Kiwi angels aren't flying; they are just bobbing a few feet off the ground

Angel investment in New Zealand is just scraping back to post-GFC levels. So why exactly are we calling this a robust and vibrant market?

Angel investment numbers released recently by the NZ Venture Investment Fund and the Angel Association are hardly inspiring, despite the hype. OK, the amount Kiwi angels (typically business people with a bit of extra cash looking to invest in a promising early stage companies) invested in New Zealand in the year to June 30 is up significantly from the year before ($50 million as opposed to $38m).

But this “record” figure is only marginally up on the $47m invested in the 2009-2010 year – almost five years ago. Moreover the first half 2014 figure ($23.1m) is down on last year ($23.7m) and more than 20% below the 2010 level of almost $30m.

Which puts New Zealand Venture Investment Fund CEO Franceska Banga’s comments about “very robust levels” of angel activity in the possibly rose-tinted category.

“For the size of the country we have a vibrant angel investor community here,” Banga says.

Maybe.

If you compare our stats with those from the US, the New Zealand numbers look even more woeful. Official US angel investment figures show $US24.8 billion was invested in US early stage companies in 2013 (and about the same again went into venture capital).

On a per capita basis, that equates to $US78.50 of angel investment per American citizen per year. In New Zealand, that same number is $US8.70 – about a tenth.

Still, maybe the problem actually lies in the damned statistics. Investor and company director Rowan Simpson (formerly with Xero, now chair of Vend, and a director of Timely and Powershop) has added fuel to the debate, slating the numbers themselves on his blog.

Calling the NZVIF document an “appallingly incomplete list”, he lists 14 companies that have raised funds this year but were missed off the list.

“If you add up the amount raised by just those I’ve listed it comes to more than the $23m that is reported, meaning [NZVIF] miscalculates the amount of investment by at least half… They are overlooking all of the best companies which typically don’t need to resort to angel networks to raise money." 

Simpson says “it’s pretty difficult to justify the comments about a 'very robust market' when their numbers show only $800,000 of expansion investment in six months among the companies they track, but that is measuring such a subset of the overall market that it’s simply not representative.”

Banga accepts her figures are only ever going to show a part of the market.

While New Zealand has a “sustainable core of angel investors”, the market is still small and vulnerable to economic fluctuations, she says. But it is too soon to say New Zealand isn’t performing.

“It took 30 years to build Silicon Valley and New Zealand has only been supporting the growth of early stage capital markets for 12-14 years. We have a good core capability, but we aren’t there yet.”

Banga says she would like to see the total New Zealand angel+venture capital market rise to $250m over the next five years, with angel investment making up $100m of that – double the present figure.

But a key problem is that many early stage companies need to be better prepared when they approach potential investors, she says.

“Many young or new entrepreneurs are naïve about what they need to do to engage with investors,” she says. “There is often a gap between what entrepreneurs think they should be doing [to be ready to present to an angel] and what the investors are looking for. Entrepreneurs need to put themselves in the shoes of the investor.

“We encourage start-ups to talk to other entrepreneurs who have been successful at raising capital so they understand what that process is about and how to engage with investors.

“If there were more good deals out there, there would be more money forthcoming.”

US-born New Zealand angel Chip Dawson, who has been investing in early-stage Kiwi companies since 1999, agrees. He reckons the amount of angel capital being invested would go up by 30% if there were better start-up looking for funds.

"Plenty of inventors want to create something, but many don't understand the commercial model. Saying 'I only need to get 1% of this market to have a multi-million dollar business' is not a well-researched business plan'."

Nikki Mandow is editor of Idealog

PLUS: Seasoned investor Chip Dawson on four steps to boosting angel investment in New Zealand