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

I’m not so sure … Venturebeat recently reported that there were ZERO (sorry about that pun, it couldn’t be avoided for mathematical reasons) IPO’s in the US in the first half of calendar 2008, and that M&A activity was at its lowest level in 20 years.

While we like to believe that we are countercyclical or play by different rules here NZ, it’s suicidal to forget that we’re in a small corner of the global playing field.

My bottom line – entrepreneurs and investors need to put a reality check into that IPO dream for the near future. The best way to succeed is by building a great team, meeting a real market need, and above all running a great business by generating heaps of revenue. IPO’s are not part of the script for 2008. For the short term at least, funding will necessarily come from private equity and operational revenue.