Angel investing still strong in South despite Covid19
ANGEL investing is going strongly in the South, the man behind the recently launched Mainland Angel Investors group says.
A recent report from the business advisory firm, PwC, shows angel investment in the six months to June was down by just 5% on the year earlier, with $33.6 million pumped into fledgling firms.
A total of 41 deals were completed over the period, compared with 43 last year, with most of money coming from offshore investors.
About a quarter of the money was directed towards ‘‘deep tech’’ companies, which develop new products based on scientific research, and firms that sell subscription software.
Findex managing partner and one of the forces behind Mainland Angel Investors, Scott Mason, said while all investment activity dried up in the six weeks of Alert Level 4 lockdown earlier in the year, it quickly picked up afterwards.
‘‘It might average out to be down but there is quite a lot of activity in the angel and wholesale investor activity space in relation to tech.’’
Activity among venture capital and private equity funds was strong, Mr Mason said, and there was a lot of interest in soft technology products.
‘‘The world has changed in terms of its perception of what you can do online,’’ he said. ‘‘There’s a bit of a race towards that, particularly in sectors like health and fintech.’’
Mainland Angel Investors had a pitch night last week where six companies put forward their ideas in Dunedin and Queenstown hoping to get some backing.
Dunedin wine data company Winely pitched and they secured some funding and Mr Mason said there were a few others where conversations were advancing.
Winely has just secured a $2 million raise and that was a mix of angel investing and venture capital investing, Mr Mason said.
Angel investing was increasing Mr Mason believed, because there were a lot of people with cash looking for a good rate of return.
While angel investing should only be a small proportion of overall portfolios, he said, because interest rates were so low people were putting more of their money into areas they would get higher returns than in the bank.
He said that was clear in the other areas where people were chasing yields, such as in the sharemarket and properties.
‘‘Ultimately you’re paying the bank to hold on to your cash so your perspectives change.’’
The increase in investors was good for a lot of early stage companies looking for money at the moment, Mr Mason said.
PwC partner Anand Reddy agreed with Mr Mason adding that people took a longterm view of angel investment and the downturn in some sectors of the economy had made others much more attractive to investors.
‘‘I think Covid has also highlighted that particular technologies, such as software, biotech, health technology . . . that many
investment of these sectors are actually quite resilient to what we’re seeing as response to Covid, such as borders being closed, restricted travel, lockdowns.’’
He said softwareasaservice companies, which sell products on subscription, have also been popular because their services can be sold remotely.
The report also found more than threequarters of investors and startups chose to move away from ordinary share deals in favour of convertible notes to raise capital, whereby firms issue debt which could later be converted into shares at an agreed time.
Mr Reddy said US investors were partly responsible for bringing the practice to New Zealand, as it was an easy way to get money quickly for startups.
However, he said they were not without their risks.
‘‘If they’re not well understood, sometimes the interest that a convertible note can carry can convert into an amount of equity that the founders may not fully be expecting or budgeting for.
‘‘What that means in a practical sense is that the equity shareholders and particularly the founders can be diluted quite heavily through the conversion.’’
He said firms that issue convertible notes needed to be looking at the coupon rates that are being provided and the timeframe placed on them before they converted to shares. — Additional reporting RNZ