Angels support “Growing the Pie” report

Angel Association New Zealand (AANZ) whole heartedly supports the findings in Callaghan Innovation’s “Growing the Pie” report released today.

Overseas investment in high growth kiwi start-ups is a critical component of their success and our success as country that grows innovative, globally competitive businesses according to AANZ.

“We need to be aware that it’s not just the capital that is important to ventures looking for fuel for their growth but it’s the connections and experience that comes with that capital that our ambitious start-ups need to be able to scale successfully,” said John O’Hara.

Addressing other points in favour of overseas trade sales and investment John O’Hara noted allegations of so called “selling too early” miss the point. Early trade sales are an important part of our maturing and growing ecosystem and these ventures are part of the pipeline needed to generate unicorns.

“We need these deals to grow our founder experience and expertise. It’s a powerful and legitimate strategy for smaller businesses to grow their market presence via investment and sometimes sale of the business to larger multinationals. These businesses and their founders are part of the pipeline we need to grow the future Xero’s and RocketLabs. The expertise Rod Drury gained in growing and selling AfterMail was absolutely deployed in the creation of Xero,” said John O’Hara.

The recycling of capital and experience feeds more growth and innovation.

“It’s been my experience that not only do exited founders go on to start another business or invest in other founders but most investors in those exited businesses reinvest in other start-ups. We know that 80% of any returns generated when angels are part of a trade sale are channelled back into more start-up investments,” concluded John O’Hara.

To read the report click here.

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What do NZ angels think about a capital gains tax?

This article contains a very neat summary of the angel community’s views on capital gains tax (CGT), including from former AANZ Chair, Marcel van den Assum.

The Tax Working Group’s proposal for a capital gains tax (CGT) got a serve on social media this afternoon from Rocket Lab founder Peter Beck. But other entrepreneurs say it could be a good mechanism to shift capital from “non-productive” property to startups.

Read more

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Investors have confidence in startup futures

The October issue of Startup Investment New Zealand Magazine is now available here.

In this edition, we shine a spotlight on Kiwi businesses that have earned a place on the world stage. To be successful, Kiwi startups have always had to think and act global from the outset but there’s now a number of factors helping these startups succeed in offshore markets, and often much earlier in their journey. We’re seeing a developing ecosystem of support including government agencies, networks and people with experience at scaling global businesses, as well as investors who have the confidence to support these innovative companies.

The data is supporting this investor confidence. Five times the number of startup organisations successfully raised over $1 million from local investors in the first half of 2018 verse the same period last year, according to the latest Young Company Finance Index. This year almost half of deals are co invested by two or more Angel clubs and funds. Why is the formula to achieve global success so critical? It means little old New Zealand can produce valuable companies winning on the global stage, which attracts investors and ultimately builds prosperity for us as a country.

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To share or not to share: is knowing your co-workers’ salary the key to closing the gender pay gap?

Mish.Guru, a social media content and analytics start-up, has become one of the latest companies in New Zealand to endorse transparent pay systems as a way to tackle gender pay disparity. But are these shared models really as effective as they seem, or are they just another trendy, token gesture?

Founded in 2014, Mish.Guru is a content marketing software that helps business create and manage campaigns on Snapchat and Instagram. After scoring investments from AngelHQ, Sparkbox, ICE Angels and various others the company started to transition their main revenue stream from service to product, as well as expanding to offices in Berlin, Sydney and New York.

Despite solid success with clients like Paramount Pictures, Visa and McDonalds, Mish.Guru’s team knew that succeeding in the tech industry wasn’t easy, especially for the women in their team.

Read more

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Angel investment rises 26% to reach record level

Startups in New Zealand received an unprecedented level of funding last year, with $86 million flowing into early-stage businesses across the country. That’s according to Startup Investment NZ, published by PwC New Zealand, the Angel Association of New Zealand (AANZ) and the New Zealand Venture Investment Fund (NZVIF).

“It’s exciting to see such a large number of deals coming through to support early-stage companies. We’re seeing investment levels that are almost three times what we saw just five years ago” said Anand Reddy, Partner at PwC New Zealand.

John O’Hara, AANZ Chair, endorsed this sentiment noting that membership of angel networks continues to grow with a new network established in Marlborough last year and a budding network getting started in the Hawkes Bay.

Established networks like Ice Angels in Auckland, AngelHQ in Wellington and Enterprise Angels in Tauranga are also experiencing growing memberships.

Driving the growth in investment dollars is an increasing number of larger deals in 2017, compared to the year before. The number of deals in 2017 held steady at 111 – one lower than the 12 months previous – the total amount invested has risen by $18 million, a 26% increase.

Offering some insight on the larger number of dollars being invested in a similar number of deals, John O’Hara suggested it reflected a maturing ecosystem.

