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Angel investments falling on hard times

Monday 5th March 2012

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Angel investment slowed to a trickle in the latter half of last year, with the lowest total of new equity raised since the New Zealand Venture Investment Fund began running its Young Company Finance Index in 2006.

Just $13.1 million was raised in the six months ended Dec. 31, the lowest for a second half so far recorded, although some 44 companies were targets, the second-largest number of firms to receive funding in the second half of a calendar year in the past six years.

There was evidence the most active angel investors were reinvesting in companies they had already supported, rather than into new ventures.  Angel investors routinely invest less than $1 million in business concepts and start-ups, making them a stepping stone to the next stage of funding: venture capital.

Reinvestment in existing firms made sense because companies typically require follow-on funding, said NZVIF chief executive Franceska Banga. “There is a lack of follow-on money from other sources in New Zealand.

“As angels protect their current portfolios, they are more conservative about engaging in new investments, particularly those which have requirements for large amounts of capital,” she said, while also citing difficult economic conditions for putting investors off new ventures.

There was a noticeable trend to smaller deals, under $250,000, in the last six quarters, and there had been no deals worth more than $1.5 million in the last three quarters, contributing significantly to the drop-off in angel funding overall.

In total in 2011, angel investment through the NZVIF’s schemes, which offer co-funding for ventures that succeed in attracting angel investors, totalled $30.7 million, compared with a peak of $54.2 million in 2010, and the lowest annual total since 2007.

Of that total, $11.7 million went to first round investments, $19 million was for follow-on investments. Some $6.6 million of the total was seed investment, $23.8 million was for start-up stage companies, and $360,000 was for early expansion.

A third of these investments were structured as convertible loans, another third as ordinary shares, and 28 per cent involved preference share issues.

Latest soundings among angel investors showed they were most likely to support web-based software and services ventures, followed by technology hardware and equipment, bio-tech and life sciences, clean tech, and agriculture.

Around half of angel investors were willing to invest more than $30,000 per deal, and some 20 percent have between $50,000 and $100,000 to spend.

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