesses as quickly and successfully as possible?
  • How can New Zealand’s best and brightest entrepreneurs better position to raise capital effectively?

Whatever your industry or interest, the 2016 Project program offers a rare chance to meet great minds who think differently and to learn from their successes and their failures. Together, we can make better sense of the shifting economic zeitgeist and how we can compete more dynamically in our continually evolving digital world. Join us to connect the dots. Come be part of building a more creative and prosperous 21st Century in (and from) New Zealand.

See Project16 speaker profiles here:

http://www.the-project.co.nz/project-16#speakers

Register for Project16 here.

http://www.eventfinda.co.nz/2016/project-16/auckland

USA ACA trip reports

In May, a “Kiwi Contingent” of about a dozen angels attended the US Angel Capital Association conference in Philadelphia. Five lead investors were awarded an AANZ “scholarship” to support their attendance at the conference. Susan Iorns from AngelHQ, Blake Richardson from Flying Kiwis, George Gong from Ice Angels, Christopher Boyle from MIG Angels and Tina Jennen from Enterprise Angels have all completed reports on the conference. Some of their key insights included; no one ever thinks they changed the management of an angel backed company too soon, company boards must regularly discuss the exit, look for founders who are obsessed with making the business work, the CEO should not lead the exit, there are so many people to learn from at the ACA conference and angel investment is in the best place it’s ever been. You can access all the scholarship recipient’s reports and read more here.

Employment Law Considerations

Lowndes-logoColourThis is general information on employment law in New Zealand. It is not employment advice, nor does it constitute legal advice. If you need employment law advice on a specific matter, please contact us for assistance.

1. Both employers and employees are under a statutory duty of good faith in all dealings.

2. It’s important to get written employment agreements in place. Not only is it a legal requirement, it aligns expectation and provides certainty on terms, including trial periods, notice periods, redundancy compensation, confidentiality and intellectual property obligations, restrictive covenants, etc.

3. Founders are usually employees too – they can also bring a personal grievance against the company for unjustified disadvantage or unjustified dismissal – an employer’s actions must be both substantively and procedurally fair. Where the employer’s actions what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred?

4. An employee does not have a right to continued employment if a business can be run more efficiently without that position. The key question is whether there is a genuine commercial reason for determining that the position is redundant. Evidence of the rationale (e.g. detailed analysis of the proposal and commensurate savings) should be prepared and maintained to provide evidence of the genuine commercial reason for a restructuring proposal.

5. Without limiting the duty of good faith, an employer is required to give an employee access to relevant information and an opportunity to comment on that information before making any decision that will, or is likely to, have an adverse effect on the continuation of their employment.

6. Consultation requirements and timetable will depend on the nature of the workplace (number of staff, etc.) and context in which any restructuring is to take place (e.g. full business closure? Or individual redundancies?).

7. It is useful to provide affected employees with a written copy of the restructuring proposal – they often will not take in all the information during a first meeting.

8. Keep the costs of terminating the workforce in mind. In a redundancy situation where you’re looking to close the door tomorrow, even if no redundancy compensation is payable each employee remains entitled the notice period set out in their employment agreement, together with all outstanding salary and leave entitlements. (Accrued sick leave has no cash value and will not form part of any benefit payable on termination.)

9. Consider the impact of termination of any employee on your shareholder arrangements. Is there an employee share scheme in place? Do shares vest in the employee on termination? Is the employee required to sell shares back to the Company on termination?

10. Employee vs Contractor. It’s not as simple as claiming a party is one or the other. The real nature of the relationship is important – substance over form. If a “contractor” is determined to be an employee, that party may be able to make a personal grievance claim, claim for unpaid holiday, leave, etc., and tax issues will arise. Relevant matters include the actual operations of the parties, the level of control and integration, supply of own materials and ability to work for others and intention.

Angels head to TechweekAKL

New Zealand’s angel investors, a community which actively supports the development of new technologies, will be out in force at TechweekAKL.

Angel Association of New Zealand member’s are involved in two key events, positioned right in the centre of the week-long celebration of all things new and innovative.

[email protected]: 18th May, from 6pm, The Grid – book your seat here.
Tech Innovation Showcase: 18th May, 3.30–5.50pm, Astrolab – apply for an invitation here.

[email protected]

An important event revealing personal accounts of angel-entrepreneur relationships. It is a must-attend evening for founders, and would-be angels.

In relaxed and informal format investors from Flying Kiwi Angels, AngelHQ, Ice Angels and Enterprise Angels will share their personal stories, including their individual entrepreneurial experiences, investment thesis, what they expect from entrepreneurs and how they help grow successful companies – alongside investing their money.

