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.
Gridspy provides an online realtime power monitoring system for homes and businesses. They are looking for both trading partners and investors, especially with marketing or sales background.
The Pitch:
Gridspy provides you with an interactive view of power, water, gas and other resource usage in your building. Gridspy allows you to access and monitor your consumption patterns in real-time using a standard web browser on your PC, laptop or mobile phone. The data is accurate and updated each second as you watch.
The power data is split into multiple channels so you can see which parts of your building are using the most power. Unlike a smart-meter, the Gridspy system can isolate the power usage within your building to individual systems such as AC, hot water, lighting or computers. This allows you to focus your power efforts where they really count. Learn how much you actually use on standby devices, or how changing to compact florescent lights will actually save you money.
Gridspy has passed the development phase and is a working product. We need your help to get to market. The team behind Gridspy bring years of experience creating smart hardware devices and off the shelf solutions and have supported a variety of customers that have succeeded both in New Zealand and internationally.
What sets us apart from our competition is our live data collection and display, our web based approach, and our low cost. We also offer high accuracy and can sample many different loads at once. We can also provide automation and control to any degree of complexity. The aim is to give people back control of their power usage, helping our customers measure and save power.
Accomplishments to date:
Development of a power monitoring prototype, with all the key technical hurdles overcome.
Manufacturing plan that will take us from prototype to fully automated production over three months grounded on previous experience.
Comprehensive manufacturing contacts.
Several sales leads with potential for large sales volumes over the next quarter.
Development plans:
Begin the electrical approvals process, including CE Mark, so our solution can be sold both domestically and internationally
Create staged runs of 25, 100, and 400 units to build our manufacturing pipeline
Design and test several related devices to round out our offering
Offer Gridspy to New Zealand industrial clients
Improve the look and feel of our website and general branding
Create a stock of rental and trial units to enable sales
Build a community of home and business owners who are proud to openly discuss their power usage and demonstrate their environmental credibility.
Key Challenges:
Cash to finance due diligence and further prototype runs so we are ready to handle future high demand.
Our current small production runs force us to adopt higher prices than we would like
Competition is entering the “Smart Grid” arena all the time. Our niche is unique and we need to continue to differentiate ourselves.
Principals & Previous Experience:
Stephen Leys as 30 years experience as the managing director of Technman designing custom electronics solutions for a wide range of clients. He is an experienced electrical engineer and has seen many products through concept to large scale production.
Tom Leys is a software developer who has been working with firmware with Stephen for 9 years. Tom has a background in designing user interfaces for a number of applications. Since 2008 he has been spending all his free time making Gridspy a reality.
What they want from an investor:
$250,000 – Enough to build a reasonable stock level, work through any product issues and reach the marketplace.
Contacts – especially large clients, distributors or technology partners
Experience building a sales channel, marketing a new product or launching products internationally.
Dave’s Commentary:
Tom and Stephen are very passionate about bringing their technology and experience to market in this increasingly relevant industry sector. They appear to be very capable technically, and have put together a great looking prototype web site. They will need cash, connections, and excellent governance advice to successfully commercialise their work, and the right “smart money” could really help them take off.
Contact details:
Tom Leys tom@gridspy.co.nz
Mob: 021-1654-764
www.gridspy.co.nz
Note: If you plan to act on any information on this site, please be sure to read the disclaimer.
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.
The International Sustainable Cities Forum to be held on 30 March brings together government and business leaders from both China and New Zealand, in conjunction with the first anniversary of the signing of the China-New Zealand Free Trade Agreement.
The overall aim of this Forum is to establish and leverage effective long-term cooperation between Chinese and New Zealand business leaders and high-level government officials. The visiting Chinese entrepreneurs and investors have also expressed interest in exploring commercial opportunities in New Zealand as well as to understand New Zealand’s approach to sustainable development.
The organisers have managed to secure the attendance of approximately 50 senior business and government leaders from China to attend this Forum. Key Chinese leaders confirmed attending include:
Wang Shi, the Godfather of Chinese real estate, Chairman of Vanke, with market capitalisation over US$10b, the largest property developer in China;
Feng Lun, Founder and Chairman of Beijing Vantone Group, significant property developer with market capitalisation over US$1b;
Xia Gang, President of China International Industry and Commerce Company, significant commercial property developer;
Zhou Qing Zhi, Chairman of Nandu Holdings, investor, philanthropist;
Wu Xu, President of Chongqing Sincere Holdings, with interests in property and finance;
Li Ai-Jun, Chairman, Taoyuan Habitat Group, property developer and investor, philanthropist;
Meng Gang , Chairman of National Chiao Tung University Real Estate Group, City Union’s rotating presidency;
Government delegations from Xia Men City in Fujian Province, Chang Xing County in Zhejiang Province, Zhu Jia Jiao Town in Shanghai City, Wu Jin District in Jiangsu Province.
