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More than $50 million was invested by New Zealand angel investors into 63 young companies in 2009 – a 72 percent increase on the previous 12 month record of $29 million invested in 2008, based on data collected by Young Company Finance.

Full data on 2009, as well as a number of other interesting articles and industry news is available in the latest issue of Young Company Finance #8 – February 2010.  This issue also contains an exclusive interview with Dave Moskovitz.

Cumulatively, $127 million has now been invested into young companies by angels since Young Company Finance began collating data in 2006.

NZVIF chief executive Franceska Banga said angel investors are the playing an increasingly significant role in the financing of high-growth, innovative start-ups.

“The increased activity results from a number of years of market development by the angel investment community, NZVIF’s Seed Co-Investment Programme, NZTE’s Escalator Programme, and economic development agencies and incubators throughout the country.

“As the number of companies being invested in grow, and those companies need follow-on investments, the investment activity increases.  The challenge facing the industry and our capital markets is to ensure there is sufficient investment capital to fund further growth.

“These companies represent part of the ‘pipeline’ of companies referred to by the Capital Markets Development Taskforce.  Some will be the next generation of top New Zealand companies on publicly listed markets- providing our capital markets can provide the investment to allow them to grow and develop through the growth pipeline.”

Of the $50 million invested last year, $20 million was into first round investments – the highest annual dollar value of investment into new companies – and $30 million comprised follow-on investments.  In terms of the stage at which investment was made, $8.9 million was seed investment, $29.9 million was at the start-up stage, $11.2 million at the early expansion level, and $300,000 at the expansion stage.

There is greater syndication of deals – meaning angel groups are collaborating with each other to raise funds for investments.  In 2009, 48 percent of deals were syndicated and 52 percent were not.  In 2006, just 26 percent of deals were syndicated and 74 percent were not.

Deal flow for the year was substantively increased on 2008. In 2009, 63 deals were completed, compared with 29 in 2008 and 49 in 2009.  Average deal size in 2009 was $800,000.

Since 2006, by region, 54 percent has been invested in Auckland, 12 percent in Christchurch, 11 percent in Dunedin, 9 percent in Wellington and 5 percent in Palmerston North.  Software and services have received 28 percent of the amount invested, followed by pharmaceuticals (23%), technology, hardware and equipment (13%), and food and beverage (12%).

Download Young Company Finance Number 8 – February 2010.

YouTellYou bills itself as a photo-story magazine published by its readers.  At its heart, it’s a cross between Flickr, Wordpress, and Life Magazine.

The Pitch:

On YouTellYou, anyone can create and publish a photo-story in minutes linking to their Flickr, Facebook or Smugmug account or uploading the photos from a their computer. The stories are presented in an online magazine, according to number of views, ranking, category, publishing date.

YouTellYou is NOT another photo hosting service: the emphasis is creating and sharing our stories via our pictures. The YouTellYou target author is someone that is willing to share information and is looking for a large audience.
YouTellYou aims are to be easy and quick for the authors, elegant and easily navigable and searchable for the readers.

The possibility are endless: travel diaries, breaking news, family events, sport events, nature photography etc.
YouTellYou offers a publishing platform to the reporter that hides in all of us.

Accomplishments to date:

Live since Jan 6, 2010

Reviewed by:

• ReadWriteWeb
• University of Missouri
• KillerStartups
• Makeuseof
• Startupmeme
• Blogs in USA, France, Holland, Germany, Brazil, Spain, Japan, Italy

Development plans:

YouTellYou needs 2 developers to make the website secure and scalable, 1 designer to make it gorgeous and 1 internet marketer to spread the word and get traction, readers and authors.

Key Challenges:

• Spread the word and make the website go viral
• Build a smartphone interface to allow people to post stories “on the go” with audio comments

Principals & Previous Experience:

Ruggero Domenichini, Senior Business Analyst and Project Manager, Italian by birth, in New Zealand since 1996 (citizen since 1999)

What they want from an investor:

~ NZD 300,000 to fund development and staff over the next year, with significant business mentoring to produce a business strategy for the next stage.

Dave’s commentary:

Ruggero Domenichini, the founder of YouTellYou seems an energetic and passionate man with plenty of real-world experience in IT and creative flair.  Like many start-up founders, he’s developed his product to the beta launch and now need to build a team to turn his product into a company, as well as cash to make it happen.

Contact details:

Ruggero Domenichini (founder)
email: rujero@youtellyou.com
mob: +64 21 683305
skype: ruggero.domenichini

Note: If you plan to act on any information on this site, please be sure to read the disclaimer.

The New Zealand Venture Investment Fund has recorded its first annual surplus amid its busiest investment year.