“A number of the ventures angels have backed are now looking for larger capital injections to fuel their growth. With a thin VC industry, it’s not surprising we are seeing larger deal sizes.

John also offered a word of caution to investors and founders.

“The market’s a little frothy right now. We’re seeing some strong valuations. Entrepreneurs have to be sure they’re not setting the bar too high with their forecast results. If they fail to meet these, it’ll make it make it harder for them to get the next round of funding.

“And investors will be similarly impacted. Flat and down rounds do not impact well on portfolio return prospects.”

Click here to find out more about how the startup sector is evolving, and where it’s heading next.

Click here to dive into the data about this asset class.

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The network effect: NZ angel networks drive funding

Of the $86 million invested into young companies in 2017, over half ($49 million) came from angel investment networks, rather than individual funds or institutional investment.

“The strength of our angel investment networks in New Zealand is growing every day, which helps to explain why they’re responsible for a growing share of overall funding” says AANZ Chair John O’Hara.

“They’re responsible for over double the funding that’s coming through the next most-popular channel of angel funds.”

Raising funds from angel networks can take a little longer than other sources of early stage funding (such as mico-VCs and high networth individuals) given that sometimes over a dozen individual investors are collaborating to complete DD and gather the investment. Angel networks also tend to be run with a large component of voluntary input so founders and lead investors need to be committed project managers.

John notes that not only do networks tend to bring a larger pool of connections and expertise than single source funding options, they bring deeper reserves of connections for follow on funding.

“Angels are inveterate travellers and networkers and have connections in markets across the world which can be tapped for sales channels, in-market insights as well as follow on funding recommendations,” said John.

“Nothing beats getting on a plane with a line-up of carefully targeted meetings. New Zealand founders and investor directors need to spend more time in-market and be preparing for the founder to be based there,” John added.

He concluded by noting that lining up an in-market Board member was also an important component of scaling into offshore markets.

Click here to find out more about how the startup sector is evolving, and where it’s heading next.

Click here to dive into the data about this asset class.

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Software the top sector for NZ angel investors

More than half the investment made in early stage companies in New Zealand last year was in the software and services space (53.8%), followed by 17% in technology hardware and equipment.

“Technology is increasingly the engine of growth for all companies, regardless of size” explains PWC’s Anand Reddy.

“It’s no surprise that it’s these areas where the most activity is happening and where angel and early-stage investors are putting their energy. This reflects global trends too. Data generated by Crunchbase notes that the software and services remains the dominant sector for investment.”

Speaking personally, John O’Hara said that his own portfolio leant towards software generated ventures.

“I am particularly proud of Ask Nicely, which produces software for NPS (net promoter score) collection and analysis. This company has already generated tangible returns for a number of the early angel investors. The company is now scaling into the US, with the founder moving to Portland, Oregon in the last couple of months.

“New Zealanders have a knack for practical problem solution and we are increasingly seeing them turn this knack into compelling business opportunities,” said O’Hara.

Click here to find out more about how the startup sector is evolving, and where it’s heading next.

Click here to dive into the data about this asset class.

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NZ start-ups strong in foreign markets, survey shows

New Zealand start-ups have the highest percentage of overseas customers when measured against their counterparts from 50 other “ecosystems” including New York, Moscow, Beijing and London, according to the Compass Start-up Genome’s Ecosystem Ranking Survey.

The Compass Start-up Genome project team is based in San Francisco and benchmarks so-called start-up ecosystems from around the world. More than 100 Kiwi start-ups took part in the 2016 survey, according to the Angel Association of NZ. In New Zealand, the survey was led by the Angel Association with support from NZX, NZ Trade and Enterprise, the NZ Venture Investment Fund, Ministry of Business, Innovation and Employment and Callaghan Innovation.

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New Zealand’s need for growth capital

As early stage investors we need to start getting real about the wisdom of our backing early stage, high growth ventures without far more consideration being given to where we source follow-on growth capital.

Even if we only look at last year’s New Zealand Venture Investment Fund’s seed co-investment data where about $50million was invested in early stage companies, the growth capital required for this cohort of companies is likely to be 10x this figure. So we are talking about finding $500m.

This is not just a problem for the investors in these companies; it’s a problem we need to grapple with in partnership with the government and the institutional investment community. These high growth companies are the engines of our economic growth. We can’t afford to drop the ball.

The development of an innovation led economy is widely accepted to take place over three ten-year horizons. We are coming to the end of ‘horizon one’ where the focus has been on inputs. New Zealand has done well here. The number of startups, early stage investors and dollars being invested has trended upwards over this period.

