Angel fund investment in the first six months of the year is 17 percent higher than the same period in 2015, although down on the first six months of 2013 and 2014.
The findings from the New Zealand Venture Investment Fund and Angel Association show that $22.9 million was invested across 46 deals, including $17.9 million on follow-up investment.
Angel Association chair Marcel van den Assum says the fact follow-on rounds of investment continue to dominate reflects the appetite to realise business potential and generate returns.
“Pleasingly, we are now seeing angel groups distinguishing between follow-on for companies meeting milestones and targets, rather than follow-on to keep investments alive.”
Angel Association executive director Suse Reynolds says the upward trend of follow-on investment reflects the fact that angel investments are putting their hands back in their pockets because of a lack of growth capital.
“In a more developed early-stage ecosystem, we would have a larger amount of venture capital follow-on, but we don’t have that depth in our capital market and angels are filling the gap.”
The majority of investment went into software and service companies, with pharmaceuticals and biotechnology also being top sectors for investment. The trending up of biotechnology investment is pleasing, Reynolds says.
“We have been doing a lot of work to raise awareness for angels to diversify their portfolios,” she says. “It’s a heart-warming trend and we’d like to see more investment in that space because we have a natural advantage here. It’s gratifying to see.”
In addition to local investment, angel-backed companies attracted $8.5 million from international strategic investors. New Zealand’s geographical location could have a hand in this trend, as deals here tend to be better priced.
But Reynolds says a growth in international investment also shows New Zealand’s business appeal.
“It shows our companies are really getting out there to conquer global markets and that our deals are globally competitive.”
Another trend in angel investment is an increase of activity in the regions. As the biggest rule of thumb with angel investing is only invest money you can afford to lose, Reynolds says the increase in the regions is a reflection of regional wealth.
“The higher return of an angel investment is very appealing at the moment because you can’t make money investing in bonds or at the bank.
“People in the regions are now recognising the source of new jobs and opportunities is in the high-growth and high-tech space.”
A strong trend has emerged in recent years of investment into young companies. Since 2006, $438 million has been invested into new companies by angel funds.
Crowdfunding is becoming an increasingly important tool for companies. In the first six months of 2016, 12 companies used equity crowdfunding to raise $11 million.
Each of the successful campaigns averaged $927,400 with only two campaigns failing to meet their targets.
The increased interest in the crowdfunding space is a positive for angel investment overall, but not a one-size-fits-all, Reynolds says.
“Our aspiration is to have more activity in the space, it’s about growing the pie, and there’s a broader church developing in the early stage investment space which is terrific.
“Every deal and investor is different. The classic angel investment brings expertise that a crowdfunded venture doesn’t give you quite the same access too, but it’s just a different way of raising money.”
While more capital is almost always needed in new companies, different profiles appeal more than others to a crowd, Reynolds says.
“A boutique beer will raise funding easier than B2B.”
Since the introduction of crowd funding in New Zealand, 46 companies have raised a cumulative $28.8 million from all the equity platforms. The average investment size is $626,100.