In its 2009 annual report, NZVIF posted a net surplus of $3 million and completed 50 investment transactions totalling $18.7 million- a record level despite the demanding investment environment. Over $80m of private capital was raised alongside this.

NZVIF chief executive Franceska Banga said the better than expected result – it had forecast a deficit of $3.4 million – was due to a combination of investment realisations and improvements in the holding value of investments.

“It is still early days for our venture capital funds and the development of the industry, but the year saw encouraging progress. We have equity interests in 81 New Zealand companies in sectors such as ICT, pharmaceuticals, biotechnology, life sciences, and telecommunications. Across NZVIF’s portfolio, there is good revenue growth and, consequently, the combined value of those companies is rising.

“The business environment is, however, tough and venture capital market faces major challenges – particularly when it comes to raising new funds. Individual investors are waiting out the recession and are reluctant to commit money to new ventures before seeing a return on existing investments. Meanwhile, institutional investors remain on the sidelines.

“It has been pleasing to observe the seed investment sector’s continuing growth. Across the total sector, angel investors invested a record $30 million into young New Zealand companies over the first six months of 2009, taking the amount invested over the past three-and-a-half years to over $100 million.”

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.

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.

I was contacted recently by an entrepreneur who has started up a profitable services business several years ago, and is ready to expand. He recognises the need for external expertise and ultimately cash, but needs help formulating a strategy to maximise his opportunity. Ideally he’d like someone with experience in expanding retail services businesses to help him out, in exchange for shares in his company.

Drop me a line if you’re interested in being put in touch with him.

Today we have a Guest Blog by Caitlin Smith.

If you’re looking to go it on your own, embrace your entrepreneurial spirit and start your own business you may need a little help in the funding department to get you off the ground. If you have solid ideas and a great business plan, this may not be a problem, but if you’ve never gone about looking for investors the process can seem a bit daunting, especially since times are tough all over. Here are some helpful tips to make finding funding a little less stressful.

1. Do some research. Ask around, look on the net, and see who some likely candidates to support your business are and who will be able to provide you with the requisite capital to get going.
2. Use the web. There are numerous sites out there that are dedicated to hooking up investors with entrepreneurs. Take advantage of them.
3. Attend forums and conferences. One way to find investors is to go where they are, including conferences for venture capital and investment. It might cost you a bit, but you’ll get the chance to pitch your business to a wide range of people.
4. Use your existing connections. You may already know people who can put you in touch with investors looking for a viable business venture. Don’t be afraid to ask friends, family and former coworkers.
5. Find those with similar interests. If your business is designed around creating new tools for doctors then why not look to wealthy practices or doctors as sources of funding? Many may be interested not only in your business but the potential benefit to their own work as well.
6. Inquire with business retirees. Just because someone has left the 9-5 grind doesn’t mean they’re ready to call it quits on business altogether. You may find former entrepreneurs and execs who will be excited by the prospect of investing in a new idea.
7. Find a partner. Unless you’re dead-set on going it alone, finding a partner can be a godsend for a fledgling business. You may bring one asset to the table while you partner can bring another. Together you may find you have enough to get things going.
8. Invest your own money. If you’ve got the cash to spare and the confidence in your success why not invest in your own company? Whether it pans out or fizzles you’ll only be accountable to yourself.
9. Get a great team. With an efficient and intelligent management team, your business will have a better chance of succeeding and attracting the kind of investment you’re looking fot.
10. Get competitive. Try submitting your business plan to websites to get feedback and compete for investor attention. It might be hard work, but it could pay off big time in the end.

Caitlin Smith who writes about top accredited online degrees. She welcomes your feedback at CaitlinSmith1117 at gmail.com

The amazing Tom McKaskill has made his latest book, Invest to Exit – a pragmatic strategy for angel and venture capital investors, available free for download.

New Zealand startups have typically followed a high-growth strategy, but Tom McKaskill argues that in many cases a strategy to building for a strategic trade sale is more appropriate.

Tom suggests:

“If we plan the exit from the outset, the manner in which the business is developed continually keeps the exit in mind and this ensures that we don’t veer off track in terms of meeting our major objective. Some Angels and VC investors do this but they are in the minority.

Now lets get even more radical. Why don’t we change our investment criteria to only focus on investments where we have a high probability of a premium exit. In order to do this, we have to have a very good idea of what creates premium exit conditions, that is, what do we have to do to set up the conditions where a premium exit is highly likely, whether this be an IPO or a trade sale? What would we have to do to make this happen?

Tom spoke very convincingly on this topic at last year’s  Angel Association conference.

