We need to focus more on returns!

As angels we want to create value. We get an immediate sense of satisfaction when that value is reflected in the social and economic outcomes of our engagement – developing entrepreneurial skills, creating jobs and supporting innovation.

But in fact if we really want to make a difference and keep making a difference, we must generate financial returns on our angel investment. It’s only then we will truly maximise – and sustain – the social and economic outcomes we seek.

It takes focus and discipline to generate a return on angel investment. As we’ve heard so often, this needs to extend from the founder to the board and shareholders. It’s easy to get excited about where the next sales are coming from, who the next hire going to be, when do we set up offshore and is the next iteration of the product a real game changer. Of course these things are all important but they must be set firmly in the context of their contribution to maximizing the financial returns.

So what does this mean in practice?

As well as the focus from day one, there needs to be an awareness that if you are building a business to generate a return to shareholders, you care less about tactical cash – solvency parameters not withstanding! – and more about the capital strategy.

There are of course different pathways to a return, all of which will give you a different result. Your strategy might entail securing follow-on angel funding, it might entail looking for VC involvement, it might include an exclusive contract arrangement with a potential acquirer or it might be bootstrapping and leveraging grant money. These will all have their own outcomes and impact on the returns you eventually make as an angel investor.

All of these strategies require a laser focus on the sort of business you are building and for who. At every board meeting time should be set aside to revisit the capital strategy to address what it is going to take to secure capital and from who, to ensure that you are building relationships with the right people and that you are doing so well in advance of calling on funds. All these things are vital because they make sure the  company is focusing on generating the value follow-on investors are looking for.

I also can’t help wondering if, as an industry, we need to start thinking about potentially saying “no” to new investments to ensure the deals we’ve already done have the necessary capital and capability applied to succeed. We would be doing this on basis that we are getting more mature as an industry and have a better sense of which companies are going to generate the returns we seek. I think its time to be taking a proactive approach to portfolio rationalization.

How about an investment evening exclusively for these “elite” companies? Such an evening would be all about the “return on investment” proposition and what’s needed to get there. These “elite” companies would be pitching for funding to get to an IPO or a trade sale for example, and would be telling us what it’s going to take to get to these end points within say 1-2 years.

I’d love to see what this might achieve!

Marcel

Angels & equity crowdfunding

The oldest equity crowdfunding market in the world is the UK. That market began in 2011, and has grown with an average annual growth rate of 410%.

It took until 2013 for angels and VCs to take much notice of equity crowdfunding in the UK. Now it is commonplace to see co-investment. In the UK 43.3% of angels invested through equity crowdfunding in 2014. 30% of seed investment in the UK was sourced through equity crowdfunding platforms in 2014. That figure is estimated to be 50% in 2015.

We’ve seen the first publicly listed company raise funds through equity crowdfunding. Currently we’re watching the first offer from a company that intends to list immediately after the offer closes.

We’re keen to shortcut the time taken to get angel / VC buy-in to equity crowdfunding in New Zealand.

Here are my thoughts on how angels and equity crowdfunding can benefit from working together in 2015.

Inspiring new angels

The AANZ and angel networks across the country do a good job of shining a spotlight on funding early stage businesses. However general awareness is still low, and angel networks can appear exclusive or inaccessible to many investors eligible to participate.

Equity crowdfunding inspires new angels in a number of ways:

  • Accessibility: Investment opportunities are broadcast widely, reaching many who would otherwise not hear about these opportunities.
  • Small investments: Most equity crowdfunding offers have a small minimum investment amount, such as $500 or $1000. This enables people to start investing in this asset class earlier in their lives. You can easily diversify $10,000 across a range of investments.
  • Learning: One problem with growing the number of angel investors is education. People will be reluctant to invest if they don’t feel that they know enough about the space. Equity crowdfunding gives newbies access to the same offer information, Q&A, and commentary as experienced investors. So everyone is part of the same conversation about an opportunity.

Many future members of angel networks will first invest in unlisted equities through equity crowdfunding. Angel networks should look at this future state identifying ways to use equity crowdfunding platforms as a feeder for their membership.

Referrals

Equity crowdfunding is carving out its space in the funding ecosystem. It will never replace angel investment or the other funding sources. That’s because some businesses are simply better suited to private angel investment or other channels.

