There is no let up in the interest and enthusiasm for New Zealand’s high growth startups.
There is no let up in the interest and enthusiasm for New Zealand’s high growth startups.
As a teaser for those of you attending The Runway and Angel Summit events in a couple of weeks time, Ben Kepes, an experienced angel investor who is speaking at both, has thrown down the gauntlet with a really neat articulation below of the conversations we look forward to having with you as we hunt down how to be effective, additive contributors to the businesses we are backing. You can read more of Ben’s other musings on the tech and startup scene here on his Diversity Blog.
Firstly a quick disclaimer: I, like most of you reading this, am an investor. As such, despite any hint of magnanimity in our decisions, our primary driver for investing in early-stage companies is to make money. If our aims were entirely philanthropic, we’d be giving to charity. We can wrap it up nicely and try and avoid the fact but angel investment, while having some good outcomes beyond dollars, is primarily a capitalistic drive.
That said, I wanted to take the opportunity to follow Suse’s lead in theming the upcoming Angel Association conference being held in Otautahi to add my two cents around the topic of expectations – those of us as investors, of our fearless entrepreneurs, and of the ecosystem as a whole.
The financial realities of angel investing in enterprises that fundamentally have a far greater chance of burning out than they do of success means that we do need to make a good return on those that are successful – if all we wanted to do was get rid of some excess cash, there are far more effective ways of doing so than being an angel investor.
But sometimes, in the search for good financial returns, we lose sight of the unique position we’re in as investors and the opportunities it brings us. We have the ability to shape a future on a number of levels – we can help have an impact on whether an entrepreneur’s journey is positive or not, we can encourage the development of businesses which benefit society more wisely than simply through wealth creation and, just maybe, we can vote with our wallets and help more planet-friendly businesses to bloom.
In terms of the “founder burnout” topic – we’ve seen much attention from the industry about this aspect of the startup journey. We’ve had some pretty raw admissions of the pain and angst that goes hand in hand with startup life. But, as the (purportedly) mature and experienced people in the relationship, our job is to navigate this road with a reasonable perspective. The fact of the matter is that for both entrepreneurs and investors to meet their objectives there is going to be a heap of hard work and painful moments – there’s no point sugar-coating that fact. But hard moments are different from bad behaviour or absence of empathy and that’s where we have work to do.
So I’d like to suggest as we spend our time in our roles as angels, that we think about what we and our investee companies can do differently. What is it that we can bring to the world that changes the conversation? What does exponential value creation mean beyond simply financial value?
In practice, what does a more empathetic approach towards angel investing look like? I’d suggest that it means we’re sometimes happy to achieve a good, short-term outcome that meets the needs of founders, employees and investors, society, the planet or any of the other myriad layers of stakeholders that exist in this world. How about we think about limiting the downstream hard times that come from aiming for the moon shot? It’s potentially about not going for the one in ten exits that need to generate 20x returns, but rather a greater number of more modest outcomes. It’s about being honest with ourselves, our leadership teams and our ecosystem about what is realistic. And it’s about finding a uniquely Kiwi way of doing angel investing.
Enjoy the journey!
Callaghan Innovation group manager of digital Bruce Jarvis
Sir Paul Callaghan talked about 100 inspired entrepreneurs turning the country around. The ‘how’ of that is harder to pin down.
With a line-up of smart folk in Auckland for Callaghan Innovation’s Southern SaaS event recently, we conscripted an impromptu ‘business brains trust’ to figure out how we can create more billion-dollar unicorns.
Identifying the obstacles and accelerants that can determine success for New Zealand companies is a challenge that has occupied thousands of business leaders, political think tanks and roundtables for decades.
Our group of business founders, investors, leaders and mentors was given a couple of hours on a Tuesday. The rule for this meeting of minds was that after sharing their ideas and observations the group had to find points of consensus. A few ideas quickly rose above the rest.
Elite startup academy
There was a strong consensus that New Zealand needs to do more to support and develop the talent it already has – something Sir Paul Callaghan also suggested.
There were two ideas for supporting our existing talent that resonated strongly with the group. The first was an elite academy that focused, funded and coached New Zealand’s top-performing mid-stage startups, providing wraparound support in the same way it’s provided for the country’s elite athletes.
Distinct from incubators that nurture startup companies showing early signs of promise and needing help to commercialise, the elite academy would pick companies with runs on the board and aim to supercharge their success. Entry criteria might include the top 100 companies with up to $10 million in revenue and the fastest quarter-on-quarter growth rate.
The second idea was to give local talent greater access to smart, qualified international advisers, either through a programme that saw global venture capital firms sending their entrepreneurs in residence to do New Zealand tours of duty or by looking for opportunities to plug into the existing Endeavor.orgnetwork of vetted business innovators and advisers.
Improving our attitude to sales
One of the most striking points of consensus was on an unusual roadblock that New Zealand needs to address: a bad attitude toward sales.
The expatriates, visiting experts and Kiwi-based talent all agreed there is a contradictory divide inside most New Zealand businesses – sales is viewed as a ‘dirty word’ and a task that sits solely with the sales team, rather than an integral function of business and a focus for founders and management.
More commercially minded founders with an understanding of sales and marketing were high on the group’s wish list, along with a rethink of the way businesses approach sales into global markets.
“There’s still an idea in New Zealand that, when it comes time to sell things, you give your sales guy a presentation and some supporting material and just send him out. It’s a really strange way to do business and, generally speaking, it’s not successful.”