In the second ten-year horizon we should start to see outcomes from these innovation led companies in the form of jobs, export and tax revenue. But to generate these outcomes and see the true benefit of this investment, we need growth capital. Only then will the third horizon truly deliver in the form of financial returns and recycled capital and ultimately higher standards of living.

As I’ve just mentioned, there is no shortage of deal flow. The quality of that deal flow is improving every year too. This is in large part due to Government support for initiatives such as the Lightning Lab and the investor-led Tech Incubators. It is also a result of work others have done to upskill our entrepreneurs and angel investors.

To date, angels and other early stage investors have been able to fund the early growth of the companies meeting their criteria. We have been investing in startup, high growth ventures in a targeted sense for about 8 years but the really exponential upswing in investment has taken place in the last 3-4 years.

Quite logically, there is therefore an increasing and pressing need for growth capital in New Zealand.

This is illustrated in the recently released NZVIF data showing most investment is into existing deals. Angels are having the stay the course longer and dip back in their pockets for capital it could be argued should be coming from deeper more experienced pockets.

We need to give credit to those venture capital firms raising funds to meet the need for growth capital such as Movac’s Fund 4, the $40m fund GD1 is working hard to raise and the $40m fund raised by Oriens Capital. But it is not enough.

Closing the “growth capital gap” is going to need New Zealand’s pension and other institutional funds to broaden their investment mandates to allocate at least 3-5% to the growth needs of our high growth, early stage companies. We must support work Immigration NZ is doing to inject capital from experienced high network migrants into these companies. We need to tap into our rural and regional wealth more effectively. We have therefore been delighted to see angel networks forming in Taranaki and Marlborough reflecting an increasing awareness that high growth, tech based companies can be the source of future jobs and social and economic wealth in the regions. The banks also need to come to the party.

There is a great deal at stake here. We can’t afford “a hands off, market forces will deliver” approach. If ever a NZ Inc approach was needed, it is now.

Marcel Van Den Assum
Chairman
Angel Association New Zealand

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Canterbury Angels flying with new partnership

The New Zealand Venture Investment Fund is partnering with the newly formed Canterbury Angels to invest into start-up companies.

The Christchurch-based angel investor group was formed in 2015 and now has 35 members, most of whom are experienced investors or have been involved in establishing businesses previously. Its leadership includes chair Ben Reid, who chaired the Canterbury Software Cluster, Shane Wakelin, Joan McSweeney, Ria Chapman, Mark Cathro, Raphael Nolden, Ian Douthwaite, and SLI Systems co-founder Geoff Brash.

Canterbury Angels chair Ben Reid said the partnership will bring more investment into innovative companies in the Canterbury region and around New Zealand.

Read more

 

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Help benchmark the NZ ecosystem globally

Maximising the success of New Zealand’s startup ecosystem, and the worldwide ecosystem on which we rely requires input from startups themselves.

If data isn’t collected then how do we know what’s working and what’s not? Where our ecosystem could do with more support and where its doing quite well under its own steam. This is why the AANZ is supporting distribution and participation in the 2016 Global Startup Ecosystem Report (#GSER).

The GSER will include insights from more than 20k executives across the globe which will deliver leaders of all kinds; investors, government and support service providers; with an in-depth understanding of how to best attract, accelerate, and sustain startups.

Conducted by Startup Genome (formerly Compass Research), the report also gives startups themselves a benchmark to measure how they stack up to others across the globe.

By completing this survey founders will enable NZ’s leaders to:
• Assess and benchmark the NZ startup ecosystem across 50+ key metrics
• Accelerate the pace with which NZ ecosystem leaders reach consensus on key issues and develop action plans for change
• Attract a greater share of global resources to our region
• Empower startups everywhere to use data in decisions around raising funds, locating an office, and recruiting top talent
.

The 2015 Global Startup Ecosystem Report helped millions of local leaders globally reach consensus on specific challenges and drive action to improve their ecosystems.

By participating in the 2016 Survey, you will help New Zealand voice to be heard among the voices of entrepreneurs globally and accelerate the global startup ecosystem for hundreds of New Zealand’s entrepreneur’s locally and millions of entrepreneurs worldwide.

*All the information you provide in the survey is confidential. Results are published in aggregate values only.*

To participate in the survey click here and share the link with the founders in your ecosystem.

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Kiwi start-ups invited to pitch to Chinese Angel Investors

It can often be a struggle for New Zealand start-ups to find the right partners and raise finance that can turn a business idea into a reality. However, a unique gateway has now opened for Kiwi businesses to access angel investment, manufacturing and distribution opportunities in China.

