Lif ting angels of f the ground

Our startups need money. Our investors need projects. So why aren’t the two walking off into the sunset?

HANG AROUND A bunch of Kiwi entrepreneurs long enough and you’ll find them bemoaning a lack of investment capital to take their clever idea to the global stage.

Hang around a bunch of angel/early stage investors long enough and you’ll find them bemoaning a lack of New Zealand companies ready for investment.

Ok, investment deals are getting done anyway. But many don’t materialise because of a gap between the two sentiments above.

NZTE’s general manager capital Quentin Quin says the Better by Capital (BbC) programme was launched in July 2013 to help businesses under the $25 million mark access capital for growth. (The Government’s target of boosting exports from 30% to 40% of GDP by 2025 will require an estimated extra $160 billion to $200 billion of new productive capital going into our export businesses.) But more of the BbC team’s time than expected has been spent readying companies for investment, rather than sourcing capital for them.

So far 280 companies have participated in the programme. Out of these, 11 have collectively raised $92.2 million, 28 are about ready to seek some dosh, and a further 70 are reviewing their options, including improving their cashflow, restructuring their balance sheets and putting in more efficient debt structures. That leaves 171 companies – or more than 60% of participants – in the “go away and come back when you are ready” camp, or still in the early stages of assessing just what they need.

“So often entrepreneurs are capable, competent innovators but they’re not business people,” Quin says.

What needs to happen? High growth companies should have independent governance from wise grey heads, who can tell them what they don’t know and help get them investment ready. The entrepreneur needs to be able to articulate his (or her) aspiration and, more importantly, have a roadmap on how to achieve it – including innovation development, production, and people capability.

The start-up boss also needs an appetite for the risk and hard work involved in going international, given the high Kiwi dollar and economic headwinds offshore.

Quin likens all this to getting the livestock up the race, ready for the works.

Asian investors, in particular, are looking to invest in companies that take a long-term view – and are able to provide details of how scaleable the idea is and what the return on investment will be in 5-10 years.

NZ Software Association chairman and angel investor Chip Dawson would like to see more programmes for entrepreneurs to learn about becoming investor-ready – before they hive off looking for capital. It would save time on both sides, he says.

Dawson doesn’t part with his money before knowing who the company’s top three competitors are, who its ideal customer is, where it’s going and the plan to get there, and how much money is needed to get the start-up through year one.

Most of all he’s looking for a passionate entrepreneur; but one who is savvy enough to have added a management team that includes people with experience in commercialising offshore – if the boss hasn’t “been there, done that”.

Sometimes the issue isn’t so much a company not being investor ready, but finding the right investor. As many singles looking for romance know, if it don’t fit, you can’t force it – but that doesn’t mean the right one isn’t still out there. That’s what the art of match-making is all about.

Icehouse chief executive Andy Hamilton says sometimes the fit just isn’t right – as with a software-as-a-service company trying to raise funds from New Zealand investors. He says local angels are typically generalists and may misinterpret the numbers of a company going flat- out for growth rather than profitability. US investors tend to have a better handle on that, he says.

Hamilton reckons entrepreneurs should focus first on articulating their business strategy – figuring out how much money they need, for how long, from who and what the profile of their ideal investor is. “So many people don’t get that part of the process right,” he says.

There’s an argument out there that great deals will always get funded. After all, the Young Company Finance Index shows angels invested $23.1 million across 57 deals in the first half of 2014, similar to the same period in 2013. Cumulatively, $318 million has been invested into young companies by angels since the index began measuring activity in 2006, and some old hands claim those figures err on the light side.

But surely that leaves opportunity at the next level down from the great deals to ensure a lot of good ones don’t miss the boat. Fiona Rotherham is a journalist with business wire agency BusinessDesk, and has spent the past quarter century struggling to spell entrepreneur correctly.