Bridget Liddell was one of the featured overseas speakers at the Angel Association Summit held earlier this month. She is the Chairperson of New Zealand Trade and Enterprise’s US Beachheads Programme, a director of the Kiwi Expat Association, and a director of BioVittoria who are currently undergoing an IPO on the NZX. But her main line of work is as Managing Principal of New York City based Fahrenheit Ventures, where her job is providing leadership to companies seeking to successfully commercialise their products and services in the U.S. Market, specialising in strategic innovation, branding and marketing strategies and in the development and implementation of US market entry strategies for high growth consumer products businesses.
Put simply, Bridget is passionate about helping successful companies, and especially Kiwi companies, enter the US market through creating killer strategies and applying the relevant networks.
At the Angel Summit, Bridget raised a number of important points that I thought were worth following up and sharing with the community. I caught up with her last week, and began by asking her why she thought that many US companies find it difficult to grow except through acquisition, and where the opportunities lay for New Zealand companies building themselves for strategic trade sale to a US major.
It’s difficult for US companies to grow except by acquisition, especially in areas where they have existing underperforming brands.
NZ companies have a great degree of innovation and lateral thinking. We have along history of innovation in Food and Beverage, emerging capability in bioactives and related fields, and a strong presence in textile and clothing. These can be very complementary to a portfolio that a US major might already have.
Preparation for a strategic acquisition requires years of planning, including type of product, type of packaging, distribution strategy, pricing structure, partnership relationships. Start with the end objective and work backwards, leaving nothing to chance. Plan out the people involved, advisers that you use, legal structure, domicile, who you employ etc.
The Beachheads programme is available to help out with strategy formation, and can recommend advisers in the US across a wide range of industries.
It’s important to take into account the voice of the marketplace before leaving New Zealand. Companies are often optimised for the New Zealand market, and that may or may not work in other markets. It’s important to undertake research before you enter the market. Using the Internet for international marketing prior to going overseas and getting information about the market you want to enter is low cost, but high value. Product, packaging, messaging, pricing all need to be considered – are they appropriate for the market? NZ companies need to be open minded and consider that what worked in Australia or New Zealand may not work in the USA or Europe.
As part of Global Entrepreneurship Week, the DomPost published an interview with me headlined “Passion a crucial ingredient for success” on the relationship between angel investors and wannabe entrepreneurs, which is available online.
They haven’t published my take on factors that affect valuation online, so I’ll take the liberty of reproducing them here.
Valuations are very subjective, and it takes someone with significant domain expertise to even hazard a guess. That’s one of the reasons that angels like to syndicate deals – nobody is an expert in every domain.
Factors that effect valuation include:
Team: Track record (both success and failure), commitment, passion, ethics
Financials: Realistic cash flow forecasts, ability to do things on the cheap, and future capital requirements
Product: Uniqueness, simplicity, how much pain it will alleviate
Sexiness: How “hot” is the product and the space?
Market: Size, addressability, familiarity
Sales strategy: Customer acquisition cost/effort, ability to execute
Business model: Rapid scalability, flexibility, operational complexity, robustness of assumptions
Intellectual Property: Patents and other barriers to entry for potential competitors
Competition: Can someone else easily squash your startup?
Hygiene: Governance, tidy accounts, good legal agreements, no outstanding law suits or significant legal risks etc
One thing’s for sure: your company becomes a lot more valuable the day you sign on your first batch of significant customers, and is worth more again the day you become cash-flow positive.
It’s a surprise to many entrepreneurs that cash-in (ie, how much as been previously invested into the company) has little impact on an objective valuation – it’s a highly emotional issue that is often a real roadblock to doing a deal.
If you’re more serious about it, local companies like Valuecruncher provide reasonably priced objective valuations. The Angel Association / NZTE’s Escalator Service also does a great job of helping companies become investment ready, part of which is arriving at a valuation you’re comfortable with.
It’s a truism to say that your idea or company is only worth what someone is willing to pay for it. Don’t fall down the hole of holding out for an impossibly high valuation, as the real value in a high-growth company is its ability to outstrip that initial valuation quickly. Most investors will completely shut off when you give them a number that’s an order of magnitude out from what they think your company is really worth, and you may not get a second chance.
So instead of insisting that your company or idea is worth a lot more than your potential investor thinks it might be worth, ask what your investor can do to ensure that your company will have the resources and expertise it needs to realise its full potential.
New Zealand and Singapore angel investors have signed a land-mark partnership between the Angel Association of New Zealand and the Business Angel Network (South East Asia) which will assist both countries in the development of globally successful exporting companies.
