Sourcing deals and how you invest
Adventurous investors can contribute capital to New Zealand’s high growth startups in a number of ways. These include as:
- An individual;
- A member of an angel group, network or club;
- An investor in an early stage venture capital or angel fund;
- An investor in one of New Zealand’s four tech incubators; or
- A member of an equity crowd funding platform.
The Angel Association champions them all. Here we briefly set out the advantages and challenges of each so as an investor you can assess which meets your needs and preferences best. No matter which option you choose, you must ensure you are investing in compliance with the Financial Markets Act 2013. You can find out more about this here. Our members are based in all of New Zealand’s big cities and many of our major regional ones too. You can find out more about them and links to their websites here.
- Entirely your own decisions with no risk of peer group pressure
- You have more control over due diligence, deal completion time frames and terms
- Harder to source diverse deal flow
- Harder to source support and experienced sounding boards
|Formal angel group
- Access to diverse, plentiful, curated deal flow; including deals syndicated with other groups
- You make your own decision to invest (or not) in any of the deals you are exposed to
- You have access to validated professional development
- You are investing alongside like minded, collaborative colleagues a number of whom will be experienced and/or have relevant domain expertise
- A team approach is taken to due diligence projects, timeframes and terms
- You will have access to Venture360 portfolio management software
- You will have access to AANZ membership benefits including support to attend international events and discounted NZ Angel Summit tickets
- Most angel clubs have dedicated club managers who deal with a lot of the administration around deals such as getting signatures on the requisite documents
- You have the opportunity to be actively involved with the ventures you are investing in, including in their governance
- You can invest as little as $5,000-10,000 in each deal or as much as $100,000. Typically angels invest between $10,000 and $30,000 in each deal
- Most NZ clubs are NZVIF accredited meaning they have met required standards of investment management and have access to up to $750,000 of matching government funding for any individual company
- Peer group pressure and “group think”
- Not all members are equally experienced
- Due diligence projects often take longer as there are more points of view and club members often have competing priorities
- You cannot sue co-investors as all club membership rules include “hold harmless” clauses
- It is difficult to extract yourself from any individual deal as the shareholding is through a nominee structure in what are illiquid assets anyway
- Each deal is still a discreet deal and you will need to be responsible for ensuring you receive the level of reporting about progress you expect through the lead investor.
- If you are actively involved in an investee company particularly as a chair or lead investor director, this can be time consuming and stressful
- Most, but not all, clubs charge fees on funds raised to support the running of the club
- Some argue that those clubs which are NZVIF accredited drive deal terms which are sub-optimal from a “founder friendly” perspective
|Early stage venture capital or angel fund
- All the decision making about which deals to invest in is in the hands of the fund managers and/or investment committee for that fund
- You benefit from the expertise of professional fund managers
- You are arms length from the companies and do not have to be concerned with any deeper engagement or compliance and administration
- By definition you will get the benefit of portfolio exposure. Be sure you know how many companies the fund expects to invest in before you commit funds
- Conventional wisdom is that to improve the odds of the returns expected of these high risk ventures, you should invest in at least 10 ventures; some say 20.
- There is little or no opportunity to be involved in the investee companies
- Usually the minimum investment in a early stage venture capital fund is at least $50,000
- Understand the fund’s return profile and time frame. Some early stage venture funds expect larger returns than an individual or club based angel and therefore the time frames for returns might be longer.
- You are investing in absolute cutting edge New Zealand conceived IP
- Tech incubators are staffed and supported by experienced investors and practitioners
- Investee companies receive bespoke incubator support
- With support from Government in the form of up to $450,000 repayable grants for these ventures there is substantial ‘de-risking’ of these investments
- [comment about how easy it is to become a tech incubator investor??]
- There are longer return time frames given the deep IP nature of these ventures
|Equity Crowd Funding Platform
- You can invest very small amounts ($500 or less) and there is no upper limit on investment in ventures listed on equity crowd funding platforms
- Equity crowd funding platforms must meet certain standards to be registered by the Financial Markets Control Authority
- The process is generally simple, online and secure
- ECF platforms don’t generally charge fees to investors
- You get exposure to consistent and varied deal flow
- The platform negotiates the deal terms
- The platform manages shareholder reporting and communication on behalf of investors
- There is little opportunity for direct engagement with the company or the deal terms
- Company valuations on equity crowd funding platforms tend to be higher than those of deals led by funds, networks or groups making valuation uplift potentially more challenging
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Attend demo days
Demo Days are a great way to access deals out of New Zealand’s accelerator programmes. Some of these are listed below. Typically New Zealand demo days have a connection to one of the AANZ member networks. Investing in Demo Day deals by becoming a member of a network gives you access to a due diligence process and the nominee structure most AANZ members use to invest.
Here are the programmes which run a demo day at the end.
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You can access high growth venture deals by directly approaching any of our members. You might also like to approach New Zealand’s incubators and public research organisation’s tech-transfer offices. AANZ members frequently syndicate their deals. In some years syndication levels are as high as 4 of every 5 deals done. This means that by joining one of New Zealand’s angel networks you are likely to get good access to the deals being done across the country through the formal networks.
Contact any of these organisations to find out more or how to invest in the ventures they are working with.
Return on Science
Global from Day 1
Brandon Capital Partners
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Become a member
Joining a New Zealand angel network is a great way to get access to deals, make new friends, learn from others and access the benefits of AANZ membership, including discounted attendance at the annual summit and scholarships to attend international events. All of New Zealand’s angel networks will require investors to comply with the Financial Markets Conduct Act 2014. You can find out more about being an eligible investor here. A calendar of many of our member’s investment events can be found here.
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Use equity crowdfunding sites
New Zealand law changed in 2014 to allow equity crowdfunding. Equity crowdfunding in New Zealand allows companies raise up to $NZ2 million a year, without requiring a full-blown prospectus. A venture looking to raise capital will have to be a registered New Zealand company. A business plan, financials for up to the last three years, and projections for the next three years will also be required. Background checks can be expected on all directors of the company.
There are four well-known equity crowd funding platforms operating in New Zealand: Snowball Effect, PledgeMe, Equitise and Angel Equity. All four have supported successful campaigns. Less well known New Zealand operators include Crowdsphere.
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