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

It’s interesting to listen to an American angel interviewing an Australian angel and triangulating our position here in New Zealand.  Jordan puts in a plug for this yesr’s New Zealand Angel Summit. He also talks up New Zealand’s SCIF. It’s nice to get some external validation and buzz about what’s happening here.

Jordan also talks about

• syndication in Australia and its development
• problems in the Australian VC space
• strategic exits
• the importance of appearing to be a local company in the country in which you’re operating
• the Commonwealth Commercialisation Institute

According to a University of New Hampshire study,  “the number of [US] venture capital deals fell 10% to 2,550 in 2008, according to VentureSource, the number of angel investments dropped only 2.9% to 55,480 deals.”

Read the full article at WSJ.com

In other words, “nice guys finish first”.

Dr Jon Bohlmann, the author of the first study says his results show that if a team’s leader was perceived as “basically being a nice guy,” then “team members showed a significant increase in commitment to the team’s success and to the project they were working on.”

The second study, led by Dr Rob Handfield, showed that significant cost and quality benefits can result from informal socializing between employees of a product-development company and those companies that supply the product developers with material and labor.

It does sound like common sense, but it’s nice to know that good business behaviour has tangible returns.

“My experience is you need to raise between $500K and a $1M to do almost anything.”

“If you aren’t ready to sell equity in your idea [at a valuation that will be interesting to an Angel], finance it yourself.”

“Almost without exception, I don’t want to own your dream, I want to make money and have a little fun along the way. If you never sell the company, I never realize a gain.”

It’s well worth a read.