At Snowball Effect we’ve had expressions of interest in equity crowdfunding from nearly 600 Kiwi companies. We always ask ourselves what value the company should be trying to capture alongside the cash. If that value is deep domain expertise from experienced individuals, for example, we’ll discuss whether introductions to suitable angel investors is the better path.

Further, we believe that very early stage businesses are generally not suited to public offers. Companies best suited to funding through convertible notes are not right for equity crowdfunding (the regulations don’t permit offers of convertible securities).

Companies should be aware of the range of funding options, and they should pursue the option which provides most value to their business. We’re committed to referring companies elsewhere if appropriate, and hope angels acknowledge and understand the equity crowdfunding option and can provide the same guidance to companies.

Co-investment

Each offer through Snowball Effect has attracted multiple individual investments of $50,000 or more. Private investors are using this channel, and we’ll continue to build that part of the market.

2015 will be the year where we see the first official co-investment between equity crowdfunding investors and an angel group.

The benefits are clear:

  • For angel networks, it provides an efficient way to top up a funding round.
  • For equity crowdfunding investors, it provides comfort that sophisticated investors have assessed the opportunity and have committed.
  • For the company, it’s an opportunity to harness the benefits of wide brand exposure and shareholder advocates that come with a public offer.

We’d love to hear your feedback on these collaboration opportunities.

Please get in touch with any thoughts or comments at [email protected]

This is a guest post by Josh Daniell who blogs regularly here.

Put social ‘good’ on agenda, firms told

Internationally renowned Kiwi entrepreneur and social responsibility advocate Derek Handley sees Tauranga as well placed to embrace an evolving new business model in which doing good is as important as doing well.

The key theme of Mr Handley’s presentation and his discussions in Tauranga was the growing global trend to try and build business models where the product or service models created a significant social impact. That represented an evolution of the older corporate social responsibility model of using a portion of business profit to do good in the community or elsewhere, he said.

Mr Handley’s presentation received a warm welcome from more than 350 people at the ASB Arena last Friday. The event was sponsored by Priority One, whose chief executive Andrew Coker had been working on securing Mr Handley’s visit since seeing him speak in 2011. Mr Handley also attended a private dinner with about 20 major stakeholders in the Tauranga business community.
“There are a lot of interesting things happening here and they seem to be picking up pace,” Mr Handley told the Bay of Plenty Times. He pointed to the Enterprise Angels investor network, projects such as the WNT Ventures business incubator, which had attracted government matching funds, and the growth of co-working spaces, amongst other developments.

Mr Handley said he came to Tauranga to understand what was going on in the local entrepreneurial sector. He also learned about the various communities working on initiatives to create great communities and lifestyles in the region without compromising the things that made it special.

“I think we’re at the beginning of a new wave of trying to do things in the world and how businesses and entrepreneurs see the purpose of their organisations, and moving that from a purely financial to a much more socially or environmentally aware viewpoint,” he said.

The new mindset would co-exist alongside traditional models of philanthropy, he said.

“We are also entering a renaissance of philanthropy with things like the Givealittle pledges, with more and more billionaires planning to give away half or more of their wealth, and a really fast-rising proportion of people starting to give significantly when they are very young.”

Holland Becket partner Bill Holland, who chairs Community Foundations of New Zealand, attended the private dinner. He said the interesting part of the concept was about building the concept of philanthropy into a business from the start.

“It’s not just a matter of people being successful and then deciding to be philanthropic,” he said.

“The philanthropic side is incorporated in the business plan and it’s quite interesting how that in itself can help make the business successful … there’s no question people are looking at the bigger picture. Environmental and sustainability concerns are important not only to business, but to their customers.”

How business can give back to society

A private dinner brought Derek Handley together with some 20 Tauranga leaders in business excellence, academia, entrepreneurship, philanthropy, iwi fund management, early-stage investment, government and social enterprise.

It was hosted by Nicki Wilkins, general manager of the Acorn Foundation, and her lawyer husband Marcus, and arranged by Tina Jennen, who works with Enterprise Angels and local entrepreneurs.

The Acorn Foundation encourages people to consider leaving a gift either in their will or during their lifetime to benefit the local community and Ms Wilkins said the dinner provided an opportunity to hear more about what was happening in the business sector in terms of philanthropy. She is a board member of Community Foundations of New Zealand.

