Angels, unsurprisingly, belt-tightening

By Peter Kerr 03/04/2012

We shouldn’t be too surprised that the latest figures released on the Young Company Finance Index show a slight reduction in the amount of investment by Angels.

After all, there’s only so much ‘spare’ money that Angels have to punt on such investments, where only one or two out of 10 will (historically) be screamingly successful.

The Angel community, of which it is estimated there are about 200 individuals spread throughout New Zealand, has tapped into a large number of Kiwis who are prepared to back new business growth.

The community’s actively looking for new members, but in the meantime original Angel investors are waiting for payback from the (to date from 2006) 407 deals that have been done. Of the current Angel crop, till they get some returns, they’re necessarily tightening their belts a bit.

Hence, as noted in YCF, the average size of first up deals has fallen, and there’s an increasing amount of follow-on investment also taking place. The second half of 2011 saw just over $13 million invested in 44 deals, while almost $31m was invested in 97 deals across the entire year. The average deal size was $323,549, down from $540,000 in 2006 when the index kicked off.

Angels clearly prefer web company oriented investments, followed by technology hardware and equipment, then biotech and life-sciences. (See Angel press release here).

There’s a good reason for the IT bias. Based in a corner of the south-west Pacific, things webby are the most scalable, and tend not to be as capital intensive. By the same token they’re an all or nothing investment, with no residual asset such as plant, machinery, drugs or IP if things go belly-up.

The web’s all in the ether, and when it doesn’t work, an Angel investor (and the founders for that matter) have blown everything.

Given the activity of Angels, it’s amazing to consider that they’ve only been going in NZ for five years. It would be shuddering to think of where or how innovative business founders would obtain investment capital without their presence. Part proof of that was BioVittoria’s inability attract enough investment via a proposed sharemarket listing.

So, imagine an environment without Angels — hardly bears thinking about.