INVEST to EXIT is a highly pragmatic strategy for Angel and Venture Capital investors which focuses the investment, business development and harvest activities on strategic value. Investment decisions are targeted towards those ventures which can create a strategic buyer exit. The period of investment is often shorter, operational execution risks are lower and return on investment is higher.

What people are saying about the book:

“Tom McKaskill’s insights into the ‘art of the exit’ provide a great roadmap for all Angel and Venture Capital investors. In a misguided investment world that relies too heavily on IPOs, mega-exits and too much quantitative analysis, McKaskill has taken an enlightened and straightforward approach to a topic that should be foremost on startup investors’ minds.”

Joe Platnick, Pasadena Angels, USA
“For the professional Angel and Venture Capital investor, Invest to Exit is the first book to succinctly capture the importance of aligning the combined interests of inves- tor, management and shareholder when making the investment to produce an optimum result on exit regardless of underlying economic conditions. Commencing exit plan- ning much earlier in a company’s development, combined with planning and then flawless execution will always produce an outcome better than starting later and hop- ing a buyer “will be just around the corner”.

Dr. McKaskill has captured the essence of the issue, providing examples which clearly highlight the challenges and issues faced along the way.

This is compelling reading for investor and companies alike as they work collabora- tively to achieve a superior result when they sell.”

Greg Sitters, Sparkbox Investments Limited, New Zealand

Table of Contents

Preface
Acknowledgements
1 Begin with the end in mind
2 High growth – high risk
3 Spot the IPO
4 Financial vs strategic exits
5 Threats and opportunities
6 Identifying strategic value
7 Finding strategic buyers
8 Enabling the opportunity
9 Reducing risks to the buyer
10 Setting up the exit deal
11 Evaluating potential investments
12 Executing the exit strategy
13 Structuring the trade sale deal
14 Selecting professional advisors
15 Conclusion – impatient capital

Download it now – it may be the most valuable thing you’ve read in a long time.

Business Week published an interesting article on “Super Angels” – small firms unfettered by the corporate machinery of the bigger VC firms, and focussing on larger-percentage stakes in smaller seed-stage investments, launching startups for “only” $1M.

From time to time I refer to New Zealand as “honey I shrunk the country”, and so even though the scales at play in the US are different from here by orders of magnitude, we still have the “super angel” phenomenon, although we’ve approached it from the other direction.

With the flight of VC cash from the NZ market, players like Movac and Sparkbox have moved up the food chain from where they started.  And it makes good sense, as the single-digit-millions (NZD) funding rounds, otherwise known as the “valley of death”, have been harder and harder to achieve from VC’s in the last couple of years.

The other key difference between NZ’s super angels and the microcap type funds covered in Business Week is that the NZ firms are true angels – they’re playing with their own money, unlike traditional VC’s who are typically playing with institutional cash.

I like to think that our model is better than their model for purely parochial reasons, and that the choices made by people with 100% of their own skin in the game will be more sensible. But we still have the basic problem in New Zealand that we find it tremendously difficult to scale our companies into international enterprises. And the main issue with that comes back to scale – “honey I shrunk the country”.  It isn’t cheap to go offshore, and that’s where we need the supersize resources available in larger economies to make it happen.

But we can have a blended model (seed capital from NZ and expansion capital from offshore), and that’s what most entrepreneurs strive for.

Today’s guest blogger is Simon Telfer.

Does governance have an image problem? Possibly so. While 73% of the  Deloitte/Unlimited Fast 50 companies have boards there is anecdotal evidence that many other high growth organisations are slow to embrace external directors and formalised boards.

Why is that? Perceptions that a board’s primary contribution is centered around compliance has gradually shifted – strategic planning and direction is now recognized as being twice as important as other board functions including governance culture, management accountability and compliance.  Two other issues may therefore be impacting the adoption of governance:

1. Alignment: directors are typically seen as being older, more conservative and culturally misaligned with the new breed of rapid growth ventures.
2. Access: entrepreneurs have limited opportunities to be exposed to potential directors and informally discuss or experience the value and support that can be provided.

These were some of the ideas behind SpringBoard – a group recently formed to support the next generation of New Zealand directors and to promote age diversity around the board table. Existing directors or trustees under 45 years of age now have a forum for sharing ideas and experiences as well as the ability to professionally grow through attendance at events.  SpringBoard actively promotes younger directors for appointment to established and nascent boards in both the commercial and NFP sectors.

If you’re interested in joining this community then connect with us via LinkedIn.  If you’re looking to be put in touch with directors from a younger demographic please make contact with SpringBoard here.

As further insights arise in relation to high growth governance we’ll share them with you via this NZ Angels blog.