As well as bringing together angels, entrepreneurs and angel groups [email protected] event also brings together key organisations in our New Zealand innovation ecosystem. The event is being held at The Grid, organised by Venture Centre, and is only made possible with the sponsorship of AANZ, alongside New Zealand Software Association and AngelEquity.

To book your ticket and make the most of the opportunity to share a drink, nibbles and some rare ‘get to know you time’ up close and personal with Angel investors click here

The Tech Innovation Showcase

An opportunity for current angel group members to register for a private event focusing on some of the IP rich organisations emerging from government-funded Tech Incubators, Astrolab, Powerhouse Ventures and WNT Ventures. Set up by Callaghan Innovation the incubators are mandated to draw complex IP from Crown Research Institutes and NZ University R&D departments for commercialisation. The event is being held at Astrolab for an invitation click here.

New Zealand: Angel Investment activity by Harveen Narulla

This week I attended the Asian Business Angels Forum in Queenstown, New Zealand. It was well attended. I noticed some things and gained valuable insights from speaking with members of the community.

A few things jumped out at me:

  • How many people in New Zealand were interested in angel investing;
  • That they recognized the limitations of the help that they could give to the companies, but still persisted undeterred;
  • That the angel community had over time coalesced in groups, mainly geographic based;
  • That the government was aware of the angel investment community and it had ministerial attention and support from heavyweight ministers;
  • That there were strong co-investment programs (which I need to learn more about);
  • That increasingly the angel community was looking within itself for leadership to better organise itself with a view to making better decisions (on for example due diligence) and getting better results from its investment activity;
  • Leaders had emerged from within the community, and were well supported by most of the community; there was also a big push from these individuals to disseminate best practices among the angel community;
  • That deals were shared among the different angel investment hubs, so in practice almost the entire community could participate in deals.
  • Some startup founders I engaged with there had interesting perspectives in relation to the need to build sound businesses that generated profit, more than just aiming for a big exit.

It seems much of the mechanics of the community’s working are a result of having to deal with the circumstances in which the community operates:

  • Follow-on or growth funding is limited;
  • the domestic market is small and not of meaningful size to fulfill the ambitions of most of the startups; hence companies need to head overseas early or turn profitable quickly;
  • being a relatively large and sparsely populated country, it was natural for personalities and individuals instead of group structures to have taken precedence in the early growth phases of the community.
  • However, there had then been a phase of experimentation with various incubator structures. Many of these had not yielded outstanding results, and the lessons were still being discerned and digested.
  • The size of the country also led to an understandable push to move organized activity around the country, when it may have yielded more return just being allowed to take root in particular places.
  • The lack of follow on funding and advice and market opportunities for growth had led the community to turn to the US. This in turn had led to valuation inflation, and migration of companies out of New Zealand.

What I appreciated about the community was that there was recognition that some of the early phenomena resulting from the natural evolution of the community should be corrected. In particular, it used to be seen as a badge of honour for startups to do second or third rounds at large valuations, which ended up trapping some start-ups up a tree they then had to make the unpleasant decision to climb down from. Today there seems to be more understanding that valuations need to be explainable by reference to where the company was in its growth journey.

The community was also very open to learning how to do things better.

There, I feel the experience we have had growing Hatcher’s processes and portfolio could add some value. Points I made in my panel session about the value of applying process and intensive involvement as a venture builder, focusing on a niche (B2B in our case), having a clear idea of founder profile (we preferred older founding teams that had a range of experience and competences), were not lost on those listening. I had many good conversations about this after my panel session at the event and look forward to more such exchanges.

Another thing that struck me – and this is larger than just the angel or venture scene – was how down to earth, open and sincere people in the community were. There was a lot of warmth, tremendous amounts of kind sentiment, and a willingness among people I spoke with to make introductions. This community clearly has a strong ethic and all the ingredients for progress together.

Hatcher looks forward to being involved with the New Zealand venture community in the years ahead.

See the original post here

The Angel Evangelist

John May is founding chair of America’s Angel Capital Association (ACA). He’s championed the cause of entrepreneurs and angel investors since realising big organisations weren’t for him, establishing five US angel groups and now working internationally to establish more. He’s co-authored books on the subject, is managing partner of angel investment firm New Vantage Group and is investment director for UK-based global venture fund, Seraphim. He came to New Zealand to meet our angel community. We asked him why?

I loved it when I was here before, but I wanted to come back for longer, not just for a four-day thing… to get a better feel for the New Zealand business community, the angel community, but also the neighbourhood. It hasn’t disappointed.

 

But to what end, exactly?

I’ve been around the world running the (Ewing Marion Kauffman Foundation’s) Power of Angel Investing series and trying to get a better feel for what’s going on in different countries and how best to collaborate.