On the New Zealand side, the organisers are expecting a number of senior Government ministers and mayors to be in attendance, in addition to business leaders representing a variety of business to attend.
At this Forum, participants will have unparalleled access to some of the top investors and decision makers in the booming Chinese real estate and investment sectors.
At a glance:
What: International Sustainable Cities Forum
Where: Langham Hotel, Auckland
When: 8am-5pm, Thursday, 30 November
Why attend:
Unparalleled access to key investors and decisions makers
Understand economic and political developments in China
Obtain analysis of China’s future trends and the implications for your business
Hear the latest updates from successful Chinese corporate and government leaders
Appreciate Chinese culture and the business of relationships
Fast track your China ambitions by connecting with China and NZ-based Chinese businesspeople
Know how to deal with Chinese businesspeople and government officials
Who should attend:
CEOs / Directors / Business owners who want to explore opportunities in China
Business development professionals in the property/construction/engineering / design sectors
Businesspeople who want to understand the mindset of Chinese investors and entrepreneurs
Businesspeople who want to sell products / services to Chinese firms and need information/ networks
Management teams seeking investors with capital and connections in China
Professionals who can contribute expertise towards building sustainable cities
Government officials desiring to strengthen connections with Chinese government officials
The organisers are anticipating a balanced crowd of approximately 25% Chinese, 25% Chinese New Zealanders and 50% other New Zealanders. This would enable good networking as we expect that attendees will not be at a forum where participants already know one another.
Rob Cameron is the Executive Chairman of Cameron Partners, who describe themselves as “New Zealand’s leading investment bank”. Rob also heads the Government’s Capital Market Development Task Force, and is a well-respected business leader with a reputation for thorough lucid critical thinking and a low tolerance for bullshit.
Last year Rob gave a presentation to the Angel Association conference in which he said that the current financial turmoil would result in conditions that would be “worse than anyone alive today has seen”, and was later quoted in the Business Day as saying “We’ve had about 60 financial crises in the western world since 1700 but nothing of this scale or contagion ever”. Rob has never been seen cavorting with Chicken Little before, and so I caught up with him on Christmas Eve to explore what was behind his thinking.
Key points:
Previous crises have affected small numbers of markets or investor groups, but the current crisis is global and systemic
We currently have previously unknown levels of leverage; eg in the 1930’s crisis private sector debt hit at 275% of GDP, but recently reached 380%.
A depression of the scope of the 1930’s is unlikely, due to the speed and scale of recent government intervention. We’re unlikely to see a 20% drop in output or 20% unemployment. Nevertheless, the global recession is likely to last 2-1/2 to four years.
Perceptions of uncertainties have increased, rather than the uncertainties themselves — the uncertainties have always been there, we’re just recognising them now.
Rob also offered specific advice for angel investors:
Focus on having adequate financial flexibility, eg strong balance sheet ratios and access to funding.
Be ready to seize opportunities as they arise. Opportunities in crises are unprecedented, and in recessions we are more likely to see game-changing moves.
Recessions cause huge changes in industry leadership; structural changes in patterns of demand lead to new market opportunities.
And his bottom line: These are unusual times that call for unusual measures.
The New Zealand Venture Investment Fund (NZVIF) published their 2008 Annual Report today. It’s an interesting read, and provides a good bird’s-eye view of the sector from the point if view of a publicly accountable organisation that has to “walk the talk”.
According to the numbers, the walk has been a relatively pleasant one amidst considerable turbulence, although the outlook is uncertain. The good news is that the aggregate value of their investments has increased by $3.42M, compared to the SOI forecast of $1.67M. Given that at the end of the day valuations are very subjective, this might or might not mean much, but it’s nice to see it written on paper. After all, this is the NZ Government speaking, not Enron.
Other items that leaped off the page:
With respect to VIF,
They haven’t invested in any new VIF funds in the last 12 months, and are now willing to talk to anyone about potential fund investment at any time without a rigorous EOI process.
