Angel investment plummets

TOM PULLAR-STRECKER
Last updated 10:12 31/07/2012

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Figures due out in a few weeks from the Government's Venture Investment Fund will show angel investment fell about 40 per cent in the year to the end of June, newly-appointed Angel Association chairman Ray Thomson says.

In the previous year, $41.5 million was invested in 90 separate deals.

The association is responding by raising its own profile in effort to more than triple the number of known angels, those belonging to networking groups, from 300 to 1000 within five years.

Thomson attributed the drop in activity to caution in the wake of overseas economic uncertainty, particularly in Europe, and the fact many angels were concentrating on nurturing firms in which they had already invested.

''We are finding we need a bit more firepower with some deals. We need to encourage more of the higher-net-worth people in New Zealand to help 'NZ Inc','' he said.

Association chief executive Suse Reynolds said it would hold an ''investment showcase'' at its next annual summit in Wellington in November at which 15 early-stage companies will pitch for investment from wealthy angels.

The event would be staged at Te Wharewaka ''within sight of the stock exchange''.

The association hated the analogy with ''the massively oversimplified'' Dragon's Den television show, but that would be gist of it, she said.

Thomson said one of the issues to be canvassed at the summit would be the advantages of start-up founders offering angels preference shares or convertible notes that got paid out before their own ''sweat equity'' when companies were sold.

That could help angels get their money back from the ''four out of 10'' investments that neither failed nor took off, he said.

''In the scenario where everything is lost or it is a spectacular success, it doesn't make any difference, but where you roughly get your money back, it can make a big difference.''

The advantage to entrepreneurs of offering such equity was that angels might then be more willing to live with entrepreneurs' optimistic valuations of their companies.

There was no point recruiting more angels if there weren't "good quality deals'', Thomson said.

''We need to work more closely with the government sector to get intellectual property developed by universities and Crown research institutes into this space.''

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- BusinessDay.co.nz

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