Angel Association Chair Andrew Hamilton says the partnership is highly valuable for New Zealand as it will open up networks into South East Asia for our emerging global companies, both in terms of networks for investment and market access.
“With our trading links to South East Asia expanding with the signing of the free trade agreement with Asean, it is the right time to be expanding our investment links.
“Angel investment is a key asset class in economies, with European research showing that angel backed companies today, will represent 50% of the new jobs in 10 years time. The angel industry has developed significantly over the last few years world-wide and this partnership is further evidence of the growth of the industry.”
Joe Rouse, Director of Bansea, said: “We are delighted to form this relationship with New Zealand. We have seen a fantastic angel industry developed around the incubators and Universities in New Zealand and are looking forward to helping many of the companies funded from New Zealand using Singapore as a base to grow their Asian operations.”
Shout it from the rooftops – there’s going to be an IPO! It would appear that rumours of the death of the IPO have been greatly exaggerated.
The last start-up IPOs in New Zealand were in the class of 2007 – Xero, Burgerfuel, and NZ Farming Systems Uruguay; I’d argue that Burgerfuel probably didn’t belong in that class, and that NZFSU was more of a property play than an intellectual property play. Xero is the standout, and have deservedly done well after a hard slog.
Biovittoria’s IPO offers angel investors a lot of hope that it’s still possible to take great ideas through the investment cycle and come out the other end as a listed company. With backing by Endeavour Capital, ACC, Stephen Tindall’s K1W1 and the NZ Venture Investment Fund (NZVIF) they’ve managed to bring their product to the point where it’s ready for true international expansion.
Biovittoria appear to be in a great position to exploit their market, with exclusive rights the key ingredient in their PureLo artificial sweetener product. PureLo was the first natural sweetener of its type to achieve United States Food and Drug Administration (FDA) regulatory compliance through its Generally Recognised As Safe (GRAS) status. They expect full FDA approval in February next year. The global artificial sweetener market is worth over USD 3.5 Billion.
The NZ Angel Association held its annual conference in Queenstown last week. It was a great chance to meet up with old friends, get the good goss on what’s going locally in other regions, and trade war stories hopefully learning to avoid painful mistakes others have made.
There were a few recurring themes from many of the talks:
It’s all about people. When you invest in a company, you’re investing in a combination of ideas, resources, capacity to execute, and people. Of these, by far the most important is the people.
Failure is a great teacher. We tend to underrate previous failure as an experience. No one starts a company with the intention of failing, but we should appreciate and seize the learning opportunities presenting by failure.
The Kiwi Diaspora is ready and willing to help. Kiwis are everywhere, and most of the overseas speakers with Kiwi connections laboured the point that the Kiwi Expat Association (KEA), NZTE and others are generous with their connections and networks. You’re silly not to use them.
Stephen Tindall was presented with an Archangel Award, recognising his contributions to the angel space.
It was announced that Colin McKinnon has taken on the position of Executive Director of the Angel Association. Given that he spends the rest of his time as the Executive Director of the NZ Venture Capital and Private Equity association, hopefully he’ll be able to encourage follow-on investment for successful early stage companies.
Some choice quotes from the summit:
Alan McConnon (Upstart Angels)
The rule of Five: It always takes five times longer, five times as much money, and yields one-fifth of the expected rewards.
The five P’s of due diligence: People, Punters, Portion, Profitability, and Plan.
A good idea is only 20-30% of the value of a company.
Sir Eion Edgar (Sinclair Investments Limited)
Never do anything you wouldn’t want to see on the front page of the papers.
My aim in life: To be sure that everyone owes me a favour
Jim Connor (Sand Hill Angels)
If you want a higher valuation, go get some customers
We love cheap penny-pinching entrepreneurs!
Don’t invest in R&D, only invest in execution.
Bridget Liddell (Fahrenheit Ventures)
NZ companies generally have surprisingly weak digital and internet marketing strategies
Large US companies have become incapable of growing, except by acquisition
All up, the summit was useful, although the ratio of angel investors to others was disappointingly low (my guess would be around the 50% mark); it would also be great to have more time to mingle in structured and unstructured settings. I might respectfully suggest that (for some people, anyway) lunchtime wine tastings are not the best way to get people to focus on key issues. That said, I’m glad I went and will be looking forward to next year’s summit.
The prosperity of advanced economies is driven by innovation performance, which is why there are several reviews of New Zealand’s R&D industry in progress. Actions resulting from these reviews will improve economic outcomes most effectively if they address the four important obstacles to success discussed below. Innovation contributes to improvement in productivity per hour worked and to the formation of new businesses that can improve New Zealand’s export performance and wealth. New Zealand’s innovation ecosystem is already contributing. The Technology Investment Network’s TIN100 to be released in two weeks estimates that the top 100 technology companies produced overall revenues of $6.6 billion in 2008/2009, with $5.1 billion exported. These companies contributed over 23,000 jobs with average revenue per job of $280,000. They are growing.
