Pathway to investor angels with the power to give business wings

By ANAMIKA VASIL*

Some of the biggest barriers to small -business success are the many obstacles entrepreneurs can face in getting the cash needed to build their business or turn a good idea into a successful venture.

At this early stage of an enterprise, banks generally will not provide the capital required, and neither will venture capital firms.

For both, the fledgling nature of the enterprise makes it too high a risk. And for venture capitalists the sums involved can be too small.

But the amount sought is usually too great for family members and friends to spare. And the entrepreneur has probably exhausted the traditional initial three Fs (friends, family and fools) funding channel.

The entrepreneur may have built a product prototype and now needs the money to commercialise it.

Or the business may be ripe for growth - which means the entrepreneur now needs not only more capital, but also greater knowledge.

It is now time for an angel to make an appearance, bringing money and the expertise and networks needed to give a business wings.

But gaining an audience with a potential business angel is not easy.

Such angels generally prefer to keep low profiles for fear of being deluged by business propositions, and may also value their time and privacy for other reasons.



In the United States and Europe, a large number of organised angel networks have sprung up to facilitate the introduction process.

Some are non-profit organisations; others are run like businesses.

They can be quite specialised - some are interested only in high-tech businesses, for example - and offer a variety of services.

Their equivalent in New Zealand is MINE (Mentor Investor Network) for Business Angels.

Since the Crown research institute Industrial Research set up this angel network nearly two years ago, it has raised $4 million in capital for a range of innovative small businesses and start-ups.

The average amount raised is $500,000 a business.



MINE facilitates the introduction process at events in Auckland, Wellington and Christchurch, where selected and pre-groomed start-ups and small businesses can present their business opportunity to interested investors.

This growing network is going into other cities this year, including Palmerston North and Dunedin.

At each presentation evening, investors are given up to six investment opportunities.

So far MINE has facilitated nine marriages between entrepreneurs and investors and built a network of more than 170 members throughout New Zealand who are interested in investing in and mentoring startups and small businesses.

MINE manager Melissa Yiannoutsos has been involved with the network from the start, and is now looking to expand it.

She knows this is not going to happen overnight and cites a finding from a recent major European Commission report, Benchmarking Business Angels, that it takes three to five years to build awareness about angel investing so more capital can be raised for the small business sector.



What we have found is that many of the entrepreneurs who approach us are quite capable when it comes to technical skills but have limited understanding of marketing, business development and managing growth.

They also have limited access to the networks they need to enter international markets.

An angel can fill that gap too.

The businesses that MINE can assist must be interested in getting this type of investor involved and have to feel comfortable about exchanging a stake in their business in return for the capital and the know-how the investor brings.

Typically, an angel will take a 20 to 50 per cent equity stake in the business, depending on the capital amount and the value their expertise can add towards the business growth.

MINE can attract up to $2 million in capital for a business.

Yiannoutsos says that often, entrepreneurs have approached venture capital firms before coming to MINE.

For such firms, the costs of due diligence on opportunities below $2 million can be too high to justify their involvement.

For start-ups and small businesses, MINE bridges a significant gap in the investment market.

The next MINE presentation evening in Auckland will be held on July 2.

* Anamika Vasil handles communications for Mentor Investor Network.