Angel investing is a term that is used to describe very early stage investment in start-up companies. Typically, the “Angel” or “Business Angel” will provide their own capital, as opposed to a Venture Capitalist, who calls on capital from a managed fund others have contributed to. It is an incredibly risky but vital part in the venture financing structure, as it often helps bridge the so-called “Valley of Death” between lab research and a commercial opportunity by providing funding for prototype development, market research, etc. As there is a trend both worldwide and in NZ for Venture Capitalist’s to move more towards funding companies with established revenue streams, this type of financing is becoming increasingly important. I have witnessed myself the difficulties in crossing this “Valley of Death”, and it is often where many a good idea falls down.
Hence, I was pleased to read in the NZ Herald the other day about a new initiative called AngelLink. AngelLink aims to bring together active angel investors and the constant stream of high quality IP generated from NZ universities and Crown Research Institutes, to provide early stage funding for new technology companies. AngelLink has partnered with the New Zealand Venture Investment Fund (which was set up through the NZ Government to establish a Venture Capital industry in NZ), who will match AngelLink’s contributions dollar-for-dollar, giving a total value of $8 million.
Overseas, many Angels organise themselves in networks. The attractiveness of an arrangement like this is that investors can pool their experience, networks and research to co-invest, creating a more nationwide approach to their investing. This creates greater deal flow, and a quicker time to market, which is critical for a country as small as NZ.
Although $8 million is just a start, I applaud these efforts – I just wish more could be done to help fill this “Valley of Death”, as the amounts of money we’re talking about for most of these investments are often relatively small. Although high net worth individuals make valuable contributions, personally I don’t think we should have to rely on them to provide this type of funding. Perhaps the Government could take more of a leading role in this area and help bridge the gap even further.