The good news:

• Kiwi entrepreneurs and their ventures are on par with their US counterparts in terms of quality
• The angel investment scene in NZ is very active and developing rapidly
• Incubators are starting to show promising in commercialising laboratory-based innovation
• The NZ Government’s commitment to start-up business is laudable.

The bad news:

• Like their overseas counterparts, NZ entrepreneurs lack sufficient understanding of marketing, sales channels, capital source, governance, and competitive analysis
• Too much incubator support of angel groups has led to “spoiled angels” who are not engaged enough in the entire deal-flow process or mentoring portfolio companies
• The Valley of Death between $2m-$5m dollars looms larger than ever given the global financial climate
• Current tax regimes discourage investment for trade sale exits.

Key suggestions:

• Entrepreneurs should get a footing in local markets before attempting to sell offshore
• Companies wanting to get funding should stop writing Investment Memoranda (IMs) and focus on succinct business plans instead
• Angel groups should seek to more fully engage their members in all aspects of investment and post-investment activities, rather than relying on external sources
• Angels should upskill themselves through better education programmes
• NZVIF should not focus on creating more large conventional VC ($100m+) funds, but instead focus on creating 2-5 new smaller ($60-80m) funds
• Companies that need more than $5m investment should become successful offshore, and then raise that investment in their target markets
• Tax rules should be modified to clarify the tax ramifications of share options, as well as to better facilitate and encourage angel investment.

In all, the report provides a great, informed snapshot of where we are as a sector, as well as providing valuable food for thought for where we go from here.

Download the report.

• Angels prefer to invest in local companies. Why? Angels want to be able to kick the tires before investing and then coach, mentor and serve on boards of directors of portfolio companies. Considering that most angels are part-time investors with multiple interests, investing in companies near home just makes sense.
• Angels fund ventures with customer-ready products or services. Investors want to talk to customers or potential customers to confirm that the product or service meets an important need – a “must have” for users. Angels invest in painkillers, not vitamin pills. Entrepreneurs with products that are not quite customer-ready should be self-funded with the help of their friends and family.
• A competitive advantage is important to angel investors. This could be a patent, trade secret or huge head start. Investors do not fund companies with products that can be easily duplicated by more mature companies with deep pockets.
• Angels seek companies with solid sales and marketing plans. Too many entrepreneurs assume that products or services will sell themselves, which is never true. Angels want to fund entrepreneurs who understand the channels to be used for reaching customers with their products.
• Angels expect entrepreneurs to have an exit strategy that will enable both the entrepreneur and investors to sell the start-up within five to 10 years to a larger public company, providing all shareholders with a substantial return.

It’s a GREAT time to be an angel. Find a group and jump in!

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence. www.billpayne.com

Related posts:

1. Bill Payne – What angels look for in fundable deals – Part 1
2. Bill Payne at the NZX
3. Bill Payne presents The Power of Angel Investing in Wellington

We would love to invest in entrepreneurs with prior CEO experience, but angels are most often approached by first time entrepreneurs.  So, what are the key differentiators for investors?

• Integrity – We seek to invest in people with absolute integrity.  One “little white lie” and we move on to the next deal.
• Coachability – Since angels invest both time and money in companies, we want to make sure entrepreneurs seek our advice and counsel.
• Commitment – Angels invest in entrepreneurs with “both feet in,” that is, people who have all their resources tied up in the business and are spending all their time on the business.
• Vertical experience – Fundable entrepreneurs must have a good knowledge of the business segments and markets defined by the product.
• Leadership – Entrepreneurs are expected to lead teams.  Experience in leadership is important.

While we would also prefer investing in teams with good business experience balance and experience in working together, the startup ventures we fund have seldom completed the building of these teams.

Scalability is the second critical attribute of fundable companies.  As was described in my last post, we angels must invest in companies capable of increasing the value of the company to twenty times the value at the time of investment.  This is best represented by rapid growth in revenues.  We seek companies that can demonstrate potential revenues of at least $25 million in 5-7 years from the time of our investment.

But the management team quality and scalability of the venture are not the only characteristics of a fundable company.  In the next post, I describe the other characteristics of fundable startup ventures.

It’s a GREAT time to be an angel.  Find a group and jump in!