New Zealand based company FunderTech.com has forged a relationship with a Chinese investor club with offices in Shanghai, Beijing, Shenzhen and Chengdu. The relationship provides the opportunity for 5-8 businesses a month from around the world to pitch in front of a selected group of 500-800 Chinese Angel Investors. Kiwi start-ups also get the opportunity to meet visiting venture capitalists who present at the summit each month.

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Government earmarks $15m towards commercialising hi-tech developments

The Government’s $15 million investment into initiatives supporting Kiwi start-ups is a step in the right direction but there’s still more to be done, a Massey University economist says.

The Pre-Seed Accelerator fund is aimed at developing “cutting-edge” research into viable start-up businesses.

Science and Innovation Minister Steven Joyce said hundreds of savvy hi-tech Kiwi companies were succeeding on the world stage.

“These programmes are all about filling the pipeline with the next generation of quality Kiwi start-ups.”

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Start-ups praise tax law ‘triumph’

The senate has passed new early-stage start-up investment tax measures, hailed by StartupAUS as a ‘triumph’ for Australia’s start-up ecosystem.

The legislation, which will give concessional tax treatment to investors including a 20 per cent non-refundable carry forward tax offset on investments in qualifying companies, passed today with bipartisan support.

The measures also include a 10 year exemption on capital gains tax, provided investments are held for 12 months or more.

Read more

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Angels head to TechweekAKL

New Zealand’s angel investors, a community which actively supports the development of new technologies, will be out in force at TechweekAKL.

Angel Association of New Zealand member’s are involved in two key events, positioned right in the centre of the week-long celebration of all things new and innovative.

[email protected]: 18th May, from 6pm, The Grid – book your seat here.
Tech Innovation Showcase: 18th May, 3.30–5.50pm, Astrolab – apply for an invitation here.

[email protected]

An important event revealing personal accounts of angel-entrepreneur relationships. It is a must-attend evening for founders, and would-be angels.

In relaxed and informal format investors from Flying Kiwi Angels, AngelHQ, Ice Angels and Enterprise Angels will share their personal stories, including their individual entrepreneurial experiences, investment thesis, what they expect from entrepreneurs and how they help grow successful companies – alongside investing their money.

As well as bringing together angels, entrepreneurs and angel groups [email protected] event also brings together key organisations in our New Zealand innovation ecosystem. The event is being held at The Grid, organised by Venture Centre, and is only made possible with the sponsorship of AANZ, alongside New Zealand Software Association and AngelEquity.

To book your ticket and make the most of the opportunity to share a drink, nibbles and some rare ‘get to know you time’ up close and personal with Angel investors click here

The Tech Innovation Showcase

An opportunity for current angel group members to register for a private event focusing on some of the IP rich organisations emerging from government-funded Tech Incubators, Astrolab, Powerhouse Ventures and WNT Ventures. Set up by Callaghan Innovation the incubators are mandated to draw complex IP from Crown Research Institutes and NZ University R&D departments for commercialisation. The event is being held at Astrolab for an invitation click here.

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Why New Zealand is punching above its weight in start-ups

New Zealand is a magical land of mountains, milk, sheep, rugby and fibre internet to most homes.

To this list we can now add: interesting technology companies.

In recent times, at least two genuine members of Silicon Valley royalty have poured money into start-ups born in the country.

Last week, Fairfax Media revealed that Sequoia Capital, which over the years has invested in the early stages of some of history’s most successful technology companies – think Apple, Google and Oracle – led a $10 million funding round for 90 Seconds, an Auckland based corporate-video marketplace.

Read more

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Four weeks in: Feeling the pressure at the R9 start-up accelerator

Catherine Taylor from R9 Accelerator’s Tender Advantage team wants to enhance the success of companies doing business with the NZ Government. Here, she shares her experiences over the first four weeks of the R9 Accelerator.

We are at T-2 months to Demo Day.

This means we have just 8 weeks to focus on building a minimum viable product, testing it with the market (allowing enough time to pivot like Princess Odette in Swan Lake) and prepare our venture for Demo Day, the grand event, where we pitch to a large audience of qualified investors.

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Sequoia Capital and Airtree lead $10m funding in Kiwi start-up 90 Seconds

Silicon Valley heavyweight Sequoia Capital has teamed up with Australian tech venture capital firm AirTree Ventures to pour $US7.5 million ($9.9 million) into New Zealand-based cloud-based corporate video start-up 90 Seconds.

Sequoia is one of Silicon Valley’s biggest names, having invested early on in several of the world’s most famous tech companies including Apple, Google, YouTube, Oracle, Instagram, WhatsApp and Airbnb.

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Talk Money: April 11, 2016

Angel investing has hit a record level in New Zealand.

The NZ Venture Investment Fund (NZVIF) says $61 million was invested last year in 94 local start-up companies.

That was an increase of 9 percent on the $65.4 million invested in 2014.