We’re not looking for countries that have the best deals to go write cheques, that’s the big fallacy: we’re not running international angel development workshops and building global networks because we’re deal orientated; we’re movement orientated.

What happens when your company wants to go from here to a bigger market in Southern California? Wouldn’t it be nice if there was communication between the angels of Southern California and the angels backing the company here? You don’t want to hire a lawyer in Southern California to tell you how to run a business in Southern California…wouldn’t it be better to have mentors and supporters in Southern California who are co-investors.

So you wanted to come here to build connections?

Yes and more. One of my big things is to get more overseas investors to come to our ACA conference to learn what we are doing.

Here’s some sobering statistics: even in the US – the largest economy in the world, the largest venture capital community in the world – we believe only about 5% of households are wealthy enough to be angels, not friends or family, but proper angels. And my definition of a proper angel is an individual who invests their own money in a stranger’s business, in a minority position, gives their time as well as their money and there is no one else in-between.

And of those 5% who can, we think there’s only 5% who do. And now we’re getting to the bottomline: not only do we think that only 5% of those who can, do, only 5% of those who do, ever do it in a structured, disciplined, portfolio diversification, networked group way and I bet New Zealand is pretty similar.

You really push the group concept. But why is it so important for that 5% of 5% to be part of an investment group?

What we’ve learnt is that we need to diversify our portfolios, which means getting out of our comfort zones. It also takes more money than we have personally to take a company that’s going to be significant from startup to breakeven and it takes time to do due diligence on the opportunity. Who’s going to make the phone calls? Who’s going to have the meetings? Who’s going to do the market research? So if you decide you’re going to diversify, if you’re going to do due diligence to make you comfortable, and you’re going to have enough money on the table to make it a viable company, what you learn very quickly is you can’t be a solo angel and do this.

What our companies need are cheques for US$250,000 to US$1 million and to deliver that and diversify your portfolio you need to be in a group, even better, a syndicate of groups – that’s the big movement in the US right now – the syndication of groups.

Why is that so important?

Well if you need US$2 million, it may be above the capacity of an individual group, but you may be able to bundle four angel groups or funds together and all of a sudden you’ve got a couple of million dollars, so then the company can finish developing their product or get their first sales and really get on their way.

You wrote the book: “Every business needs an angel” – why does every business need an angel?

The real wink is every high-growth, successful business, as opposed to a mom and pop store, needs an angel because it’s lonely out there doing it on your own; you need a mentor; you need risk capital; there’s so many reasons why angels are important for companies…an entrepreneur gets a board member, a friend, an adviser.

Doesn’t it depend on the angel they get?

Yes, and it depends on the entrepreneur. Some entrepreneurs just give lip service to the help; they really just want the money. Then there’s the lip service of an angel who says I’m going to be your friend, I’m going to be your adviser, I’m going to be available and then doesn’t answer the phone. It doesn’t always work. But it’s an art not a science.

The real wink is getting the right angel with the right entrepreneur because some angels can be great board members, but aren’t good at helping to find staff, sales or marketing; while some are good as a shoulder to cry on, but aren’t good at financials; some are good for startup and some are good for growth companies. That’s another reason why groups are better than individuals.

The right angel should always be a joint decision between the entrepreneur and the investors. There should be a chemistry between them and there should be a staging of the need, so the right investor for the company at the right time.

Should angel investors always have representative on the board?

Advisory boards are very important, but companies don’t need boards of directors until they’ve grown a little bit.

It’s also very important for [the chosen investor representative] to have a way of communicating to the other angel investors, so the entrepreneur doesn’t have to waste their time communicating with all of them.

What’s the most common mistake entrepreneurs make when they seek investment

Thinking they know it all. It’s quite rare to find a coachable, industry-savvy, less egotistical entrepreneur their first time around.

I’m a big believer in investing in second-time entrepreneurs. A serial entrepreneur is a wonderful thing to invest in, because someone has already paid for their mistakes the first time round. But that’s another thing that’s fascinating about here: New Zealand is a place where almost everyone is a first time entrepreneur.

Entrepreneurs need to understand the first thing angels look for is management, management, management; the second thing is a large market; and the third, if we’re smart, is the product or service, the technology, whatever. Yet most entrepreneurs want to sell us on the fact their thing is faster, cheaper, better, slicker, more fun first. But we invest in the jockey not the horse.

The problem is an entrepreneur has to have the dream and the ego to handle it. So there is a natural tendency to want to invest in someone who has a lot of confidence and a lot of energy. But if they are really going to grow their business into a significant company, they need to be humble enough to understand they can’t know everything: they are going to have to hire people; they are going to have to listen to people, so finding someone who is coachable is important.

What’s the most common thing angels do wrong?