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence. www.billpayne.com

Related posts:

1. Bill Payne – What angels look for in fundable deals – Part 2
2. Bill Payne at the NZX
3. Bill Payne presents The Power of Angel Investing in Wellington

Bill has over 25 years experience and has invested in over 50 companies, mentored hundreds more and founded four angel networks. He will be supported on the day by experienced Wellington-based, angel investors and industry experts such as Dave Moskovitz from WebFund, Phil McCaw from Movac, Owen Gibson from PriceWaterhouseCoopers, Glenn Milnes from No8 Ventures and Susan Iorns and Jelle Sjoerdsma from Angel HQ.

Topics covered:

• Deal selection
• Due diligence
• Deal structure
• Valuation
• Post-investment relationships

For more info and registration details, download the flyer.

Related posts:

1. Bill Payne at the NZX
2. Bill Payne – What angels look for in fundable deals – Part 1
3. Bill Payne – What angels look for in fundable deals – Part 2

Bill spoke recently alongside Wayne Mapp at a NZVCA and Angel Association function at NZX, discussing the importance of angel investment in the New Zealand economy, particularly in job creation and wealth creation. It was a great introduction to angel investing, and worth listening to if you’re not familiar with the space.

Bill revealed the results of some informal research he conducted, where he compared 2009 data on angel investment in New Zealand to the similar-sized areas in the US: Wisconsin, Oklahoma, and the Boston Metro area. Bill’s study showed that New Zealand angel investors are significantly more active than Wisconsin and Oklahoma, and that we invest at similar levels to the high-tech and well-educated Boston Metro area.

Synopsis:

Who are angel investors? Wealthy, experienced businessmen and women, and exited entrepreneurs who share their time and money with entrepreneurs in starting new ventures. They typically invest 5-10% of their net worth in total. They expect a high rate of return but know they can’t achieve that without a diversified portfolio.

Why are angel investors important? They create jobs in the economy. Most job creation in the US economy comes from companies less than five years old. Angel investors like to get involved right at the start of a company, but want to know if “the dogs will eat the dog food”; whether the product is a “must have” rather than a “nice to have”, a “pain killer” not a “vitamin pill”. Almost all companies are pre-revenue. Venture Capitalists on the other hand tend to get involved when companies are closer to break-even. Angels and VC’s are not competitors, we just get involved at different stages.

Angel investing has changed a lot over the last 15 years. We found that by working together with other angels in groups, we could use each others’ skills and experience and complete much better deals. There are now 16 angel groups in New Zealand, and we’re easy to find.

How do Kiwis compare to the US? There are some very impressive entrepreneurs here in New Zealand, biomatters, optima, power by proxi, mobile mentor, m-com, nexus6, are all great opportunities for entrepreneurs and investors. Entrepreneurs are founding great companies, and they’re being funded by Kiwi angels.

In 2009, $50m was invested in 62 companies. NZ Angels are funding proportionally more seed and startup companies than expansion than in the US.

New Zealand Angels funded more money into more companies than the similarly populated US states of Wisconsin and Oklahoma, and a comparable amount to the Boston metro area, which is considered to be a very active area.

Through their own successful entrepreneurship and the wealth they’ve generated through their own ventures New Zealand angel investors Sam Morgan, Stephen Tindall, and Rod Drury have helped to create more wealth locally through their investments and philanthropic endeavours. The jobs and wealth they create endure even after their exit.

Recommendations:

• Celebrate angel investors and investment as important components of the economy
• Encourage business-savvy wealthy people to become angel investors
• Find ways to foster the creation and growth of angel groups

Listen to or download the podcast:

Related posts:

1. Bill Payne – What angels look for in fundable deals – Part 2
2. Bill Payne – What angels look for in fundable deals – Part 1
3. Bill Payne presents The Power of Angel Investing in Wellington

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!

Related posts:

1. Angel Association Summit 4-5 November 2010
2. Bill Payne – What angels look for in fundable deals – Part 2
3. Bill Payne – What angels look for in fundable deals – Part 1

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.

Related posts:

1. Bill Payne at the NZX
2. Bill Payne presents The Power of Angel Investing in Wellington
3. Bill Payne – What angels look for in fundable deals – Part 1