There was also an increase in interest in our local companies from offshore, with seven companies raising a combined $14 million from overseas funds.

Software and services companies received the largest share of funding, at 39 percent. Money was also invested in pharmaceuticals/life sciences, tech hardware and food & beverage companies.

Read more

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Angel investment hits record high as startups prepare to feast on disruption

Angel investment in Kiwi startups hit a record of more than $60 million last year.

That was despite a slow start to the year, which was a generally forgettable one for the broader business community.

Stefan Korn, chief executive of Wellington technology incubator Creative HQ, said the mood among startups now was generally positive.

There was a feeling business was entering a period of “extreme disruption” which was always good for startups, he said.

Read more

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Angel funds invest over $60m in 2015

Angel networks and funds invested a record $61.2 million into 94 young New Zealand companies in 2015 – a 9 percent increase on the previous record set in 2014, New Zealand Venture Investment Fund investment director Chris Twiss said today.

Releasing the latest Young Company Finance Index, Chris Twiss said New Zealand now has a strong core of investors involved in angel networks and funds which are driving the continued growth of investment into start-ups.

“The last year was noteworthy not just for the high level of investment – hitting over $60 million for the 2182047.jpgfirst time – but also that we are now seeing angel-backed companies successfully raising capital from overseas investors – including venture capital firms, angel groups and equity crowdfunding.

“That indicates that New Zealand is increasingly on the radar for international investors looking for opportunities.  Offshore investment brings capital and access to networks and markets, and widens the shareholder base for companies.

“While the activity is at healthy levels, significantly more capital is needed to ensure that more New Zealand companies can become internationally competitive companies of scale.  There is also a lot more to do to develop and broaden the investor base in New Zealand, particularly outside the main centres.”

NZ Angel Association chair Marcel van den Assum said that it is particularly pleasing to see the level at which ventures were engaging overseas and raising funds offshore reflected in the recent data.

“Four companies raised $7.2 million from overseas venture capital firms through series A and B rounds and three companies raised $7 million through overseas angel networks.  The market for capital is global and these results illustrate that New Zealand companies are internationally competitive.

“Another feature to note was that more than two-thirds of the investment into our companies last year was follow-on investment. Our market is beginning to mature. We’ve been at this for nearly ten years and we need to focus increasingly on outcomes, driving for the investment returns required of angel investment.

“The high level of activity mirrors what the Angel Association is seeing in terms of interest and growth in membership. My own network, Angel HQ in Wellington, has doubled its membership in the last 18 months which is heartening.

“We need to bear in mind that the Young Company Finance data is an indicative one – and does not capture much of the investment by individuals and others outside the formal angel networks and funds. There is a great deal of activity not captured in these figures.”

Chris Twiss said the $61.2 million was invested into the 94 companies across 132 deals (also a record) compared with $56.4 million across 119 deals in 2014.  Cumulatively, $414.7 million has now been invested into young companies by angel groups since the Young Company Finance Index began measuring activity in 2006.

2015 saw $39.4 million investment into the software and services sector, which was a significant increase on the $26.2 million invested into software companies in 2014, and comprised over 60 percent of all angel fund investment over 2015.

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Click here to read the latest issue of Startup.

Media contacts:

NZVIF: David Lewis, m: 021 976 119, [email protected]

Angel Association: Suse Reynolds, m: 021 490 974, [email protected]

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Boaties welcome start-up’s automatic launcher

Bay of Plenty start-up Balex Marine has begun rolling out its award-winning Automatic Boat Launcher ABL2500 (ABL) to retail customers.

Veteran Mount Maunganui boatie Peter Bell became the first retail customer to launch using his new ABL at Pilot Bay last week.

The company has drawn strong support from Enterprise Angels’ members and other investors for the hydraulically powered ABL.

The system is installed on trailers and lets users launch and retrieve their boat without getting their feet wet, using a remote control to start, stop or pause the process.

Mr Bell, 76, a keen fisherman and boatie, said he was delighted with the ABL.

“I’m getting a bit older and it was getting a bit harder to get the boat in and out, so I thought I’d try one,” he said.

“It’s going to make it that much easier to get the boat on and off the ramp.”

Balex delayed its original pre-Christmas retail release date in order to incorporate an additional hydraulic lift to the device.

The lift engages the hull and lifts the boat up, drives it forward then settles it back on to the roller cradle.

“It’s made it even more user-friendly,” said Balex sales director Paul Yarrall. “It enables the ABL to accommodate a wider range of boats and trailers, and delivers better performance.”

Balex has spent 12 months building up its global supply chain, and a reseller network that includes DMW and Voyager Trailers, and national retail chain Boating and Outdoors.