“The desire for people to give is growing significantly,” she said. “I can see real benefits in Derek’s desire to help people in business to give in a way they know they are truly making a difference.”

Tina Jennen said Tauranga had the capability to become a national – and global – leader in the new and more socially responsible way of doing business.

“When you bring disparate people together a powerful cross-pollination of ideas can occur,” she said. “We wanted a diverse group of key community leaders to hear Derek’s plans so we can get ready to take action.”

Derek Handley said the dinner had been a great opportunity to have more in-depth discussions.

“As small as New Zealand is, you don’t get a chance to meet these people that often,” he said. “It’s fascinating what’s going on here in Tauranga and it was really interesting and inspiring for me.”

Tauranga was also beautiful, said Mr Handley, who stayed on for the weekend. He noted one of the roles of business and entrepreneurship in society was to enable people to have a fulfilling balance of holistic lifestyle for people. “In a city like this you can almost feel it being 21st century holistic living, but able to build interesting ventures that mean something. That’s a great place to be.”

First published on nzherald.co.nz 17 February 2015

The touch of an angel

Angel investors are often an entrepreneur’s first port of call for capital. But what’s it like dealing with angels? Is it more halos or hassle? NZBusiness sat in on the Angel Investor Summit where entrepreneurs shared their highs and lows.

Scantily-clad forms don’t tend to dominate investment gatherings. So perhaps it wasn’t surprising that there was a palpable feeling of renewed interest when Kiwi entrepreneur Paul Cameron flicked up a slide of a rather beautiful female ‘angel’ at the recent Angel Investor Summit in Auckland.

“We really like angels. They are beautiful people. And this is what I think about when I think about my angels,” Cameron said to howls of laughter from the mainly male, mainly older and mainly well-to-do and (thankfully) fully dressed audience.

Cameron says he likes his angels for a number of reasons outside the cash they bring. Key for him has been the support they’ve given him and his business, Booktrack.

Booktrack’s patented technology lets anyone add a synchronized movie-style soundtrack, including sound effects, to an e-book or other digital content, with the audio paced to the reader’s own reading speed. The idea dates back to 2009, but it wasn’t until 2011 that Cameron sought help and capital. Since then, Booktrack has raised more than $2 million from early stage investors including Sparkbox, The Warehouse founder Stephen Tindall’s K1W1, Kiwi entrepreneur Derek Handley and US tech entrepreneur and investor (and self-proclaimed Kiwiphile) Peter Thiel.

Quoting boxer Mike Tyson, Cameron says “Everyone has a plan until you are punched in the face,” and that’s what it’s like for entrepreneurs; things often don’t go to plan. When that happens you need to know there’s support there; that someone is guarding your back, he says.

Right from the beginning Sparkbox’s Greg Sitters has always been there for him, with almost daily contact at the beginning of his angel journey, he says. “It had been eleven months. It was 9.30 at night and my phone rang. It was Greg and he goes ‘How you going?’, and I reply ‘Good, what’s going on?’ He says ‘Nothing, I just haven’t heard from you so I was just checking in that everything was all right’.

“It was the first time in months we hadn’t actually touched base for more than 24 hours,” Cameron laughs.

But knowing that sort of support is there when you’re trying to build up a business and trying to raise capital is invaluable, he says.

Another thing angels bring to the table is connections and networks, says Cameron. When Kiwi entrepreneur Derek Handley sold his successful mobile marketing company, The Hyperfactory, a friend suggested he get in touch with him. Cameron went to Sitters and asked if he knew Handley. He did, and a meeting was arranged. Soon Handley was an investor and had arranged for Cameron to go to Silicon Valley to meet some members of his own network. These introductions led to Cameron netting Thiel as an investor and the rest, as they say, is history.

Antony Dixon, founder of super slimline radio frequency identification product manufacturer Times-7, says without his Kiwi angels’ encouragement and networks, he’d have never have got on a plane and met, let alone landed, his current Silicon Valley partners.

Similarly Marie-Claire Andrews, co-founder and CEO of smartphone event app ShowGizmo, says connections are vital, especially when you head off overseas. But it’s not just connections for sales or investment that are important, she says: “It can be connections for anything: a place to sleep; a desk.”

