StartToday considers whether StretchSense fits

This has been a great year for validation of angel backed ventures. Angel investors in StretchSense are delighted with the traction this venture is getting.

StretchSense, a New Zealand-based wearable sensor manufacturer spun out from University of Auckland, revealed yesterday that it had agreed a call option to be acquired by e-commerce portal StartToday.

StartToday already owns a 39.9% stake in the spinout ad would pay $72m for the remaining shares.

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Launch Taranaki and NZVIF to invest in local startups

The New Zealand Venture Investment Fund and Launch Taranaki, the New Plymouth-based angel investment fund, have formed a partnership to invest into start-up companies, primarily in Taranaki.

Launch Taranaki was formed last year.  The angel group has over 20 members, and is chaired by Ian Frame, who previously ran Rangatira, a Wellington-based private equity fund, for over a decade.  The government-owned NZVIF partners with angel groups and investors through its Seed Fund to co-invest into young startups.

Mr Frame said the partnership with NZVIF’s Seed Co-Investment Fund – or SCIF as it is known – will bring more investment into innovative companies in the Taranaki region.

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MEDIA RELEASE: AANZ supports Government Changes to Startup Investment

Angel Association NZ welcomes the changes the Government has announced today to the Seed Co-Investment Fund mandate outlined in SCIF 2.0.

Early stage investment has established itself as fundamental to New Zealand’s future economic and social wellbeing. It is a key contributor to the growth of New Zealand’s innovation ecosystem.

“Recognizing that building momentum is the first step in generating value, the changes to the New Zealand Investment Fund’s seed co-investment reflect the maturing of the early stage investment industry in New Zealand,” said Angel Association Chair, Marcel van den Assum.

“As an industry we are moving from prioritizing the number of deals we do, to prioritizing the value of the ventures we have invested in. We are pleased to see the investment cap lifted from $750,000 to $1.5m; doubling down on companies that are performing improves the odds of a rewarding return.”

Mr van den Assum also added that it was good to see NZVIF sending a clear message about the importance of well executed due diligence and active investor engagement.

“Quality due diligence improves the odds of success,” he said noting that it was also critical that ‘in-flight due diligence’ was regularly carried out to ensure the funds are being deployed effectively and strategically with a view to the return on that investment.

“As angel investors we have limited capital and time. We must be more diligent in our assessment both of a venture’s ability to scale and in assessing which companies we will retain in our portfolios,” he noted.

Angel Association New Zealand also welcomed the announcement as an indication of the Government’s ongoing commitment to the early stage ecosystem.

“Creating a self-sustaining, innovation ecosystem is a 20-30 year exercise and it’s pleasing to see the Government continue to support the early stage kiwi companies who are part it,” he concluded.

Ends

For more information, please contact:

Suse Reynolds, AANZ executive director
mob: 021 490 974 or email: suse.reynolds@angelassociation.co.nz

Marcel van den Assum, AANZ chair and 2015 Arch Angel
mob: 021 963 459 or email: marcel@angelassociation.co.nz

The Angel Association of New Zealand (AANZ)

The Angel Association is an organisation that aims to increase the quantity, quality and success of angel investments in New Zealand and in doing so create a greater pool of capital for innovative start-up companies. It was established in 2008 to bring together New Zealand angels and early-stage funds. AANZ currently has 27 members representing over 600 individual angels associated with New Zealand’s key angel networks and funds. Recent NZ Venture Investment Fund data revealed angels have invested more than $NZ437m in over 928 deals and 296 companies in the last 10 years. For more, please visit: www.angelassociation.co.nz

 

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Heavenly manna from angel investors

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.

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Kiwi startup Hydroxsys technologies could help clean up NZ’s waterways

Hydroxsys is a clean-tech company founded on unique water extraction technologies aimed at mining, dairy and other industries requiring water extraction or remediation.

The company has acquired an experienced management team focused on developing the company’s IP and bringing revolutionary products to market.

NZ food network has thrown in their lot with Hydroxsys and is helping the company develop their revolutionary technologies.

