KEY POINTS:
Q. What is an angel investor?
A. An angel investor is an individual who provides capital and, often, expertise to early stage businesses which can't find traditional sources of business funding. Angels typically invest their own capital, although a small but increasing number of angel investors are forming
angel networks in order to share research and pool their investment capital.
Q. What are some examples of successful angel investing?
A. Trade Me is the most obvious example. When Trade Me required extra capital to sustain the rapid growth of its early days, Sam Morgan approached some angel investors he had previously worked with while he was an IT consultant at accountancy firm Deloitte. Those early angels have now profited handsomely from the exit of Trade Me through a trade sale to Fairfax Media for $700 million. One of the most prominent individual angel investors in New Zealand over the past 10 years is Stephen Tindall, who has provided angel capital for many young New Zealand companies through his K1W1 investment vehicle.
Q. What is the VIF's venture capital and seed programme?
A. Ensuring that innovative start-up companies have access to the capital and expertise needed early in their development is vital if we want to maintain a pipeline of promising New Zealand companies that can contribute to our future economic health. The New Zealand Venture Investment Fund (VIF) is an investment company established by the Government to do just that - to help develop a sustainable local angel and venture capital industry and to provide high-growth potential Kiwi companies with the capital and expertise they need to succeed. Established in 2001, with Crown capital, VIF has two investment funds. The first is the VIF venture capital fund, which invests into privately managed venture capital funds, alongside private investors. These venture capital funds in turn invest in a portfolio of high-growth potential NZ companies. VIF's role here is as a fund of funds investor, stimulating the establishment of new venture capital funds. To date a total of $135m has been invested in 37 companies, through the venture capital programme.
Q. What are the levels of returns on angel investments?
A. Angel investors are exposed to high risks and expect that some investments will fail. A few investments may 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 per cent of the investments will be significantly successful.
Q. Is there a large angel investing market in New Zealand?
A. The angel market in New Zealand has been predominantly informal until recent years. Over the past two to three years it has become increasingly vibrant with the launch of several angel networks modelled on similar organisations offshore, especially the West Coast of the US. The Seed Co-investment Fund has been a catalyst for the formation of formal angel networks and developing higher practice standards, and the recent national launch of an angel investing guide is just one example.
Q. What are the attributes that are important for a successful angel?
A. For an angel to be successful there are a number of common attributes, such as genuine independent wealth, an understanding of their own appetite for risk and a willingness to accept risk, an ability to assess entrepreneurs, and make decisions based on a combination of gut feeling and due diligence.
