This year, US angel investor Bill Payne spent five months touring New Zealand, dishing out wisdom about early-stage companies. The engineer, recovering entrepreneur and active investor reflects on his stay downunder
Why a ‘recovering entrepreneur’? What did you do wrong?
I actually don't think I did too much wrong, but I decided I didn’t want to run a company again … I would prefer to be an investor. I really like the excitement of startup and the first round of investment. And then hopefully a really nice positive exit at the other end of the rainbow.
That’s a dream scenario— what’s your ratio of hits to misses?
If I were a baseball player I wouldn't be in the major leagues! The hit rate for most angel investors goes like this: ten percent give us all of our return on investment; about half the companies go out of business; and the rest give us our capital back.
Is that the same ratio for Kiwi angels?
We really only have data from investors here since 2003. And most of the 16 angel groups are much younger than that, so we just don't have enough data yet to do any of those kinds of projections.
What are some of the key differences between Kiwi and US angel groups?
Actually I think they’re remarkably similar. I think the entrepreneurs we’re investing in are very similar. They’re passionate about their product and technology. They’re not necessarily experienced in sales, marketing, finance or competitive analysis. The angels who invest in them are doing very robust deals here, doing great due diligence, and they’re on a very, very steep learning curve. I find the angels here are very active; they've invested in 63 companies last year, or around $50 million. And that’s at about the same rate as the 16 angel groups in Boston, which is actually a pretty similar demographic from a population perspective.
What’s the hardest part about being an angel?
I’ll choose two. They’re both emotional decisions, which is what makes them so hard. The first is valuation. The entrepreneur typically doesn’t want to give up an appropriate amount of equity in return for the angel’s investment. The second is that often these kinds of companies grow faster than the entrepreneur can handle; in which case it’s time to bring in a new chief executive. That’s a very emotional decision for the entrepreneur to have to make.
New Zealand is notorious for being nice. Are our angels too nice?
That’s a good question, but no, I don't think so. Five years ago, maybe, they were hesitant to negotiate the right terms or do a deal at the right valuation. But I think they’re adopting best practices, and sometimes that just means you have to be tough.
Does a vibrant angel market imply a vibrant venture capital market?
It sure doesn’t here! But then the Kiwi marketplace is pretty consistent with what I see elsewhere. New Zealand’s got great entrepreneurs, very robust angel investing activities and great groups of angel investors. But the venture capital model is troubled; the industry is having difficulties raising new funds. In particular there are very few venture capital firms that are investing in the $2–5 million range. So follow-on funding for angel investors is a problem.
On your tour of New Zealand you talked about the role of banks in high-risk lending.
It’s a tiny fraction of the action in the US, and an even smaller fraction of what’s happening here. But I think that there are banks that are curious about how to do this. They’re perhaps sitting back and studying Silicon Valley Bank and Square 1 Bank and seeing if there isn’t some way they can play here. I haven’t yet seen a deal done with a bank but I wouldn't be surprised to see that coming down the road.
Speaking of banks, have you been here as a guest of one?
I was invited here based on a relationship that I’ve had with Andy Hamilton of the Icehouse for the past seven years. Our two biggest sponsors have been BNZ and the Foundation for Research, Science and Technology, and we’re delighted to have them as our sponsors. And we’ve had several other sponsors who have made this trip possible, so we’re grateful to all of them.
Will you be back, Bill?
Oh, we’ll be back, we love New Zealand. Beautiful country, friendly people—hard to beat!