Angel industry group established
Angel Association New Zealand
1 July 2008
Angel industry group established
Angel investor groups have formed a new industry body – the Angel Association New Zealand – to advocate for and to promote best practice within the fastgrowing investment sector.
The association’s members consist of 15 angel groups from around New Zealand. Andy Hamilton, CEO of business growth centre The ICEHOUSE, is the inaugural chairperson of the association’s council.
“Angel investing – individuals and groups investing in early stage businesses – is an emerging industry which has the potential to be a key asset class and a very influential player in commercialising New Zealand innovations,” says Andy Hamilton.
“Overseas, we have seen national angel bodies formed once the sector reaches a critical mass. Establishing a national body in New Zealand is a sign of the recent growth of angel investing in our local market.
“The Angel Association New Zealand will set a national vision for the sector, and help to raise the capability and knowledge of angel groups, many of which are at relatively early stages in their maturity and mainly focused on their own issues and challenges.”
Clyde Rogers, from Auckland regional economic development agency AucklandPlus and a member of the establishment board, says a key role for the Association will be to advocate for initiatives which will assist the sector’s growth and development.
“To date, in New Zealand, much of the growth in early stage investing and the formation of angel investor groups has been organic and informal, rather than market-led.
“As an investment class looking to attract more investors, it is important that newcomers to angel investing have confidence in the practices and methods which make this type of investing unique from others. The Association will develop ‘best practice’ models and training for business angels and entrepreneurs.
“It will also provide greater visibility and promotion of the sector, so that entrepreneurs with innovative ideas can more easily find potential investors.”
Andy Hamilton says the United States is the most developed and advanced angel investment market, and may of the current trends there bode well for the sector’s development in New Zealand. In the US, for example:
- The number of accredited investors who are entering the angel world is increasing each year by over ten percent.
- There is an increase in the number of investors per deal with an average of four to five investors joining together to fund an entrepreneurial venture.
- The number of angel groups has grown, as have the number of ventures receiving investment from angel groups.
- Angel groups fund over thirty times as many entrepreneurial companies as the formal venture capital industry, investing three to five times more money in total.
- Angels continue to be the largest source of seed and start-up capital, and there has been a dramatic increase in post-seed funding by angels.
“While angel investing in the US has been a feature of its economy for a considerable period, it is the significant formalisation of the asset class over the last ten years – and the subsequent significant growth – which is most striking. “The trends occurring in the US are also occurring in Europe and the Asia- Pacific, which are more advanced than New Zealand in terms of the maturity of their angel sectors, and in having established national angel associations.
“The establishment of a national body will provide fresh impetus to the growth of angel investing in New Zealand,” Andy Hamilton said.
The Angel Association New Zealand’s establishment is being supported by the NZ Venture Investment Fund and AucklandPlus, the economic development agency of the Auckland Regional Council. Law firm Minter Ellison has provided legal expertise.
The inaugural council members are: Andy Hamilton, Phil McCaw, Mark Houghton-Brown, Richard Palmer, Dean Tilyard, Steve Hampson, Norman Evans, Greg Sitters, Clyde Rogers, Mark Robotham. Questions and Answers
What is an angel investor? An angel investor is an individual who provides capital and, often, expertise to early stage businesses which can’t source traditional sources of business funding. Angels typically invest their own capital, and often provide valuable management advice, mentoring and access to important contacts and markets.
What type of people become angel investors? Typically, angels are ex-entrepreneurs and successful business people looking to add early stage companies to their investment portfolio. By taking an active role in their investments, they provide not only governance by serving on boards, but also assisting companies with relationships, strategy, team building, and future fundraising.
What are angel groups or networks? Increasingly, angel investors are forming angel networks and groups to share research and pool their investment capital. They can operate as a collective of private investors who band together to increase their ‘deal flow’ (the number of investment opportunities they see). These groups connect high-potential start-up ventures, with willing investors to facilitate the funding and success of emerging companies.
How many angel groups are there? There are around 15 established groups in New Zealand. They include ICE Angels, Pacific Channel, Chrysalis, CureKids Ventures, K1W1 and Sparkbox in Auckland, Angel HQ & MOVAC in Wellington, the Manawatu Investment Group, Powerhouse Ventures in Christchurch, Venture Accelerator in Nelson and Upstart Angels in Dunedin. There are, however, other informal networks which operate in a similar way.
What are the returns on angel investments? Angel investors are exposed to high risks and expect that some investments will fail. If an angel invests in ten companies, the rule is that four will fail, three will tread water, two will return 2-5 times the initial investment, and one will result in a return of five to ten times the original investment over a 5-10 year period. Investors typically invest in a portfolio of prospective firms in the hope that 10-20 percent of the investments will be significantly successful, generating an overall healthy return across the portfolio. Each investment will have a defined exit strategy, such as plans for an initial public offering or a trade sale of the business.
Is there a large angel investing market in New Zealand? The angel market in New Zealand has long been predominantly informal. Over the last 2-3 years it has become increasingly vibrant with the launch of several angel networks modelled on similar organisations offshore. The New Zealand Venture Investment Fund’s Seed Co-investment Fund has been a catalyst for the formation of formal angel networks and evolving practice standards – the Angel Investing Guide is an example.
What sort of businesses are suitable for angel investing? New Zealand is producing world class intellectual property in a number of areas such as ICT, life science and niche manufacturing. This intellectual property is behind the creation of a significant number of early stage companies that need angel involvement to succeed. Angel investors are enabling these companies to grow in scale and to become an increasingly strong and positive force for New Zealand’s economic growth. Angel investors usually seek businesses with innovative products or solutions that have international market potential. Management capability is another key factor and founders often need to bring in experienced executives to take the business to the next level.
How many members does the Angel Association New Zealand have? At its establishment, the Association has 15 member groups. [Note: we are an association representing angel groups rather than individual angel investors. To be involved with the Association, an individual needs to be a member of an affiliated group.]
What is the next step for the Angel Association New Zealand? The Association is now an incorporated society. It has an establishment board. Members will be encouraging other angel networks to become involved in the sector, and promote the sector to potential new angels and entrepreneurs.