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Angel investors

The predominant form of early stage investment funding comes from angel investors.

Angels are typically more early stage investors than venture capitalists, with the biggest difference being that angels are spending their own money.

Angels are normally successful people in their own right. They like doing business and are often looking for something interesting to be involved with.

The New Zealand angel scene seems to be splitting into two tiers – formal angel groups and individuals. Angel groups provide deal syndication, where the risk is shared between angels. They have more formal processes and they are continuing to mature, so they have administration support and over the past year have started to fund deals.

These groups can be quite social, and the members enjoy the contact with each other. It is important to determine whether the angel group has actually done any deals. It might be that the process of looking at companies is satisfying their need for an interest. The total numbers of deals funded by formal angel groups is still very small, perhaps in the tens. Stephen Tindall, who has funded scores of companies, is an exception.

In my experience as an angel investor and watching companies that have been angel funded, I believe angel investing is hard. The companies often take much more time than the angel initially planned for and need more cash than forecast to get to further funding or liquidity. The vast majority of angel deals do not proceed well.

Angels often only do one deal before being scared off. The ones that have done it a few times are battle-scarred and experienced.

The other side of this coin is that most angel investors are first-time business investors. Therefore, the person you approach for funding may not even know they are an angel investor yet – anyone moderately wealthy could potentially be your angel.

So where do you find these people? Well, you need to look for where the wealthy people are. They may be at boating clubs, golf clubs, or they are parents of kids in your children’s sports teams. Potential angels are everywhere.

As well as cash, the best angel investors will bring with them experience relevant to your business, and access to networks. This might help narrow your focus on wealthy individuals from your industry. Angel investing is often more emotional than analytical so building a relationship where the angel wants to give you the resources and support to succeed will give you a good chance of success.

1 comment

karl dudley
7 September 2011 #

Rod, an informative post and enjoyed your comments on the “I have an idea” guide.
We have a new Taranaki Technology group running in New Plymouth – a monthly information and network meeting first tuesday in the month. So far we have covered mobile apps and cloud, BCP, R&D and IP, project Methodologies and dialed into the NZSA summit. Topic for October is raising funds for your technology company and would enjoy your thoughts on anyone you know in the angel / VC market who might be prepared to talk to us. Great bunch of people and promoted via the local chamber and venture taranaki so usually a good turn out. We would be happy to host you if you ever make it down this way. Thanks Karl Dudley @dudleybevins

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