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What's happening in angel investment

What's happening in angel investment

The last few Young Company Finance Index findings have pointed to a trend for angel investors investing less at a time, and the latest results are no different.

New Zealand Venture Investment Fund chief executive Franceska Banga said angel investors were tending to support their existing portfolio companies rather than investing into new startups.

The biggest deal this year was led by Enterprise Angels, for seed funding in the $2.5m+ range for Tauranga's Rockit Orchard Partnership.

Not far behind, Arcactive, Polybatics and Mesynthes all raised seed funding in the $1-1.5m range.

Investment activity remains high in terms of deals completed but investor caution has contributed to an 18 percent fall in the amount invested between the first half of 2012 and the same period the previous year.

Angels invested $14.5 million across 43 deals involving young New Zealand companies in the first half of 2012. By comparison, in the first six months of 2011, $17.6 million was invested across 53 deals.

In the 12 months to 30 June 2012, $27.6 million was invested into young companies, down a third from the previous year’s $42 million.

Angel Association executive director Suse Reynolds took heart that the level of activity remained high, noting that strained economic times often spurred entrepreneurial activity, produced competitive valuations and saw investors want to play a more active role in managing their investments.   

She attributed the drop to a number of factors.

“We are seeing investor caution in the wake of overseas economic uncertainty, particularly in Europe. Another factor is the absence of new venture capital funds emerging between 2007 and 2011 to provide follow-on investment."

However, she noted that two new venture capital funds have been established in the past year and are now investing, "which
should improve the flow of growth capital for angel-backed companies".

Banga said that cumulatively, $234.6 million has now been invested into young companies by angels since the Young
Company Finance Index began in 2006.

"We are seeing angel-backed companies, like Booktrack and GreenButton, show considerable promise."

Of the $14.5 million invested in the last six months, 63 percent was follow-on investment and just over a third consisted of new investments. (In the first half of 2011, 54 percent was follow-on and 46 percent was new.)

In terms of the stage of investment, $8 million was seed investment, $5.8 million was at the startup stage, and $0.75 million at the early expansion stage.

Where the investment is

Half of all angel investment is being shared between software startups and pharmaceutical/biotechnology startups.

Software and services have received 27 percent of the total investment tracked by the index since 2006, followed by pharmaceuticals/life sciences technology (23 percent), hardware and equipment (14 percent), and food and beverage (10 percent).

Auckland, which is home to a number of angel investment networks, is where over half of the investment is made. Startups in Wellington, Christchurch and Dunedin each see about 10 percent of investment, followed by Palmerston North and Hamilton, reflecting the regions where universities, research institutes and incubators are located.

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