Another big plus is just the belief angels bring to an entrepreneur, says Cameron. “When someone says they want to invest in your business, as an entrepreneur you feel 100ft tall; like you can take on the whole world. It gives you amazing self-belief and the motivation to go an extra 200 percent when you’re already giving it 100 percent.

“That’s probably my favourite part of working with the angels; that belief they give us and how they bring that to the whole entrepreneurial ecosystem.”

Andrews was also upbeat about her angel experience, even highlighting how important the frequent pitches were to both testing and honing her business strategy and as an important dress rehearsal for getting sales. “Practising pitching is practising selling… and that’s what we have to do every day as entrepreneurs.”

But the downside of all this relationship-building is the time involved for what is often not a lot of capital at the end of the day, she says. “It’s been the time pressure that’s been the hardest for us; the involved time, my time.” Every pitch is different and it differs between angel groups, but angels should streamline their processes more and be far more transparent about what’s happening and how as an entrepreneur you’re doing, so there’s no time wasted just wondering what’s going on, she says.

After three years, ShowGizmo has netted just under a million in external investor capital, compared with US$40 million raised by the company’s biggest competitor in the US, says Andrews. “Our last round was a simple just under $100,000 top-up for a specific reason. Admittedly it only took three months, but it still took about 80 hours of my time.”

Mind the time

John Huston, founder of one of North America’s largest Angel Groups, the Ohio Tech Angel Fund and a key note speaker at the 2014 Angel Summit, says the only constant entrepreneurs have is 168: the number of hours in a week.

“The most successful entrepreneurs are those who use those 168 hours most effectively.

“Angel groups who squander the time of entrepreneurs are not just unkind, they are evil,” he laughs. Investors need to get wise about “harmonising the size of their cheque with how much time they are going to take,” he says. “It just drives these folk crazy when they have to spend as much time with some $10,000 cheque writer as they do with someone who ran a $1 million round.”

The process to actually getting capital is really, really hard, admits Rachel Lacy, founder and director of Drikolor, which plans to revolutionise the paint market by introducing dry pigments that can be mixed by anyone. “It’s dating and we just want to get married.”

To improve the process Cameron says some angel groups need to realise it’s okay to say “no”. There’s nothing worse than having a great meeting, a seemingly great pitch and then never hearing anything again, he says.

“We’re feedback junkies,” agrees Andrews. “We need to know why.”

Comments like, “we did not invest because it’s not right for us at this time,” mean nothing, says Cameron. “Tell us if it’s because we look funny. It’s even best to say it in the meeting so we don’t waste any more time.”

Lacy says now there are more angel groups in New Zealand, they should be a little smarter about matching investors to companies and their founders – as you can’t, and you shouldn’t even try, to separate one from the other. “It would be really good if I didn’t have to endlessly pitch to people who just want to invest in the next Facebook.

“Starting up is hard enough, so you want as much investment alignment as you can. You want a group of angels to invest who understand and are interested in your space; and share a similar business philosophy as that will affect how your company develops. You can’t retrofit culture.”

Know the business

Understanding their space better was a common grumble among the entrepreneurs who shared their experiences. Andrews says it was still early days in the smartphone revolution when she started out, but she was a little shocked and dismayed when one potential investor asked not about the markets she was heading into, her financials or her team, but simply, how they could get her app on their phone.

Cameron says if investors want to be involved in tech companies they should learn more about it and the best way to do that was to actually start using it. “Go buy a smart watch and use it; go for a run and measure your heart beat online; start tweeting; just do it.”

It amazes him when some investors say they want to help him develop his company. “But hey, you have to get your kids to help teach you how to use your phone, so why do you think you know anything about the consumer Internet.”

Investors should ask themselves how relevant their experience really is, he says. “It doesn’t mean they can’t help with the strategy, but they need to recognise their own limitations.”

That said new entrepreneurs do need a lot of education, says Cameron. Even the terms investors use are like a foreign language.

Lacy says it would be useful if investors forced entrepreneurs to do a five-day Institute of Directors course on what your responsibilities as a board director actually are after they invest.

As to boards, it’s really vital you get the right people on your board at the right time, she says, and just because someone invests in your company, it doesn’t mean they should have a board seat.

“We have a fantastic first board with loads of sales and marketing experience, which is brilliant; it was just 18 months too early.”

