MED Releases Report on NZ's Angel Capital Market
MED Releases Report on New Zealand’s Angel Capital Market
Angels active in New Zealand? Very much so, according to an Infometrics report released today by the Ministry of Economic Development.
The angels in question are angel investors: typically well-off individuals with a track record of business success and willing to provide equity investment and management expertise to fledgling businesses.
The Infometrics study, commissioned as part of MED’s broader work programme on access to finance, estimates that New Zealand’s angel investors number up to 20,000, although the number of genuinely active investors is likely to be considerably less. Total angel investment is thought to be over $1 billion.
Ministry senior advisor, Nick Davis, says there could be many more individuals with the resources, expertise and appetite for this sort of investment. The issue is getting them to link up with entrepreneurs. “We often hear that new entrepreneurial firms can’t get finance but what this work shows is that would-be investors have difficulty finding the right sort of investment opportunities,” he said.
“That’s because the founders of a business require investors with a scarce mix of capital, skills and experience. Angel investors are also selective and don’t like being swamped by proposals that are poor quality or a poor fit with their investment preferences.”
Nick Davis says that over the past ten years many countries have moved to solve this co-ordination problem by supporting the establishment of Business Angel Networks.
Such networks benefit investors by enabling them to share information, including on potential deals, and allowing easier investment syndication thus sharing the costs and risks of investment. They benefit firms by reducing the costs of searching for potential investors and improving the likelihood of finding investors with the right skills and experience for the needs of the business.
He says that such networks are being established in New Zealand – examples include Icehouse’s Ice Angels and Industrial Research Limited’s MINE for Business Angels. In many regions Economic Development Agencies (EDAs) are acting as contacts between investors and firms, and are establishing new networks. The Canterbury Investor Network (CIN) is the latest such network to be developed.
“Other networks are likely to be in place but operating quietly and informally, below the radar. That said, the angel capital market’s profile is growing: more deals are reported in the media and market participants such as Stephen Tindall, Sparkbox and I Grow are getting publicity.”
“We’d encourage investors to get in touch with their local EDA or business incubator and ask about investor networks. These are the people pushing this concept forward and are willing to help facilitate and provide information to people interested in starting networks.”
The release comes days before Californian investor Jay Kunin, of Tech Coast Angels, kicks off a speaking tour with Incubators New Zealand (www.incubators.org.nz). Jay Kunin will be visiting five New Zealand centres from 15-19 November to talk about his experiences in angel investing in the US. New Zealand investors will also be present to discuss local experiences.
Nick Davis says key findings of the Infometrics study are:
- New Zealand’s angel
capital market is significantly more sophisticated than it
was five years ago
- There is a better understanding in the marketplace about how to make money out of new ideas
- More professional investors are participating in the market bringing with them a more rigorous attitude towards these investments.
He says the study suggests there may be a role for government in supporting the development of BANs. It cautions, however, that in countries where support has been solely financial that the networks have usually not become self supporting.
The report has been made available on the Ministry’s web
Note to Editors
The government currently assists the development of the early-stage capital market in a number of ways:
- Through NZTE’s Escalator
Service – www.escalator.co.nz - it provides investment ready
training and brokering services to businesses
- Industrial Research Limited, a Crown Research Institute, currently operates MINE for Business Angels www.mine.org.nz, a national business angel network established in 2001.
- MED’s research contributes to awareness raising and an improved understanding of the market
In addition, the EDANZ (Economic Development Association of New Zealand) website – www.vcapital.co.nz – provides a forum for communicating with registered investors about a range of investment opportunities.
MED plans further work to explore firms’ access to finance, notably a demand-side survey of business financing in partnership with Statistics New Zealand. The results from this survey will be available in April 2005. It has previously released a study of bank lending practices to SMEs as part of its broader work programme on access to finance.