Research conducted by the New Zealand Institute shows that the innovation ecosystem could contribute much more. New Zealand’s R&D spending per capita is well below average for the OECD. Despite an increase in effort over the last decade, New Zealand has a relatively poorly performing innovation ecosystem and is not yet making as much effort as other small countries that are seeking advantage from innovation.
Science provides the foundation of an innovation ecosystem. Skilled graduates, research contracts, technology licenses and launch of new businesses all flow from an effective science infrastructure. A successful innovation ecosystem has two important parts: the research facilities that produce the scientific output, and the business organisations that develop products and services for launch in international markets. The performance of the whole is only as good as the performance of the weaker part. Increasing output from the research units will only be sufficient to deliver a large economic performance lift if commercialisation performance is world class.
In recent years, many institutions that support the commercialisation part of the innovation ecosystem have been established in New Zealand: for example research commercialisation units, incubators, angel networks, and venture funds. We now have an innovation ecosystem with all the required participants and at best, the commercialisation of our innovation ecosystem is working well. However, the average performance is not reliably at the standard required due to four obstacles.
First, the larger and longer established commercialisation units perform relatively well but smaller ones need to be aggregated to achieve the critical mass required to field the wide range of skills necessary. Further, performance measures and incentives do not provide sufficient encouragement to form businesses so New Zealand is not creating as many firms with potential to become substantial exporters as it could.
Second, go-global businesses, those targeting international markets from inception, require skilled and experienced leaders, international marketers and boards. But there has not been time yet to accumulate the required talent in sufficient quantities and not enough effort to address the shortfall. The opportunity is to accelerate talent growth so the talent is looking for research with commercial potential as it does in successful innovation ecosystems, not the other way around as frequently happens in New Zealand.
Third, voice-of-market needs to be louder. The markets for our innovations are physically distant from New Zealand and therefore expensive and time-consuming to visit. Research organisations and start-up businesses usually have limited funds and plenty to do so there is an understandable temptation to get on with completing the research and developing the offer so revenues can be secured sooner, and before funds run out.
Investors report seeing hundreds of proposals where a scientist or entrepreneur has developed a product but has done no research to confirm whether or not there is a market for that product. The result is that when we approach customers the offer is often not what they need so another round of development is required. The solution is simple; we need to hear the voice-of-market much earlier and more strongly in the development process.
Fourth, more domestic expansion capital is needed. When our companies have gained a toe-hold in international markets they usually need capital for expansion. It is almost taken for granted that the source of capital to grow go-global firms will be international capital markets. In some cases international equity sale is necessary to secure channels to market or high quality business guidance. However, these inputs would more often be available without equity sale if our local innovation ecosystem was larger, more skilled, better connected and better capitalised.
One important reason why businesses are sold is that there are insufficient sources of later stage capital available within New Zealand. There is nothing inherently wrong with overseas ownership of these firms but, all other things being equal, it is better for the ownership of a successful international business to remain in New Zealand hands. Policy adjustments are required to encourage investment in productive assets, especially those that can help improve the current account, and to reduce the risks that limit the flow of equity and debt capital to expanding go-global ventures.
Ensuring that commercialisation units are at minimum sufficient scale, ensuring sufficient talent is available, listening more to voice-of-market and increasing the availability of domestic expansion capital will improve New Zealand’s innovation ecosystem. The innovation ecosystem will then contribute more to higher productivity, a stronger current account and economic prosperity.
AngelLink, a national angel investment network backing New Zealand high growth technology ventures, with an emphasis on life sciences, engineering and ICT, welcomes the inclusion of the Life Science Angels Network into its structure. The move is designed to create greater scale and focus in the life sciences angel investment space.
AngelLink’s members include some of the country’s leading biotechnology and high technology investors including Movac, K1W1 and Sparkbox. AngelLink has also partnered with the NZ Venture Investment Fund (NZVIF) through its Seed Co-Investment Fund.
AngelLink Chairman Chris de Boer says, “Our national network of angel investors and international partnerships provide excellent leverage for high-growth potential start-up companies that are seeking to develop unproven markets or technologies. Life sciences are a key part of AngelLink’s focus. The inclusion of the Life Science Angels Network helps AngelLink achieve greater scale and expertise in this area. As a result we’ll see more investment activity in the life sciences space which will benefit the network and the sector in New Zealand.”