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Capital Markets Report: Making it a bigger deal

There’s still a big gap in the market for traditional venture capital, with long lead-ins, writes James Penn.
The average transaction value in New Zealand’s venture and early stage capital sectors more than doubled from 2015 to 2016, according to a recently released report. However, concerns about the fragility of the sector remain.
The New Zealand Private Equity and Venture Capital Monitor, published by EY and NZVCA, paints a rosy picture for the venture and early stage sector, with growth of 47.7 per cent in the value of deals — which don’t include angel investments — compared with 2015.
Interestingly, despite this growth in total investment value, the number of transactions has declined. This has resulted in the average transaction value growing from $906,000 in 2015 to $1.85 million in 2016, suggesting a maturing of the sector.
A similar, albeit more moderate, story can be observed for angel investments.
A recent report by the New Zealand Venture Investment Fund (NZVIF) stated that while the number of investments by angel groups and funds decreased 15 per cent, the total value of investment increased by 13 per cent, reaching $69m in 2016.
Willingness to invest larger sums in each individual company is indicative of investors having more confidence that those companies have strong, often international, growth potential.
However, this means that the sector is highly focused on growth capital — for companies that have already generated a significant level of revenue.
“A big gap remains in the market for more traditional venture capital targeted at businesses that have long lead times and deep intellectual property,” says Colin McKinnon, Executive Director of NZVCA. “We don’t have a New Zealand fund in the market at the moment that would be likely to invest in (say) Rocket Lab or 8i while they remain pre-revenue.”
Managing Partner of Movac, Phil McCaw, sees fragility in the early stage capital sector, arguing that New Zealand needs at least a couple more significant funds around the $150 million mark. Movac for its part recently raised $110 million for its Fund 4, and has already made a significant investment from that fund in retail software developer Vend.
“My vision for the venture industry is to see that we’ve got three or four long term sustainable funds that are $150 million type funds,” says McCaw. “We’ve got to find a way to lift this industry to get to that position.”
Engender Technologies, a Kiwi company that has developed laser technology to sort livestock sperm by sex, is illustrative of the benefits that come from these growth-focused capital sources.
After closing a $4.5 million capital raise — led by Kiwi venture investment firm Pacific Capital — in June last year, Engender has started growing its footprint globally. To date in 2017, Engender has announced a $1 million deal with Asia’s largest animal genetics company and has been named one of the five most innovative Agtech start-ups at Agfunder Global Innovation Awards.
The positive headline figures are also reflected in a flurry of activity among old and new specialised funds. In March this year, for example, NZVIF announced its 17th partnership for its seed co-investment fund with ArcAngels, a group of private individuals focused on investing in female-led start-ups.
Meanwhile, the NZ Super Fund broadened its scope of investments over the past year, with investment in funds that target a spectrum of companies, from early to late growth.
“New capital commitments for funds including Movac and Global from Day One were complemented by on-going fundraising by Punakaiki Fund,” says McKinnon, “Crowdfunding platforms Snowball Effect and Equitise, and the public listing of Powerhouse Ventures also raised capital.”
KiwiSaver is nowhere to be seen in venture or private equity which is disappointing.
Colin McKinnon
McCaw says “I’m more confident than I’ve ever been. There’s more cash in the market and there’s more opportunity, and I don’t see those things changing in the next few years.”
Despite this dynamism, there remains work to be done to foster a deep early stage and venture capital market that can
satisfy the needs of rapidly scalable ventures.
Public funds and institutional investors need to play a greater role. While the Super Fund has taken a step in this direction, it has taken some time and the industry would welcome other funds following suit.
“KiwiSaver is nowhere to be seen in venture or private equity which is disappointing. International investors prioritise larger markets,” explains McKinnon.
“Creating a framework that incentivises the early-stage growth market until a long-term track-record is developed should be considered. The industry is close, but not quite there yet.”
McCaw also sees a need for policy change in this regard, noting the success of recent Australian policy changes and the subsequent growth in their sector.
“If we want a growth economy that grows from entrepreneurship, you’ve actually got to put in place a policy framework that supports it across the spectrum,” says McCaw. “And I think there’s an absence of policy at the moment in the venture and growth capital class that is not enabling the scaling of funds.”
And the age-old question of returns still remains. Yet again, there was an absence of divestment within the venture and early stage capital sector in 2016.
According to the Capital Monitor, just one of the past six years has seen any divestment, and that was a mere $400,000. However, McCaw says this is the nature of the beast and the early stage capital sector is always expected to have long pay-off timelines.
“It is still a developing story. Around the world, that’s a story that takes 20 years to create, across a couple of fund iterations,” says McCaw. “But it’s coming.”
“You can kind of justify the growth that’s incurring inside of these companies, because there really is some really fast revenue growth occurring — so there’s definite signs that the industry is investing in things that are creating long term value.”
“The rate of return at the moment in terms of cash back is not fast enough,” accepts McCaw. “But it’s getting faster.”
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Capital Markers Report: Venturing closer to maturity