Trev Terry Marine supplied the ABL for the DMW trailer for Mr Bell’s new Stabicraft 2400 Supercab.

Trev Terry Marine owner Brock Terry said his company wanted to make boating as easy as possible. “And it’s not just older people – we’ve pre-sold two to younger guys who just want to have all the best equipment.”

Boating and Outdoors director John Bolitho said the chain already had many pre-orders.

Balex managing director Paul Symes said Mr Bell’s installation signalled the company gaining momentum.

“The sale to Peter is a massive milestone in terms of highlighting that we have brought together our production supply chain and retail reseller channel.”

First published on 29 March 2016

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As Angel Investors Pull Back, Valuations Take a Hit

Agreeing the valuations is often a spicy discussion. In this Wall Street Journal article some of our US-based colleagues – Bill Payne, Rob Wiltbank and Allan May – set out their views on data showing valuations are taking a bit of a hit.

A dose of reality may be hitting angel investing.

After valuations for young companies seeking funding soared to five-year highs last year, some angel investors—or wealthy individuals who buy stakes in startups—are starting to pull back.

On AngelList, a crowdfunding site aimed at such investors, the average valuation for a company receiving funding reached $4.9 million for two quarters last year, its highest level in five years. But valuations dropped to $4.2 million in the fourth quarter, the lowest level since early 2012. Dow Jones VentureSource data shows that deals involving angel investors fell by 16% last year.

Read more

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The Seven Secrets Of Top Angel Investors

A useful and interesting framework for angel investors is set out in this article from Forbes.

Angel investors, sometimes known as business angels, typically invest between $25,000 and $500,000 in new start-ups, often with the aim of taking them on to the stage where they can attract venture capital funding. The rewards for top angel investors can be significant, but it can also be risky. So how can angel investors maximize their chances of success and avoid feeling like they are pouring money down the drain?

Read more on www.forbes.com

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The Angel Evangelist

John May is founding chair of America’s Angel Capital Association (ACA). He’s championed the cause of entrepreneurs and angel investors since realising big organisations weren’t for him, establishing five US angel groups and now working internationally to establish more. He’s co-authored books on the subject, is managing partner of angel investment firm New Vantage Group and is investment director for UK-based global venture fund, Seraphim. He came to New Zealand to meet our angel community. We asked him why?

I loved it when I was here before, but I wanted to come back for longer, not just for a four-day thing… to get a better feel for the New Zealand business community, the angel community, but also the neighbourhood. It hasn’t disappointed.

 

But to what end, exactly?

I’ve been around the world running the (Ewing Marion Kauffman Foundation’s) Power of Angel Investing series and trying to get a better feel for what’s going on in different countries and how best to collaborate.

We’re not looking for countries that have the best deals to go write cheques, that’s the big fallacy: we’re not running international angel development workshops and building global networks because we’re deal orientated; we’re movement orientated.

What happens when your company wants to go from here to a bigger market in Southern California? Wouldn’t it be nice if there was communication between the angels of Southern California and the angels backing the company here? You don’t want to hire a lawyer in Southern California to tell you how to run a business in Southern California…wouldn’t it be better to have mentors and supporters in Southern California who are co-investors.

So you wanted to come here to build connections?

Yes and more. One of my big things is to get more overseas investors to come to our ACA conference to learn what we are doing.

Here’s some sobering statistics: even in the US – the largest economy in the world, the largest venture capital community in the world – we believe only about 5% of households are wealthy enough to be angels, not friends or family, but proper angels. And my definition of a proper angel is an individual who invests their own money in a stranger’s business, in a minority position, gives their time as well as their money and there is no one else in-between.

And of those 5% who can, we think there’s only 5% who do. And now we’re getting to the bottomline: not only do we think that only 5% of those who can, do, only 5% of those who do, ever do it in a structured, disciplined, portfolio diversification, networked group way and I bet New Zealand is pretty similar.

You really push the group concept. But why is it so important for that 5% of 5% to be part of an investment group?

What we’ve learnt is that we need to diversify our portfolios, which means getting out of our comfort zones. It also takes more money than we have personally to take a company that’s going to be significant from startup to breakeven and it takes time to do due diligence on the opportunity. Who’s going to make the phone calls? Who’s going to have the meetings? Who’s going to do the market research? So if you decide you’re going to diversify, if you’re going to do due diligence to make you comfortable, and you’re going to have enough money on the table to make it a viable company, what you learn very quickly is you can’t be a solo angel and do this.

What our companies need are cheques for US$250,000 to US$1 million and to deliver that and diversify your portfolio you need to be in a group, even better, a syndicate of groups – that’s the big movement in the US right now – the syndication of groups.

Why is that so important?