Hearts over heads… and not providing enough tough love once we’ve invested: are you being direct enough; are you talking about the exit; are you educating the entrepreneur; are you telling it like it is instead of waiting until it gets worse to say something? That’s why you have to have the right chemistry; you can’t be in awe of each other. The entrepreneur shouldn’t think we’re just money and we shouldn’t think they are running the company so we shouldn’t give them our frank opinion.

Why do you love this area so much?

It’s the people. It’s the entrepreneurs. They are so important because they make businesses; they make money. We benefit from the vision, the energy, the business model of the entrepreneur…so the excitement for me is being a part of this journey.

Plus it’s what it does. It boosts any economy, any city to find a way to finance innovative new technologies and products. Economies will go backward if they don’t stay in touch with newer, faster ways of meeting their needs. And it creates jobs, futures. Major corporations are net job losers; they cut costs, find efficiencies. All the research shows startups and SMEs are the net job creators of modern economies.

But angels also have to make money in the end or it’s a losing proposition and will fade away.

What should we be doing more of in New Zealand to improve our angel ecosystem

Find as many ways as possible to educate the media, the government, the wider community that supporting high-growth companies matters; make people aware of the benefits to the entire economy of making this work, of encouraging more entrepreneurs, of making smarter entrepreneurs and of helping to make more and smarter angels.

We need to encourage more angels to increase the amount of capital available, because the more capital there is available the more likely people are to diversify and thus the more capital there is for different sectors to develop new products, and we need more angels to bring different skills into the mix. There is so much going on in social media and some of the new technology, for example, that you almost have to find a way to search out the recently cashed-out, under 40-year olds because they can make a material difference to understanding the current consumer market for those sorts of companies. It’s also hard to be an investor and help an entrepreneur and do due diligence on them if you don’t understand what they are doing.

We tend to talk to ourselves far too much.

By Lesley Springall

#ABAFNZ15 Pitch on the peak

The first ever Asian Business Angels Forum in New Zealand will kick off on Wednesday 14th October with our country’s best ABC’s (Angel Backed Company’s) getting in front of up to 200 guests, with over 50 international Angels from 12 countries at ‘Pitch on a Peak’.

NZTE is partnering with the New Zealand Angel Association and Callaghan Innovation to host the Pitch on a Peak showcase, which features exciting emerging technologies through to high-growth internationalising tech ventures.

The event will be held in Queenstown at the spectacularly elevated Skyline Gondola Restaurant.

About Pitch on a Peak

The aim is to showcase the pinnacle of New Zealand’s high-growth technology companies to a domestic and international investor audience.

There are three groups of companies participating in Pitch on a Peak:

·     Early stage technologies – demonstrating the best of the best coming out of labs across New Zealand

·     Companies looking for their first round of domestic angel funding – investment critical for businesses on a high-growth trajectory

·     Internationalising companies – taking New Zealand to the world

Companies are seeking a mix of investment, valuable connections, and/or the experience and skills that investors can bring to fastrack their success.

Each group of companies will be introduced by an experienced investor who will discuss return horizons at seed and expansion stage, possible growth plans, capital strategies, liquidity scenarios and acquirer activity

The showcase is powered by NZTE’s Better by Capital programme, and wraps a bespoke plan and a dedicated NZTE Investment Manager around each company. Companies receive:

·     Capital readiness assistance

·     Pitch training

·     A platform to present their investment offering and network with up to 200 investors

·     Targeted investor matching

·     Access to the international NZTE Capital team and our contracted external industry experts Deloitte, Lance Wiggs, Grant Thornton and Catalyst Advisory

It is a challenging, fast paced and highly valuable experience for any company, and each participant’s highlights are different from the next.

Attendance at Pitch on a Peak is limited to qualified investors and is strictly by invitation only. Guests can expect the following at Pitch on a Peak:

·     A jaw-dropping ascent to the showcase via priority gondola

·     The best of New Zealand’s tech innovation showcased in one of our most iconic venues

·     A stimulating evening of compelling investment opportunities and creative technology demonstrations

·     Quality food and beverage offerings from some of New Zealand’s top producers

·     An exclusive opportunity to mingle in a unique investment community from all over the world

Pre-registration is open for investors. Click here to complete the form and book your place at this exclusive event

Please note that investment opportunities do not represent offers of securities to the public. Before investing it will be necessary to determine your eligibility in accordance with the Financial Markets Conduct Act 2013.

 

Lead Partners

NZTE NZGCP PWC ATEED “NZX”

Expert Partner

AVID “Jarden” Baldwins

AANZ Summit Sponsors

“UniServices” Kiwinet “AWS” “BNZ” “Momentum” “Hillfarrance” “Punakaiki” “MBIE” “GD1” “TompkinsWake” Callaghan Innovation