Early stage investing is, at last, beginning to come of age.
From what we know of Thiel (Paypal, Facebook, Linkedin), he does not invest to lose money. He is far from a philanthropist altruistically helping out small, struggling technology companies just for the thrill of it. He is a savvy, incredibly successful investor who sees considerable opportunities in New Zealand – his interest in New Zealand is extremely positive - and intends making some serious money from it. In fact he made the bulk of his considerable fortune from early stage investment.
Early stage investing in New Zealand (angel and venture capital) is starting to mature into a sophisticated industry. Over the past decade a growing community of active, experienced and successful investors has emerged. Yes, they also are motivated by being part of building exciting companies which create real value and return. They also do it to make money.
It is easy to point to some investment failures if one wants to claim early stage investing amounts to charity – but the investment model is predicated on the fact that some companies will fail. An early stage investor expects that for every 10 investments, two or three might bomb. But the successes means that he or she will make money across a portfolio of investments. The fact is, we are starting to see some real successes emerging.
LanzaTech, for example, could be dismissed because it is yet to turn a profit, but it has already turned itself into a very valuable company based on its significant growth and immense potential. Likewise companies like Xero, Diligent, and BioVittoria. If they are yet to turn a profit, that does not make them a bad investment. It means they are growing very quickly, and need considerable investment capital to finance that expansion.
Orion Health is one of New Zealand’s most promising companies. Its very able founder and CEO Ian McRae has set a target of it becoming a billion dollar revenue company. The company has been assisted in its growth from venture capital investment. Those investors will be eying a very healthy return.
Yes, if one was taking a snapshot right now of investment returns in early stage investing in New Zealand over the past decade, the picture is a little mixed. This is partly due to this investment class ‘coming of age’ in NZ, but also because we are emerging from the worst economic conditions in decades. There are few asset classes which have not endured considerable punishment in the past few years.
In this environment, angel and venture capital investors tend to hold on to investments rather than sell, supporting their investment companies for longer than they might otherwise do (especially the most promising) while working to ensure the companies are positioned to maximise returns as circumstances improve to an exit opportunity. Meanwhile, early stage is on average producing positive returns is far ahead of some theoretically safer investment classes.
Any perusal of international media shows that early stage technology companies remain an extremely promising asset class. Silicon Valley (Facebook, Groupon, Zynga, et al) is one of the few areas of real dynamism in the US economy.
Here in New Zealand, the annual TIN100 report has demonstrated how significant technology companies – such as the Fisher & Paykels – are becoming to New Zealand’s economic performance.
The next generation of those companies are the small technology startups which early stage investors – like Sparkbox Ventures – is investing into. We are motivated by the challenge of helping to build ideas into small companies. But our real motivation is to create value within these companies in order to make significant returns on our investments.
Given the promise of many of these companies, New Zealand’s early stage investors can expect to enjoy the sorts of significant returns which we have observed through the likes of Peter Thiel, Reid Hoffman, and the top tier venture capital firms. They certainly don’t do it for charity. New Zealand benefits from their success.
Andrew Duff (top) and Rob Rogers hail from Sparkbox Venture Group, a leading New Zealand early stage investor that has been investing in companies since 2001.