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Home / Business / Small Business

<i>Rod Drury</i>: How to start a business (part four)

By Rod Drury
Herald online·
27 Aug, 2008 05:00 PM3 mins to read

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Angels often do only one deal before being scared off. Photo / Getty Images

Angels often do only one deal before being scared off. Photo / Getty Images

In the fourth part of our series, Rod Drury looks at how to get help from angel investors.

KEY POINTS:

The predominant form of investment funding in New Zealand comes from angel investors.

Angels are typically more early stage investors than venture capitalists, with the biggest difference being that angels are spending their own money.

Angels are normally successful people in their own right. They like doing business
and are often looking for something interesting to be involved with.

The New Zealand angel scene seems to be splitting into two tiers - formal angel groups and individuals. Angel groups provide deal syndication, where the risk is shared between angels.

They have more formal processes and they are continuing to mature, so they have administration support and over the past year have started to fund deals.

These groups can be quite social, and the members enjoy the contact with each other. It is important to determine whether the angel group has actually done any deals.

It might be that the process of looking at companies is satisfying their need for an interest. The total numbers of deals funded by formal angel groups is still very small, perhaps in the tens. Stephen Tindall, who has funded scores of companies, is an exception.

In my experience as an angel investor and watching companies that have been angel funded, I believe angel investing is hard. The companies often take much more time than the angel initially planned for and need more cash than forecast to get to further funding or liquidity. The vast majority of angel deals do not proceed well.

Angels often only do one deal before being scared off. The ones that have done it a few times are battle-scarred and experienced.

The other side of this coin is that most angel investors are first-time business investors. Therefore, the person you approach for funding may not even know they are an angel investor yet - anyone moderately wealthy could potentially be your angel.

So where do you find these people? Well, you need to look for where the wealthy people are. They may be at boating clubs, golf clubs, or they are parents of kids in your children's sports teams. Potential angels are everywhere.

As well as cash, the best angel investors will bring with them experience relevant to your business, and access to networks. This might help narrow your focus on wealthy individuals from your industry. Angel investing is often more emotional than analytical so building a relationship where the angel wants to give you the resources and support to succeed will give you a good chance of success.

* Rod Drury is CEO and founder of leading NZX-listed accounting software provider Xero (xero.com)

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