VIF-backed funds made eight new investments in the last 12 months.
Most of the existing funds are now nearly fully invested; only two funds are seeking new invesment opportunities.
Software and biotech combined account for 50% of the invested capital.
To date, a total of $175M of combined NZVIF and private capital has been invested in 45 different portfolio companies.
SCIF has been an area of activity and growth, and this is really positive for the angel space:
There are now eight SCIF partners, compared to four at the beginning of the year
NZVIF’s focus for the next year is growing the number of angel investment partners and investments
SCIF invested $5M between 18 investments (that’s an average of $277K per investment by SCIF)
So, all up it’s quite a good story for the low-end, but shows signs of coming trouble at the top. Given current economic conditions, without NZVIF-backed funds sloshing more cash around in the VC-space, will there be enough expansion funding to get NZ companies offshore? It looks like we’ll have to rely increasingly on organic growth, outstanding value propositions, private equity, and overseas sourced capital. C’est la vie – let’s keep growing our Angel-backed businesses, so that when the market turns we’ll be ready for prime time.
Today, we continue our Politics of Angel Investment series with an interview with Rodney Hide, the leader of ACT.
ACT’s policies revolve around reducing government. It’s a simple message, easy to understand, and clear in its impact on investment and innovation. They want to reduce taxes, government expenditure, and the impact of government on our daily lives, leaving us to get on with the job in our selected spheres of expertise, and sinking or swimming on our own merits.
Rodney’s key points:
Entrepreneurs drive the entire economy
Governments are incapable of predicting which ideas are going to be great
The main task is to grow the economy, and catch up to and surpass Australia
Key policy areas:
Fiscal: reduce government spending – taxpayer rights bill would cap government spending at rate of inflation
Regulatory: reduce rules and regulations; they stifle innovation — regulatory responsibility bill protects property rights and freedom to contract
Education: Break state monopoly in education; fund students not schools – that would enable innovation to flourish
The state should be right out of business; they should stick to core business of providing police force and critical infrastructure. Ministry of Economic Development would be disbanded; if state planning worked, the USSR and Korea would have been staggering successes.
Taxes should be as low, flat, broad, and neutral as possible. In an ideal world you should be able to run the state on GST and get rid of income tax. If you have to have an income tax, it should be flat. The worst tax you can inflict on an economy is a capital gains tax, which is especially bad for entrepreneurs.
Broadband: Rodney disagrees with unbundling and the pretend split of Telecom and the constant regulation of the Telecommunications sector. ACT would pare back regulation to a bare minimum, especially the Resource Manangement Act.
Rodney closes by saying, “Angel investors, innovators, and entrepreneurs are the heroes of our economy … I salute them!”
Election year is upon us, and this week we’re starting a series on the Politics of Investment and Innovation. Over the last two months, we’ve canvassed the positions of the significant parties in parliament on their approach to investment and innovation.
The Greens, ACT, NZ First, Labour, and National all happily provided their best spokespeople on these subjects, which in some cases left us with with the impression that they were pretty thin on the ground in these areas. The Māori party were a no-show, despite numerous attempts to connect with Dr Pita Sharples.. The interviews are presented in the chronological order in which they were conducted.
We’ll be releasing one party interview each week over the next five weeks, so that you can contemplate how well each party grasps the core issues and engage in lively and informed discussions with your colleagues. This will be followed up with a summary podcast at the end of the series.
This week we start with Russel Norman, co-leader of The Greens. As you know, Russel is new to the leadership game, and the Greens being a small party with an agenda focussed on sustainability issues, they don’t have well-developed policies in this area. For all of that, I was struck by Russel’s openness and willingness to incorporate new thinking into the Green agenda. After the interview was over, he said that he was seeking assistance from interested investors to help The Greens with policy formulation.
Key positions:
To encourage innovation in the “right” areas:
The right pricing structures need to be put in place
The right tax incentives need to be in place
Publicly funded science research should be shored up
The Green Revolution is where the future of business should be.
The broadband backbone should be publicly owned as a key piece of national infrastructure; National and Labour haven’t gone far enough with their current policies
The Greens support a capital gains tax, excluding the family home, and possibly investment into “higher risk R&D-type investments”.
Foreign Direct Investment is good, but not where it results merely in the extraction of dividends overseas. The Overseas Investment Office says “yes” too often now, and would be encouraged to look closely on the net benefit of each investment to the NZ economy.