Today Lacy’s company Drikolor has finally caught up to her board’s experience and she says she wouldn’t hesitate to recommend the angel investment route to other budding entrepreneurs.

“If you get the right mix, it’s phenomenal.” After all, without the angels, their knowhow, their connections and their cash, we wouldn’t be here, she says. “But obviously the reverse is true as well.”

First published on nzbusiness.co.nz 29 January 2015

Kiwi entrepreneurs investing back

In this terrific story we see ‘proof positive’ that angels truly deserve their title. They are not only champions for the incredibly inspirational products and services New Zealanders are creating but real engines for economic growth and job creation. Seriously awesome!

 

They’ve been there, they’ve done it, and now the likes of Sam Morgan are backing a new generation of Kiwi entrepreneurs to build thriving businesses.

The idea of success begetting success is one of the strongest themes in this year’s Deloitte Fast 50, which features a number of startups that have either been launched or backed by individuals who have already enjoyed a taste of success.

Read more

Entrepreneur flourishing in start-up mode

Angel investment providing potential growth capital to a returned Tauranga businessman, Paul Symes developing an electrically powered trailer boat loader.

Paul Symes is back in start-up mode.

After almost two decades building his previous CAD design firm 4D into a global company with 200-plus staff, he sold his stake and last year relocated from the Philippines to Tauranga to look for a different lifestyle and new opportunities.

There he connected with Tauranga realtor and boatie Lex Bacon, who had come up with an idea for an electrically-powered trailer boat loader. After rigorous due diligence on the concept, Mr Symes became the majority investor in Balex Marine, which is developing and marketing Mr Bacon’s invention as the Automatic Boat Loader. Industrial design firm Locus Research has also taken an equity share in the company.

The ABL prototype won the Hutchwilco NZ Boat Show Innovative Product Award earlier this year, and Balex is currently engaged in an $800,000 series A fund-raising round with angel investors.

“I miss having my old executive management team of 10 people who were absolutely fantastic,” said Mr Symes.
“It’s difficult not to have those resources available, so that’s a change and a challenge. But I’m really enjoying it.”

Mr Symes grew up in Hawera, before going to boarding school at New Plymouth’s Francis Douglas Memorial College.

In the sixth form he took up a draughting cadetship with the local office of engineering consultancy Holmes Consulting Group, moved to the company’s Wellington headquarters, and later worked for his father’s company Valley Steel.

But the 1987 sharemarket collapse hit the construction industry hard and Mr Symes decided to go to Victoria University, where he got a BCA in accounting, commercial law and IT. To support his studies, he worked for himself. By the time he finished his degree, he had a staff of 15, so he decided to stick with the business and incorporated it as 4D.

He had met his wife Joanne, who came from Christchurch, as did two of his partners, so the business was rebased in the South Island city.

The business did well with New Zealand projects, and 4D also began working across the Tasman. The game-changer for the company came in the late 1990s. An Australian competitor offered the firm the opportunity to join it on the massive Olympic Dam Copper Project, if it committed to investing in the expensive CAD design programme XSteel (now Tekla), which had become available for the first time on PC.

Mr Symes and his wife were forced to turn to family and friends to come up with the $150,000 cost of five of the only 2000 software licences available worldwide.

“It was a ridiculous amount of money to find at the time,” he said. “But everything we achieved resulted from that.”

The software enabled 4D to develop highly-detailed 3D designs for steel structures, down to the nut, bolt, washer and weld placements, which could then be fed directly into computer-controlled machinery to cut, drill and punch out the steel components for the build.

“We started getting involved in mega projects in Australia and were then approached by a company in Nova Scotia, Canada, to work on projects in the USA.”

Over the next decade the company became 90 per cent focused on the North American market. But it was running into increasing problems getting skilled staff. After evaluating China, India and Indonesia, the company settled on the Philippines for an offshore site and opened an office in Manila in 2006.

“The thing with Paul was that he really took the time to try and understand the way things worked in the Philippines and the culture of the Filipinos as well,” said Richard Cullen, now managing director of Te Aroha-based Cullen Engineering, who was part of 4D’s Manilla management team in the early days. “They really respected him.”

But after the firm expanded its Manila office, the global financial crisis kicked in around 2008, forcing a massive restructuring.

