Bay of Plenty Business News April/May 2018

6 BAY OF PLENTY BUSINESS NEWS April/May 2018
Angels thriving, but still
a gap in the VC space
Startups in New Zealand recorded an unprecedented level
of funding last year, with $86 million flowing into early-stage
businesses, according to the latest Young Company Finance
Index, published by PwC New Zealand, the Angel Association
of New Zealand (AANZ) and the New Zealand Venture
Investment Fund (NZVIF).
Of the $86 million invested
into young companies
in 2017, more than
half ($49 million) came from
angel investment networks,
rather than individual funds or
institutional investment.
But a key problem remains
at the next stage. The venture
capital sector remains thin
in New Zealand, meaning it
can be difficult for startups to
make the transition required to
grow into successful national
and international businesses,
says Bill Murphy, executive
director of the Bay’s Enterprise
Angels, the country’s biggest
angel funding group.
PwC New Zealand partner
Anand Reddy said early-stage
investments were almost
three times the level of five
years ago.
“We’ve seen success stories
like exits from TradeMe that
created a whole new generation
of angel investors.”
Driving the growth in
investment dollars is an
increasing number of larger
deals in 2017, compared with
the previous year. While the
number of deals in 2017 held
steady at 111 – one lower than
in the previous 12 months –
the total amount invested has
risen by $18 million, a 26
percent increase.
AANZ chairman John
O’Hara said that reflected a
maturing ecosystem.
“A number of the ventures
angels have backed are now
looking for larger capital injections
to fuel their growth. With
a thin VC industry, it’s not
surprising we are seeing larger
deal sizes in our part of the
market.”
NZVIF chief executive
Richard Dellabarca said one
of the reasons for the surge
was that investors were seeing
higher quality deal flow
from aspirational entrepreneurs
seeking to address global
opportunities, not just New
Zealand-focused or lifestyle
COVER STORY
SOFTWARE THE TOP SECTOR
More than half the investment made in early stage companies last
year was in the software and services space (53.8 percent), followed
by technology hardware and equipment (17 percent).
– Young Company Finance Index
businesses.
“With the mandate
changes to NZVIF’s Seed
Co-Investment Fund last year,
we are seeing this quality deal
flow from both angel groups
and also individual angel
investors,” says Dellabarca.
“The next challenge is to
address the paucity of domestic
venture capital.
“As we see an increase in
the volume of quality companies
in the pipeline, the ownership
of our promising high
growth companies is shifting
offshore in the absence of a
local institutional investor
market.”
Enterprise Angels’ Murphy
said the early stage sector was
definitely getting stronger.
“We are getting better at
being able to assist companies
to get that post-angel funding,”
he said.
“Unfortunately in New
Zealand there’s a huge gap - a
valley of death so to speak.
“You can see it at the
microcosm level here in the
Bay, where we have WNT
Ventures at the pre-revenue
stage, Enterprise Angels,
and then Oriens Capital
offering expansion and buyout
capital. But there’s really
nothing much in between
Enterprise Angels and Oriens.”
– BY DAVID PORTER
Capitalising on innovation
From page 3
both expansion capital, and
management buyout funding
for business ownership succession.
The fund recently
partnered with Pioneer Capital
in its first deal, buying out
the founder’s stake in Hawkes
Bay-based Rockit Global.
The deal also resulted in
a significant increase in the
value of the Enterprise Angels
members’ early stage stake in
Rockit.
“Private equity engagement
involves robust regular communication
within the board and the
executive team,” said Beale.
“PE investors want to let
management get on with their
jobs, but they are absolutely
James Beale, Oriens.Capital
Photo/James & Wells
prepared to assist the business
where they can.”
The key questions for a
business owner to think about
when evaluating a funding
source are, were these people
they could work with,
said Beale.
“Is there genuine alignment
between the fund and
the people and staff and business
culture? You have to like
these people because you are
going on a journey together.
And what do these guys bring
outside of capital?”
That could include industry
knowledge, connections
and relationships, geographic
expansion and distribution
expertise, and transactional
expertise for a later M&A,
trade sale or IPO.
From Oriens Capital’s perspective,
there had to be an
investment thematic, as was
the case with Rockit, which
markets its fruit as a packaged
convenience snack and played
into the global “grab it and go”
theme in food retailing.
“And we need to understand
the big goal, the vision,”
said Beale.
“We need to understand
what key attributes provide
the source of sustainable competitive
advantage and how do
we protect, then enhance these
and perhaps take them to a
global stage.
“And what does that look
like from a business perspective
and from a value perspective.”
Private equity can help
maximise future value and
accelerate business with ownership
transition and transform
the business, said Beale.
“Both parties need to be
aligned in their goals and
objectives.”
Another funding option not
to be overlooked is traditional
access to bank debt.
Andrew Pryde, head of
corporate finance & insights
at ANZ Bank, said the New
Zealand economy was continuing
to perform well.
“Banks in New Zealand are
all seeking to grow their market
shares across the mid-market
business sector.
“These market dynamics
make for a very competitive
landscape for banks and nonbanks,
all of which is good for
NZ businesses seeking growth
capital.”
Pryde said a bank’s primary
role was to provide capital to
well-established and/or growing
businesses.
“Bank loans are structured
to suit the underlying purpose
of the growth capital. That
includes, but isn’t limited to
long-term capital to support
business acquisitions or succession,
and short-term capital
for fund asset acquisitions and
short-term working capital.”
At a minimum banks will
require a security interest over
business assets and at a maximum
they may require mortgage
security where there is
a property, and / or personal
guarantees.
The advantages of bank
debt funding were that it was
comparatively cheap because
it was subject to full repayment,
that it allowed businesses
to plan their growth, and
that the interest cost could be
deductable, said Pryde.
“And the business owner
retains full ownership of their
business.”
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