Two perspectives on the future

Two reports have come out in the last few days providing some interesting direction for angel investors, as well as the general NZ economy.

The US Angel Capital Association’s Angel Group Confidence Report shows that US angels are planning on reducing activity by about 10% in 2009.  That’s not too bad,  considering the backdrop of economic chaos.

Interesting factoids:

• 72% of angels expect a liquidity timeline of at least five years post-investment
• In 2008, groups closed on average 4.82 deals worth USD 1.3M, or about USD 270K per deal
• Roughly 50% expect deal quality to increase next year, with another 35% expecting it to stay the same

Syndication is common and becoming pervasive in the US, with 72% of groups co-investing with other angel groups in 2008, and 90% planning on doing so in 2009.

Some of the comments are also instructive:

• “The ability to syndicate deals to fill out the round will become a competitive advantage, making angel groups a significantly more attractive source of funding than lone wolf angels (who therefore might decide to join groups).”
• “Any portfolio company currently trying to raise money is having a hard time. We will need to have follow on money to protect our investments, yet members may decide to risk their initial investment rather than liquidate public market stock at current valuations. Portfolio companies must tighten their belts immediately.”
• “Valuations are down; opportunities can be found in a variety of sectors (e.g., software, therapeutics, diagnostics) with seasoned mgt teams that have weathered similar recessionary periods. “Grey hair” around the Board tables will be more valuable than ever.”

As we know, angels tend to be optimists…

So moving from the microcosm of US angel investment to the Entire Economy of New Zealand (guess which is bigger), pour yourself a long drink before sitting down to read the The New Zealand Institute’s essay, “The end of the golden weather: The financial crisis, global recession, and what this means for New Zealand”.

The author, Benedikte Jensen, does an excellent job of of summarising recent global economic events from a New Zealand perspective, and teasing out some of the implications.

It is not a happy story.  She says,

Overall, it is likely that this recession will be protracted and the recovery will be weak and subdued – an L shaped recession – both for the world, but also for New Zealand… The challenge for policy makers is to ensure that the problem is properly recognised (i.e. not seeing this as simply a business cycle) and that an appropriate set of policy responses is put in place to ensure that there is an appropriate pathway back to sustained growth.”

The specific risks for NZ are identified as:

• The end of the commodity boom creating vulnerabilities due to NZ’s reliance on commodity exporting
• NZ’s high external indebtedness makes us vulnerable to sudden shifts in the sentiment and risk profile of overseas investors
• Difficulties in attracting foreign investment due to our insignificance and investors’ risk aversion
• The resulting likely retrenchment of local investment nobbling our ability to grow when we need it most

Jensen also notes that “the US is looking increasingly like Japan in the 1990s and an alternative engine of growth for the global economy is not apparent”.

Ouch.

This paper is the first in a six-part series.  Paper 2, due out in January will address the implications of the global crisis for New Zealand.  Further papers will be released during the next few months, concluding with paper 6, “New Zealand’s place in the world”.  We look forward with some trepedation to reading the whole series.