Richard Dellabarca, chief executive of the NZ Venture Investment Fund, has completed a strategic review of the industry and provided growth options to Government, reports Tim McCready.
Last year, then Economic Development Minister Steven Joyce announced a review of New Zealand Venture Investment Fund’s structure, reiterating the Government’s ambition for the fund to become self-sustaining.
Soon after the announcement, Richard Dellabarca was appointed chief executive of NZVIF in mid-2016 — a move that indicated the industry was maturing.
Dellabarca, an investment banker, had spent 14 years offshore in a variety of leadership roles in venture-backed companies, capital markets, financial services and technology-related opportunities.
He brings a private sector investment perspective, but given his experience as an entrepreneur he understands what is required to build globally scalable companies.
“Really good Venture Capital funds (VCs) are looking to build businesses. Investment is an important skill to have, but their greatest skill is in building companies,” he says.
“It helps to have gone through the journey of building a global company, or a company with global aspirations, in order to understand what is needed.”
When Dellabarca joined NZVIF, he was given a blank piece of paper and the mandate to go away and undertake an independent strategic review. He has spent the last year speaking with stakeholders — around 140 organisations and 230 individuals.
Dellabarca says he is encouraged with the significant amount of investable opportunities in New Zealand, noting that founders and teams tend to be aspirational and motivated, and companies aim to be global from day one.
The review noted a growing amount of angel investment — $69 million in the last year, and more than $400 million since figures have been tracked — in addition to the significant investment into universities and Crown Research Institutes.
There is money available in New Zealand to fund proof-of-concept in early stage companies.
But a shortage of funds was identified for opportunities requiring $5-20 million in early stage growth capital.
In addition, Dellabarca noted that in the Silicon Valley or the UK, “you generally see funds syndicating with two or three investors when raising Series A & B investment.
“Yet over here, we have only Movac and Global from Day One (GD1) investing locally in growth capital, severely limiting the opportunity to syndicate investments or fully fund early stage growth companies through to maturity — and ultimately a successful realisation of the investment.”
Although eight Venture Capital funds were originally established in New Zealand, the average fund size was only NZ$45 million compared with a global average of approximately US$300 million.
Dellabarca explains there is a good reason for global fund sizes given the amount of money a company generally requires through to an investment realisation.
“They will tend to invest in, say, 15-18 companies at $5-10 million each, and then keep money aside for further follow-on investment in companies that are succeeding.
“This allows for better funds management practice, managing downside while optimising on upside opportunities,” he says.
“These historic sub-scale New Zealand funds tended to invest in a range of companies, but then either didn’t have capacity to fund them through to success and, therefore under-capitalised them, or had later stage investors dilute them down when they couldn’t follow on with the investment.
Hopefully in 15 years we won’t need a NZVIF in any guise, and instead there will be several self-sustaining funds of scale.
Richard Dellabarca
“The consequence was that many of these funds didn’t generate appropriate returns for their investors,” Dellabarca says.
While offshore corporates and financial institutions have had an interest in allocating money into New Zealand technology innovation, they have not been able to find a platform to put the money in.
As many of these institutions manage multibillion-dollar funds, the smallest investment they are willing to make is $50-$100 million.
“With an average fund size of $45 million, their mandate will often preclude them from being more than 10-20 per cent of a fund,” says Dellabarca.
“By definition you need a $300 million to $400 million fund to take these cheques.
“We just haven’t set up a fund of scale to allow foreign investors to come in and access innovation.”
NZVIF have presented a number of options to Economic Development Minister Simon Bridges that aim to make the fund self-sustainable.
Although Dellabarca is unable to divulge the details on those options, he says the fund-of-funds model with its hefty fees on fees structure is no longer viable.
The results of the strategic review provide a clue that early stage expansion capital for growth companies is New Zealand’s choke point, and is a gap NZVIF would like to address if a model that works can be established.
“There is an unmet need. You could argue about the specific number but the current deal flow suggests an annual demand of $200-$300 million,” says Dellabarca.
“If you assume our current VCs invest over five years, holding back 30 per cent for follow-on investment (the traditional venture capital investing model), then you have approximately $20-$25 million invested per year, versus a demand of up to $300 million per year.
“But whatever the number is, it is substantially larger than available capital. The aspirational goal is to have that need met in some way or another.”
Considering the future, Dellabarca says that he would like to see more money in the angel space. NZVIF is currently the second largest angel investor in New Zealand, and he hopes that in time it won’t be needed.
He has the same goal for the venture capital space.
“Hopefully in 15 years we won’t need a NZVIF in any guise, and instead there will be several self-sustaining funds of scale,” he says.
“We don’t have government intervention in private equity.
“You would hope that ultimately the same will happen in the venture capital space.”
Power of NZVIF?
• The NZ Venture Investment Fund (NZVIF) was established by the Labour Government in 2002 to build a vibrant early stage investment market in New Zealand by investing alongside private venture capital funds into high-growth companies.
NZVIF currently has $245 million of funds under management which it invests through two vehicles:
• a $195 million venture capital fund of funds, partnering with private New Zealand venture capital funds to support the development of innovative companies from start-up through to growth (investing on a two-to-one basis).
• a $50 million Seed Co-Investment Fund (SCIF) established in 2005 to encourage angel investment and fill the investment gap for entrepreneurs needing capital to get their business underway (investing on a one-to-one basis).
Since its inception, NZVIF has formed 27 investment partners (16 angel and 11 venture capital partners) and invested in a portfolio of 236 companies.
NZVIF has helped stimulate $2.2 billion in leveraged capital, $1.2 billion in attracted overseas capital, employment of 6076 FTEs and $174 million in taxes.
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Angel funds invest record $69m in 2016