Outdated business education
Better training and education about sales were recommended as a solution but business education was also seen by the group as an area where New Zealand is lagging, with a curriculum that needs to catch up to the realities of business and innovation.
Getting new course materials into programmes or introducing curriculum changes through NCEA is too slow and arduous according to several of the brains trust with knowledge of the process.
At a tertiary level, with the exception of a couple of specialised offerings, the group saw New Zealand programmes as being slow to shift from a focus on traditional models of business and sales – leaving graduates ready to work in businesses but, arguably, ill-equipped to build one of their own.
Shallow VC market
Surprising no one, there was universal agreement over New Zealand’s “very shallow VC market” and the obstacles presented by a dearth of available capital. A few possible solutions were offered, including more ambitious, coordinated public-private investment partnerships, a fixed 5% of foreign direct investment into risk funds in New Zealand and a regulatory environment that is generally less geared toward property investment. New Zealand startups also need to get better at going out and seeking capital.
Being small has advantages
Awkward time zones, distance to markets and New Zealand’s size all rated passing mentions as both negatives and positives but there was agreement on the advantages offered by such a small market. New Zealand’s “no degrees of separation” makes it easy to get in touch with people and reach out for advice and support from other founders and companies with experience of the same challenges.
People in New Zealand are extremely generous with their time and sharing their knowledge and expertise, it was agreed.
The country’s size also makes it an easy test market, “where people are two calls away from decision makers.” Size, ready access to decision makers and a high standard of living all make it a strong contender as a tech testbed. “I like that New Zealand is an incubation nation where you can test the market without sinking a ship on a global stage.”
With major players such as Pushpay and Vesta already running teams of engineers and developers in New Zealand, while expanding their businesses into the US, the group agreed there is more scope for our companies to attract high-quality talent, and even an opportunity for the country to invest in becoming an exemplar for remote working.
Other big ideas from the brains trust:
• celebrate high-integrity failures and lose the stigma for entrepreneurs who fail;
• be less conservative: less conservative with investment, less conservative about adopting New Zealand-made products and services over international incumbents; and
• think bigger, work harder, aim higher.
Setting out to produce any meaningful answers in a single afternoon was incredibly ambitious but it worked. This was fitting really because the group had one other common conclusion about what New Zealand needs if it’s going to yield unicorns: ambition.
Bruce Jarvis is Callaghan Innovation’s digital group manager.
2019 Angel Summit in Christchurch – Delivering exponential value … how growing a venture from New Zealand makes it uniquely possible!
Diversity … making a difference and delivering outcomes
Last year we celebrated a decade of angel investing in New Zealand. And it was terrific to have that line up with some impressive success for angel backed companies with PowerbyProxi selling to Apple, Publons selling to Clarivate and ImeasureU selling to Oxford Metrics. Last year was also record year for ‘dollars into deals’ with a 26% increase on the previous year’s investment at $86m.
We are genuinely creating value for New Zealand and New Zealanders. At this year’s summit we will focus on amping up that value through the power of diversity. 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?
It’s all about making a difference… diversity and inclusion delivers higher value outcomes.
The 11th Annual NZ Angel Summit, 1/2 November, is being held at Marlborough Vintners, 10 minutes drive from Blenheim and in amongst the vineyards. We deliberately choose smaller intimate venues to ensure we create the right atmosphere for relaxed and rewarding conversations. Our last three summits have sold out as we prioritise places for those ‘doing deals’.
On the first morning we set the context for the two days by reviewing the year and have a session on the values that drive angel investors and how these impact on success. In the afternoon we apply these insights to the more practical aspects of angel investment with sessions on the new industry standard term sheet, how to ensure alignment with follow-on funding sources and dig into the government’s plans to support our endeavours, particularly with respect to tax reform. On Friday morning we focus on our own heroes and hear first-hand from some of our founders and investors who getting real traction offshore. All of this will be shot through with input from successful women and millennials in our community and deep engagement with Maori and our Asian investor migrant community.
Click here to register
The recent Angel Association and PwC release of data reveals a new record of $86 million flowing into early-stage businesses across the country.The recent Angel Association and PwC release of data reveals a new record of $86 million flowing into early-stage businesses across the country.
NZVCA Executive Director Colin McKinnon says: ‘The reported growth in investment dollars was due to an increasing number of larger deals in 2017, compared to the year before. The increased deal size indicates a maturing of the early-stage market. We are seeing angel investment building larger companies that are capable of attracting international investment.
Many people – quite rightly – ask what returns they should expect from angel investment. At this year’s USA angel conference in San Francisco, Scotland’s Professor Richard Harrison from the University of Edinburgh’s Business School gave a thorough data-based overview of angel portfolio returns.
His key points were:
– annual returns (IRR) vary from 17% to 37%.
– 50 is the magic number as only at this portfolio size does the risk of an IRR of less than 10% fall below 20%.
– for portfolios below 20 companies 30% show a negative IRR but 20% generate returns of over 75%.
His presentation can be found here.
The Canterbury Angels startup investment group is on the hunt for startup investments following a recent agreement with the New Zealand Venture Investment Fund.
The partnership means when Canterbury Angels invest in a new company, NZVIF will match it dollar-for-dollar, according to local Angels chairman Ben Reid.
The taxpayer-funded NZVIF was set up by the government in 2002 and has $280 million invested in various companies in funds.