The Life Science Angels Network was created by a collaboration between NZBIO, ICE Angels and Auckland Plus to validate the concept of creating a virtual network of angel investors who are interested in investing in life science technology deals.
Andy Hamilton, Director, ICE Angels says, “When it comes to early stage funding there is a case for some sectors, such as life sciences, to have specialisation. The ongoing viability of the sector depends on its ability to raise funds from a variety of sources and to complete value-creating deals. This access to funding is consistently one of the key constraints identified across the bioeconomy in New Zealand yet, based on international experiences angel investment has the ability to be a key part of the funding solution.”
“Having validated the need for The Life Science Angels Network we readily came to the conclusion that the natural home for the network was actually AngelLink as they already have in place a number of critical partnerships for deal flow in the life sciences space. As a small country we need to take every opportunity to achieve scale.”
The merger will include all research, contacts and emerging international partnerships, including the Australian Life Science Angel Network, Life Science Angels Inc (USA) and Bansea, Singapore.
NZBIO, the national bioscience industry group, has applauded the transfer to AngelLink.
Chief Executive Bronwyn Dilley says, “AngelLink’s strong focus on life sciences and nationwide coverage will be further strengthened by the inclusion of the Life Science Angels Network. Angel Investment is an important part of the investment landscape and a strong, focused approach is vital to the success of a mature New Zealand life science industry. It’s great to see AngelLink continue to gain momentum, as the result will be more early stage life science projects are spun out of the lab into the market with benefits to all.”
AngelLink, which was initiated by WaikatoLink, the commercial arm of the University of Waikato, connects investees to the full continuum of funding through its lifecycle from science to market spanning proof of concept, angel investment, early stage venture capital, expansion stage venture capital, and public markets.
AngelLink was launched at a function at NZX in August. The Minister for Research, Science and Technology, Wayne Mapp was the guest of honour.
At the launch, WaikatoLink Chief Executive Mark Stuart said, “At an industry level there is a real need to make some improvements to generate more economic benefit from life sciences and technology research. We need to start with the end in mind and bring the market in from the start. We need to encourage a co-ordinated approach and funding models that encourage collaboration rather than competition. AngelLink represents a step change in early stage company investment by formalising visibility to upcoming investment opportunities to all of the partners across the investment continuum”.
Dr Mapp said, “The highest priority for the New Zealand Government is growth. Future opportunities will depend on innovation and entrepreneurship and much of this comes from fundamental science. AngelLink will connect research and investors with the intent of getting science to the marketplace. Our future prosperity depends on getting this right.”
The first Australasian Life Science Angels Network Meeting today in Queenstown, part of the annual summit organised by the Angel Association of New Zealand, is the setting for the first meeting between AngelLink, the Australian Life Science Angel Network and Bansea, Singapore.
The Springboard NZ governance group for emerging directors is starting up a Wellington Branch. The inagural meeting will be held on Tuesday 24 November at 5:30 pm at Minter Ellison, Level 24, Vodafone Tower.
The Angel Association AGM has been shifted in time and place on Wednesday 18 November at Minter Ellison Rudd Watts, 88 Shortland Street, Auckland. The agenda has expanded significantly as well, including consideration of applying to the Charities Commission for charitable status.
NZVIF’s $4 million commitment will be alongside the Trans Tasman Commercialisation Fund – an AU$30 million investment fund established last year to commercialise research at Auckland University and four Australian universities.
The investment partnership will look at commercial opportunities emerging from UniServices – Auckland University’s commercialisation agency. NZVIF and TTCF have already invested into two drug development companies spun out of UniServices – Pathway Therapeutics and Saratan Therapeutics.
NZVIF chief executive Franceska Banga said the partnership is encouraging given the level of innovation emerging from Auckland University.
“Auckland University is New Zealand’s highest ranked research university, and UniServices is generating some exciting commercial opportunities, as we are already seeing with Pathway and Saratan.
“NZVIF’s involvement in the trans-Tasman partnership ensures that there will be a New Zealand focus to companies being developed from New Zealand generated research.
TTCF Investment Manager Craig Reilly said there are significant investment opportunities in New Zealand-generated life sciences, engineering and ICT research.
“With this partnership, we hope to see greater investment in research which has the potential to advance to the commercial stage in global markets.”
NZVIF’s partnership with TTCF is through NZVIF’s Seed Co-Investment Fund. Through the fund, NZVIF is investing $40 million into early stage companies with strong potential for high growth, alongside investments made by its partners.
This is the eleventh partnership NZVIF has entered into through the Seed Co-Investment Fund. Through these partnerships, NZVIF and angel groups have co-invested over $33 million into 30 companies.