KEY POINTS:
Wealth isn't obvious in New Zealand.
Kiwis don't generally flaunt their good fortune. They tend not to build garish palaces, drive around in rare vehicles or drip with diamonds.
So it would surprise many to hear that the Crown-owned New Zealand Venture Investment Funds (NZVIF) believes there are
at least 1000 individuals in this country with enough dough to be worth tapping on the shoulder as potential "angel" investors.
In the business world, angels are the well-heeled souls who take a punt and provide capital to promising start-up businesses. They invest directly in a company, usually in exchange for an equity stake, as opposed to pooling money in a professionally managed fund.
It's high-risk investing, and angels are wealthy enough to ensure that losing the total investment would be, well, like water off their wings.
The local angel investment industry is flourishing.
While the next stage up the investment chain, venture capital, is struggling because of New Zealand's lack of institutional investors, little syndicates of active angel investors are springing up in unexpected corners of the country and looking for the next big idea.
NZVIF is about to launch a recruiting campaign to expand this celestial choir, and the newly formed Angel Association, bringing together the country's existing 15 angel syndicates, will hold its first summit on Waiheke Island in early November.
A group in Nelson is an example of the growing angel movement. The Nelson Venture Accelerator Network consists of about 30 mostly immigrant high net wealth people who gravitated to Nelson for the weather, the golf and the great outdoors.
They formed when an initial core including Mark Houghton-Brown, who sold a successful British organic farming business, and John Dow, former Australasian chief executive of global gold producer Newmont Mining Corporation, put the word out among the local business community for those interested in angel investing to attend a public meeting.
"To our very pleasant surprise more than 20 people showed up," Dow says.
VAN has now been going for about a year and has invested in a range of ventures nationwide. It is still searching for a home-grown Nelson initiative.
The Securities Amendment Act defines angel investors as "wealthy" individuals with net assets of at least $2 million.
John Dow says the rule of thumb is an angel syndicate needs a portfolio of 10-15 ventures at any one time, requiring an investment of $150,000 - $300,000 from each of its members. "And that money would all be considered at risk."
NZVIF, a Crown Owned Company that invests in developing Kiwi businesses, estimates there are around 250 professional angel investors, although there would be others doing it on an ad hoc basis.
It is a venture capitalist - since its launch in 2001 it has partnered with six private sector fund managers resulting in a total $180 million being invested in 45 fledgling businesses.
But it also has $40 million to invest alongside angel syndicates through its Seed Co-Investment Fund, about $15 million of which has been committed so far. Nelson's VAN is a formal partner of SCIF.
Chief executive Franceska Banga says NZVIF wants to hear the steady flapping of new angel wings.
"Finding 1000 angels is about deepening the number of angels that are active, and in particular drawing them into formalised networks, as well as encouraging new investors. There are some big pools of cash sitting around New Zealand looking for a home."
Banga says the results of the dairy sector returns have trickled into the angel market, particularly for those networks looking at technical innovations from farming or agriculture.
One network witnessing that is the Manawatu Investment Group, a syndicate of 30-plus angels who have mostly engineering, agri-tech and manufacturing business backgrounds.
Chief executive Dean Tilyard says there are a few farmers, most are Kiwis, and all are people of long standing in the Manawatu region.
When MIG was set up two years ago, its administrators were surprised by how many people were available to join, Tilyard says. "And we will add to our membership over the next 12 months. We were also surprised with the depth of capital that was available, that was a bit of an eye-opener for us."
So far MIG has invested in two businesses - Xenos, a company that makes filling technology for longlife dairy drinks, and Anzode, which is based on Massey University technology producing next generation batteries. The batteries have applications in the hybrid vehicle market.
If the businesses angels are being asked to invest in have such a high failure rate, why would they bother?
Because there is a large dollop of altruism in what they do.
"When you talk to people, you often hear them say 'I'm doing this to build a better New Zealand for my grandkids'," Nelson's Dow says.
They are usually in mid-career in terms of age, have been extremely successful in a lot of different fields, often overseas, and aren't ready to simply retire and go play golf, he says.
Now they can afford it, they want to bring their business expertise and their discretionary capital to initiatives they like the look of. They can see themselves in the young entrepreneurs standing before them.
Dow agrees there are probably a lot of other people in this category who haven't thought of angel investing. "If our Nelson experience is anything to go by, I think that's highly likely."
Angel networks are also a meeting of minds. Dow's colleague Briton Mark Houghton-Brown, who arrived in New Zealand two-and-a-half years ago, jokes that he joined VAN to make friends. "It's always nice to work together with people of similar type of experiences as yourself, and to help others who are aspiring to hit some triple bottom lines."
Dow says the term "wealthy" doesn't sit well with him. "These things are all relative." He says he had a successful international career in the minerals industry, and returning to New Zealand after 34 years wandering the world "was the perfect thing to do after the hurly-burly of corporate life".
And as a matter of fact angel investors do make money, as long as they're prepared to be patient.
Angel investing is the highest risk, highest reward end of private equity funding.
Dow says a recent piece of research in the United States showed that of any 10 angel investments, in three or four cases the money would be lost, three or four might break even, and one or two would be spectacularly successful.
This is why it's important for an angel syndicate to have a portfolio of deals, Dow says.
And good things take time, as they say. On average angels need to have their money invested for eight years.
It is therefore too early to tell if the Nelson VAN's investments will bear fruit, although "lemons rot quicker than plums ripen", Houghton-Brown observes ruefully.
Andy Hamilton, chairman of the new Angel Association, says that while the money angel investors bring to start-up enterprises is important, their expertise is possibly the more valuable contribution.
"The major issue facing New Zealand is the capability of our entrepreneurs, and the capability of their management teams, and the capability of the investors to help them."
This is where it's important to formalise the angel investment sector, he says.
Two trends in the sector worldwide are the emergence of more professional angel investors, who spread their risk across a portfolio of projects, and syndication, Hamilton says.
Creating angel networks only happens with trust and familiarity. "One of the challenges for New Zealand is lifting the capability of investors, and how we bring various angel investors together to build those relationships, then create networks with other angels offshore."
Of course fledgling New Zealand businesses still face the problem of accessing local venture capital funding once they get to the point of takeoff. It's an industry leading venture capitalist Jenny Morel, of No 8 Ventures, has described this week as "dire".
But at least at the hatching stage New Zealand appears to be getting it right. Hamilton says the Kiwi angel investment sector is more advanced than Australia's. The Government there has put money into venture capital, but not into the seed end of development funding.
The NZVIF is planning to give potential angels no excuse for leaving their wings unfurled. It will run a roadshow towards the end of the year targeting business associations, accountancy firms and the like around the country.