Well if you need US$2 million, it may be above the capacity of an individual group, but you may be able to bundle four angel groups or funds together and all of a sudden you’ve got a couple of million dollars, so then the company can finish developing their product or get their first sales and really get on their way.

You wrote the book: “Every business needs an angel” – why does every business need an angel?

The real wink is every high-growth, successful business, as opposed to a mom and pop store, needs an angel because it’s lonely out there doing it on your own; you need a mentor; you need risk capital; there’s so many reasons why angels are important for companies…an entrepreneur gets a board member, a friend, an adviser.

Doesn’t it depend on the angel they get?

Yes, and it depends on the entrepreneur. Some entrepreneurs just give lip service to the help; they really just want the money. Then there’s the lip service of an angel who says I’m going to be your friend, I’m going to be your adviser, I’m going to be available and then doesn’t answer the phone. It doesn’t always work. But it’s an art not a science.

The real wink is getting the right angel with the right entrepreneur because some angels can be great board members, but aren’t good at helping to find staff, sales or marketing; while some are good as a shoulder to cry on, but aren’t good at financials; some are good for startup and some are good for growth companies. That’s another reason why groups are better than individuals.

The right angel should always be a joint decision between the entrepreneur and the investors. There should be a chemistry between them and there should be a staging of the need, so the right investor for the company at the right time.

Should angel investors always have representative on the board?

Advisory boards are very important, but companies don’t need boards of directors until they’ve grown a little bit.

It’s also very important for [the chosen investor representative] to have a way of communicating to the other angel investors, so the entrepreneur doesn’t have to waste their time communicating with all of them.

What’s the most common mistake entrepreneurs make when they seek investment

Thinking they know it all. It’s quite rare to find a coachable, industry-savvy, less egotistical entrepreneur their first time around.

I’m a big believer in investing in second-time entrepreneurs. A serial entrepreneur is a wonderful thing to invest in, because someone has already paid for their mistakes the first time round. But that’s another thing that’s fascinating about here: New Zealand is a place where almost everyone is a first time entrepreneur.

Entrepreneurs need to understand the first thing angels look for is management, management, management; the second thing is a large market; and the third, if we’re smart, is the product or service, the technology, whatever. Yet most entrepreneurs want to sell us on the fact their thing is faster, cheaper, better, slicker, more fun first. But we invest in the jockey not the horse.

The problem is an entrepreneur has to have the dream and the ego to handle it. So there is a natural tendency to want to invest in someone who has a lot of confidence and a lot of energy. But if they are really going to grow their business into a significant company, they need to be humble enough to understand they can’t know everything: they are going to have to hire people; they are going to have to listen to people, so finding someone who is coachable is important.

What’s the most common thing angels do wrong?

Hearts over heads… and not providing enough tough love once we’ve invested: are you being direct enough; are you talking about the exit; are you educating the entrepreneur; are you telling it like it is instead of waiting until it gets worse to say something? That’s why you have to have the right chemistry; you can’t be in awe of each other. The entrepreneur shouldn’t think we’re just money and we shouldn’t think they are running the company so we shouldn’t give them our frank opinion.

Why do you love this area so much?

It’s the people. It’s the entrepreneurs. They are so important because they make businesses; they make money. We benefit from the vision, the energy, the business model of the entrepreneur…so the excitement for me is being a part of this journey.

Plus it’s what it does. It boosts any economy, any city to find a way to finance innovative new technologies and products. Economies will go backward if they don’t stay in touch with newer, faster ways of meeting their needs. And it creates jobs, futures. Major corporations are net job losers; they cut costs, find efficiencies. All the research shows startups and SMEs are the net job creators of modern economies.

But angels also have to make money in the end or it’s a losing proposition and will fade away.

What should we be doing more of in New Zealand to improve our angel ecosystem

Find as many ways as possible to educate the media, the government, the wider community that supporting high-growth companies matters; make people aware of the benefits to the entire economy of making this work, of encouraging more entrepreneurs, of making smarter entrepreneurs and of helping to make more and smarter angels.

We need to encourage more angels to increase the amount of capital available, because the more capital there is available the more likely people are to diversify and thus the more capital there is for different sectors to develop new products, and we need more angels to bring different skills into the mix. There is so much going on in social media and some of the new technology, for example, that you almost have to find a way to search out the recently cashed-out, under 40-year olds because they can make a material difference to understanding the current consumer market for those sorts of companies. It’s also hard to be an investor and help an entrepreneur and do due diligence on them if you don’t understand what they are doing.

We tend to talk to ourselves far too much.

By Lesley Springall

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The Globalization of Angel Investments

A fascinating Harvard/MIT study released in August this year and looking at the impact of angel investment on things such as firm survival, likelihood of follow on funding and employment, determines that angels have a positive impact on the growth, performance and survival of a company.