Angel networks and funds invested a record $69 million into young New Zealand companies in 2016 – a 13 percent increase on the previous record set in 2015 – New Zealand Venture Investment Fund investment director Bridget Unsworth said today.

Releasing the latest Young Company Finance Index, Bridget Unsworth said the second half of 2016 was an especially strong period with investment of $46.1 million, following the trend in recent years which has seen surges of investment activity in the second half of the year.

“This is an excellent result.  The continued strong growth of angel fund investing was notable for the fact that while the transaction volume dropped by 15 percent, the amount invested by angel groups and funds increased by 13 percent.

“This indicates angel funds are continuing to back the winners for follow-on rounds. While it means fewer portfolio companies get funded, the high performing ones are able to close larger sized capital rounds. We see this as healthy development.”

The new companies funded by angels were at a very similar levels in 2015 (40) and 2016 (41), meaning the pipeline is steady.

Eight start-up companies raised investment rounds of more than $1.5 million which together totalled $20.4 million.  This accounted for 44 percent of total investment amount in the second half of 2016. Five companies out of this eight are software technology companies.

Chair of the Angel Association of New Zealand Marcel van den Assum said it is great to see the early stage investment community continuing to sustain a solid level of investment.

“Annual investment has exceeded $50 million for the last four years and grown by an average of $5 million per annum to reach nearly $70 million last year.

“This is a highly credible performance for a country where our startup ecosystem is still only a decade old and our early stage capital markets are still maturing. A concerted NZ Inc approach is required if we are to leverage the outcomes we aspire to see generated from our investment, and to sustain the performance of our startup ecosystem.

“In this respect it is good to see more money going into fewer deals and businesses attracting significant follow-on investment. This suggests a tighter focus by investors on those companies which are performing.  It will give the deepening growth capital providers in New Zealand – venture capitalists, corporate venture and strategic investors – more confidence to invest in angel-backed companies.”

The $69 million was invested across 112 deals compared with $61.2 million across 132 deals in 2015.  Cumulatively, $483.7 million has now been invested into young companies by angel groups since the Young Company Finance Index began measuring activity in 2006.

2016 saw $37.8 million investment into the software and services sector, which continued to be very attractive to investors.  Pharmaceuticals was the next most attractive investment sector in 2016, receiving $8.9 million of investment, up from $3.6 million in the previous year.

Click here to download the latest issue of StartUp.

Media contacts
NZVIF: David Lewis, m: 021 976 119, david.lewis@nzvif.co.nz

Angel Association: Suse Reynolds, m: 021 490 974, suse.reynolds@angelassociation.co.nz

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Opinion: The state of play for New Zealand’s venture capital industry

The question of the future of the NZ Venture Investment Fund is the trigger for one of the most important questions right now in New Zealand – how early stage venture capital in R&D, innovation and technology is funded and managed.
It goes beyond the question of NZVIF, which is a legacy institution and served a different purpose in the past. NZVIF is, in effect two institutions – an investor of the $50 million Seed Coinvestment Fund co-investing alongside angel investors to date in over 230 seed and VC stage companies and manager of 11 secondary stakes in established funds. It has a team of just five investment managers, which is small relative to the number of investments. Profit maximisation of these holdings for the government by the existing team is possible with many different options.

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Upside Biotechnologies raises $2.3 mln in funding round

Upside Biotechnologies, a regenerative medicine start-up, said it has successfully raised $2.3 million in its Series A funding round.
The Auckland-based company is developing an advanced, world-class skin replacement treatment for patients suffering major burns. The capital raised will be used to complete development of the product, demonstrate proof of concept, ready the product for its first human trial and forge links and explore market opportunities in the US, chief executive Robert Feldman said in a statement.

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Lead Partners

NZTE NZVIF PWC

Expert Partner

NZX AVID AJ Park “FNZC.jpg”

AANZ Summit Sponsors

Callaghan Innovation “UniServices” Kiwinet “Spark”