Experienced American angel investor Brian Cohen has warned the New Zealand industry that the local capital cycle is stunted.
“You’re not in the investment business – you’re in the exit business,” he said, in comments delivered at the recent Angel Association of New Zealand annual Angel Summit. “Your job is to make money, stop being so nice.”
Bill Murphy, executive director of the Bay of Plenty’s Enterprise Angels, the country’s biggest angel group, said the warnings were well taken by the local industry.
“The most experienced investors in this space are getting more and more discerning about what they invest in and in ensuring everything is in place to make that investment a success,” he said.
“It’s getting more difficult to raise money for investment opportunities, which reflects that. But it’s also a reflection of where the industry is at here – we’ve only really had an angel community for the past decade or so, whereas they’ve been going for twice as long in the US and Europe.”
Mr Murphy said because so far there had been relatively few liquidity events from very early stage investments, it was not yet clear whether there was an additional challenge and risk for those investing in New Zealand companies, compared to the risks facing American or European investors operating in their home markets.
“In our case we invest in these companies and then we have to take them into the international market. And we’re just not sure how much risk that adds.”
Enterprise Angels provided a copy of remarks made by Mr Cohen – chairman of New York Angels, the world’s biggest angel network, who was one of the international keynote speakers at the summit.
Mr Cohen said New Zealand appeared to have a great angel ecosystem
“It’s full of enterprising people, there is a good level of government funding into universities, centres of excellence and crown research institutes producing great intellectual property,” he said.
“And ‘top of the pipe’ activity, including incubation and acceleration, seems very active – your entrepreneurs do more with less. They are working hard to succeed despite the gaps in your system.
“What’s missing, and crucial to your future as a globally attractive incubation nation, is the depth of capital to grow New Zealand companies to a size where they are attractive and competitive in international markets. Your capital life cycle is stunted.”
Mr Cohen told delegates at the event that they were responsible for this, and must get serious about fixing it. Promising companies which are being seeded and started would wither and die if they didn’t, he said.
Mr Murphy said the New Zealand Angel environment was dynamic, with a lot of investing going on.
“But there are still lessons to be learned about backing the best investment opportunities and then being able to take those companies them right through the cycle. The critical stage for all parties is the liquidity event.”
Anne Blakeway, investor relations manager for Enterprise Angels and its recently created online investor platform AngelEquity (see box), said the Mr Cohen’s comments aligned with those heard from founders and business angels.
“They need follow-on capital to address the market opportunities they are developing,” she said.
“If we don’t get more investment into them, by making it possible for more investors to get into this space, we’ll limit their chances of success. They’ll miss out, and so will New Zealand.”