“We had come off the back of some massive projects that had tied up a lot of people, then we found ourselves with nothing to do and a really bleak outlook,”said Mr Symes.

The Christchurch office was wound down, and the business based in Manila with total staff cut by 30 per cent to less than 90. The restructuring cut costs by 55 per cent and led to the company growing by 100 per cent over the next two years, with staff eventually building back up to 215 last year.

Meanwhile, 4D Global Group was merged into Australian company PDC Group in 2011, and went on to win a number of significant steel design projects, including the World Trade Centre 3 – which used 30,000 tonnes of steel, equivalent to one-third of New Zealand’s annual steel consumption – as well as the new Google headquarters. Mr Symes was eventually bought out in March 2013.

Michelle Malcolm, a partner with business adviser Crowe Horwath in Tauranga, said Mr Symes knew what he wanted to do and where he wanted to go.

“His past expertise in growing businesses and taking them to where he has, shows in everything he does,” she said. “I have total faith Balex will be a success because you don’t have too many people who have an entrepreneurial head like his.”

Easy fit for dedicated boatie
Getting involved in the Automatic Boat Loader was to some extent a no-brainer for Paul Symes, who is a dedicated boatie and keen beach catamaran sailor.

He was heavily involved during his stint in Manila with the Philippine Inter-Island Sailing Foundation, which runs regattas throughout the archipelago. A member of Phinsaf’s board of directors in 2012-13, he chaired the 2010 Philippines Hobie Championships, and the 13th Philippines Hobie Challenge last year.

“And I went up and sailed again in March,” said Mr Symes. “I love tropical sailing.”

Mr Symes bought an 18ft (5.5m) Nacra catamaran when he returned to New Zealand but sold it again, and is in the market for something smaller that can be easily sailed by one person.

He and his wife Joanne have two daughters, Alannah, 17, and Danielle, 12.

Outside help had a major impact
Paul Symes said that one of the critical moments in his business career came in 2005, when he learned the lesson of working “on not in” the business.

He engaged the business advisory group at PriceWaterhouseCoopers in Christchurch and worked with them to more effectively structure 4D’s governance, which included bringing in an outside chairman.

“I worked closely with PWC in terms of strategic planning, getting really diligent about it. And that was really instrumental in paving the way forward.”

Part of that process included looking hard at pressing issues of the time, such as the need to find skilled staff, and resulted in the decision to open an offshore site in Manila.

“And I don’t know how much the key to success is attracting the right people — I’ve had absolutely fantastic people working with me.”

Richard Cullen, now managing director of Te Aroha-based Cullen Engineering, who was formerly in 4D’s Manila management team, said Mr Symes was highly organised and motivated.

“He has the ability to motivate his team and to share the vision of the business with his team so that everyone’s going in the same direction,” he said. “He’s very good at dealing with people and very knowledgeable.”

Michelle Malcolm, a partner with business advisers Crowe Horwath, said Mr Symes was really well- informed and well-prepared. “His minutes for board meetings are probably the best I’ve ever seen,” she said.

Mr Symes paid tribute to the local business community for the support he’d received since relocating to Tauranga.

“They’ve put their hands up to help, which is humbling and refreshing,” he said.

“The secret of Tauranga’s success, when the rest of the regions are struggling, is that there’s such a vibrant group of people here that are absolutely passionate about making this a successful business community.”

First published on nzherald.co.nz 26 Sept 2014

AngelSummit14

Delivering data to farmers’ pockets

Tags: Entrepreneur

Angels support “mum-treprenuer” of the year, Bridgit Hawkins and her business Regen and in doing so help farmers make better, faster decisions to protect the environment and build better businesses.

These days farmers are as likely to have a smartphone or tablet in their hands as they are a dog at their heels.

As technology becomes an integral part of managing the land, Wellington entrepreneur Bridgit Hawkins is building ReGen, an enterprise texting daily data to farmers to take the guesswork out of key on-farm operations.

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Lead Partners

NZTE NZGCP PWC “NZX” Callaghan Innovation

Expert Partner

AVID “Jarden”

AANZ Summit Sponsors

“UniServices” Kiwinet “AWS” “BNZ” “Momentum” “Punakaiki” “MBIE” “GD1” “WellingtonUniVentures” “Movac”