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.

Related posts:

1. AngelLink welcomes Life Science Angels Network

In March 2009 Speirs Nutritionals signed a world-wide distribution deal with Croda International, a United Kingdom based publically listed company. Through Croda’s international market channels Speirs Nutritionals’ Omega 3 technology is marketed under the brand Omelife.

Dean Tilyard, Chief Executive of Manawatu Investment Group described the investment as a significant capital raising for an early stage New Zealand technology business. Tilyard says ”the climate for early stage capital raising remains tight and this investment reflects the strong technology underpinning Speirs Nutritionals and the significant progress the business has made in establishing a global marketing channel”.

In addition to Manawatu Investment Group the investors include the New Zealand Venture Investment Fund and K One W One Limited.

Speirs Nutritionals Chairman Rodney Wong welcomed the involvement of the new investors adding that the new capital comes at a time when the business is transitioning from a focus on technology development to one supporting sales activity through its international partner.

Related posts:

1. Trans Tasman Commercialisation Fund signs on as SCIF partner

When: Tuesday 16th Feb, 5.30-7.30pm
Where: Russell McVeagh, Level 24, Vodafone on the Park.

We look seeing you there, where you’ll have the opportunity to talk with Kevin and network with your Wellington peers.

Simon Telfer, co-founder of SpringBoard’s national group, who will talk more about SpringBoard and governance.

For more info and to RSVP, see the Springboard Wellington LinkedIn Group.

Related posts:

1. Springboard comes to Wellington
2. Springboard event: Governance – handbrake or accelerator?
3. Startup Governance

When: Tuesday 9 March 2010 5:30pm – 7:30pm
Where: Deloittes 10 Brandon Street, Wellington
RSVP: Unlimited Potential
Special Guest: Bill Payne

I always advise entrepreneurs to get to know their local angels well in advance of even thinking about asking them to invest.  This evening will be a perfect opportunity to network, practice some lines before using them in a pitch, and meet other entrepreneurs and investors.

See you there!

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.

Thanks to BNZ, the Foundation for Research, Science and Technology, The ICEHOUSE, and many other organisations, Bill will be spending six months here in New Zealand as the BNZ University of Auckland Business School Entrepreneur-in-Residence at The ICEHOUSE, working on a variety of projects including running seminars for angel investors, mentoring startups, providing advice to government, working with tertiary education institutions on commercialising their intellectual property, and hopefully building some international syndication opportunities.

He has a busy schedule and will be visiting many regional centres round the country, but is keen to meet with a wide variety of people while he’s here.  Bill is a very personable, approachable, and straight-talking guy, and we caught up with him over a Skype call to find out more about how we can get the most out of him while he’s here.

In the podcast, Bill talks about his own investment interests, how to put together a deal that satisfies everyone, how the “first-to-market advantage” is vastly overrated, and obtaining follow-on investment offshore.

You can download or listen to the podcast:

You can contact bill directly on bill@billpayne.com, and you might also be interested in Bill’s ICEHOUSE blog.

Halo Investment Management chairman John McDonald said the fund received strong interest from investors but the investment climate meant it received commitments of $2 million.

“The concept was extremely well received, but unfortunately, in the current environment, we were not able to translate that into sufficient firm commitments to proceed with the Fund.

“There was considerable interest from investors in gaining access to the companies in the angel and venture capital pipeline. We will look at some redesign of the fund and then consider re-launching it, possibly next year, when investment conditions improve.

The Halo Fund was aimed at investors interested in partnering with New Zealand’s most experienced angel investors to invest in new technology, high growth companies in dynamic sectors.

It aimed to invest into 30 plus companies over a two to three year period at the seed and start-up phase in sectors like software, bio-technology, and medical diagnostics.

Related posts:

1. Trans Tasman Commercialisation Fund signs on as SCIF partner

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.”

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.

Listen to or download the podcast:

Key points:

• 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.

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.

For a bit of fun, see Cayenne Consulting’s High Tech Valuation Estimator.

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.