Nature and consequences of the globalization of angel investments across a variety of geographies with varying levels of venture capital markets and other forms of risk capital.

Read more

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KPMG: Make migrants take a risk

The AANZ backs calls for more wealthy migrant money to be directed into early stage ventures. Some of our most active and effective angels are migrants. We need more!

Growth-focused investments should be required over passive ones such as government bonds, says report.

High-profile business organisations are calling for investor migrants to be required to channel more cash into productive, growth-focused New Zealand investments rather than safer options such as bonds.

Almost 80 per cent of investor visa recipients’ funds currently ends up in government and corporate bonds, according a paper published by professional services firm KPMG.

“Whilst these [bond investments] are still beneficial to New Zealand, some simple changes to our immigration policies can bring diversity and may help better leverage these migrants’ funds and valuable networks to help New Zealand business grow and expand,” KPMG said.

Business incubator The Icehouse, which is also calling for a policy overhaul, describes passive investments such as bonds as “lazy money” that does nothing to address capital constraints facing companies.

“Changing the rules on entry and for allocation could better align investment with the need to grow New Zealand’s economy and to increase its productivity, while aligning a stream of investment from the private sector, rather than relying on the Government to step in.”
KPMG said Kiwi businesses would require more than $420 billion in capital by 2025 to support the export growth required to achieve the Government’s Growth Agenda.

Its analysis suggested a $115 billion shortfall that would need to be funded by foreign investment.

“KPMG believes the best way to grow the economy is for investor migrants’ capital to be deployed in funding New Zealand businesses, particularly start-ups and early-stage businesses.”

Canada and Australia already require a portion of investor migrants’ funds to go into “at risk” investments.

New Zealand’s current investor immigration policy, which came into force in 2009, has attracted over 1600 applicants with over $3.7 billion to be invested into this country, according to KPMG.

There are two visa categories – Investor Plus and Investor – for migrants who want to use their capital to gain residence in New Zealand.

The latter requires a minimum of $1.5 million to be invested for four years, but applicants must be 65 or younger, meet English language requirements and spend at least 146 days in New Zealand in each of the last three years of the four-year investment period. They must also provide $1 million in settlement funds.

Investor Plus migrants must invest at least $10 million for three years but face no language or age requirements and have to spend only 44 days in New Zealand in each of the final two years of the investment period.

The Icehouse suggests some policy changes that could help channel migrant funds into more productive investments, including:

• Introducing a third investor visa category requiring $5 million to be invested, 10 to 20 per cent of which would have to go into growth investments such as angel, venture capital or small cap private equity funds. In return, other requirements would be reduced or eliminated.

• Amending the Investor Plus category to require a 10 per cent (or higher) investment in growth capital funds or direct investments.

Icehouse chief executive Andy Hamilton said migrant capital could also be deployed in other areas, such as creating new residential housing stock or regional economic development. KPMG said a portion of migrant investor funds – possibly 20 per cent – should be invested into angel or venture capital.

“This could be through a designated fund which has the same investment profile as the [government-backed] New Zealand Venture Investment Fund (VIF).

“This would offer some comfort to migrant investors that the portion of their investment capital at risk is being invested in early-stage companies that the New Zealand Government is happy to support through VIF.”

Yue Wang, KPMG’s director of immigration services, said most investor migrants would welcome such changes if they came with benefits such as faster visa processing or reduced requirements. “I don’t think it’s going to necessarily put them off.”

Angel Association executive director Suse Reynolds said changing investor migrant rules to direct a portion into growth investments would provide a “terrific boost” for early-stage companies.

“If wealthy migrants were required to invest into the growth areas of our economy, it will bring the New Zealand rules into line with what is happening in other developed countries.”

She said early stage investment would also help migrants integrate into New Zealand society as it was “a very collaborative affair”.

“It’s not just the capital but the networks and skills the providers of that capital bring to the table.”

See KPMG paper here

First published on nzherald.co.nz 14 Sept 2015

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A start-up founder’s biggest blunder?

This timely article from the BBC summarises some of the key points from the AANZ’s Governance Course very neatly.  It includes “no friends on the board”!!

With a nod and a wink, a well-known venture capitalist said something that made my blood run cold.

I was at this closed-door meeting for founders of high octane new technology ventures to give a talk about the importance of establishing company boards. It was there that this renowned investor said smugly, “You should not have anyone on your board who isn’t an investor or a friend.”

He went on to say that only people who funded the start-up “will care enough” to help founders achieve their goals, whether it be acquisition, fast growth or becoming a public company. He added that only a friend “can side with you in a board fight if you really need it”.

Read more on www.bbc.com

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