"Money, it's a gas" - Pink Floyd
If your business requires investment to get off the ground, one of your first jobs as an entrepreneur is to learn how to raise it. Aside from whatever personal capital you or your co-founders may have to invest, there are two broad options for funding a business.
One option is debt funding, for example asking for a loan from a bank or finance company, which you promise to pay back with interest in a certain amount of time. Due to the high failure rate of new businesses, most banks and similar financial institutions will require payment of the loan to be guaranteed by the business owner, regardless of whether the business succeeds or fails. Many such loans therefore will need to be secured against the entrepreneurs house or business assets. For this reason debt funding is most commonly used by established businesses with proven cashflow, who may be need finance to grow, acquire new assets, or refinance other obligations.
The other option is known as equity funding, whereby investors provide money in return for a share of your company (and therefore a share in any future profits, losses or capital gains you make). With equity funding, investors choose to share in the entrepreneurs risk as part owners of the business, and there is no legal obligation for the entrepreneur to pay back the investors if the company fails.
Equity funding comes in many forms but will generally be determined by the stage of the business venture and the amount of money being sought. Seed funding and angel funding are terms used to describe funding for very early stage startups. Amounts raised will generally be under $NZ1M. Venture capital, private equity and public market funding (for example, listing on the stock exchange) typically provides more developed ventures with access to larger amounts of capital for growth. In recent years, several crowd funding platforms that specialise in equity funding for startups (known as “crowd equity funding”) have emerged New Zealand.
While raising investment capital may never be easy (securing angel or venture capital typically takes anywhere from 3 months to over a year) New Zealand entrepreneurs have more opportunities to access capital than ever, with active and growing angel, venture capital and crowd funding markets.
Crowd funding enables entrepreneurs and innovators to raise money from members of the public through online funding platforms, and is becoming an increasingly popular source of early stage funding. Crowd funding platforms that provide entrepreneurs access to equity funding, are known as “crowd equity funding” but there are also platforms that specialise in debt funding and reward based funding (made popular by the likes of KickStarter).
Angel investors are individuals or groups who help entrepreneurs fund the early stages of a new business by using their own hard earned private capital. Many angel investors are or have been successful entrepreneurs themselves, and they are the main source of equity capital for startup businesses around the world. Some angels may like to have an involvement in the the business beyond just the money they invest, offering entrepreneurs their time, business building expertise and connections if they feel they would be useful.
While informal angel investment has happened here in New Zealand for decades, there has been a steady increase in the number of formal angel syndicates (such as those listed below) throughout New Zealand since the mid-2000’s.
Angel investors understand that investing money in startups is highly risky, as most startups will not succeed. Therefore angel investors will generally want to see that your business has the potential to earn them at least 10 times their investment, within the next 5 years. Angels will generally invest $NZ 50,000 – $NZ 500,000 per deal although some recent angel investment rounds have hit $NZ 1,000,000+.
Most angel investment groups are members of the Angel Association of New Zealand, which aims to support and grow the angel investment community, establish best practise, and educate investors and entrepreneurs alike on the “in’s-and-out’s” of angel investment.
Angel Association NZ Nationwide
Arc Angels Auckland
Cure Kids Ventures Auckland
First Cut Ventures Auckland
Flying Kiwi Angels Auckland
ICE Angels Auckland
Knox Investment Partners Auckland
New Zealand Venture Investment Fund Auckland
Pacific Channel Auckland
Zino Ventures Auckland
Enterprise Angels Tauranga
Launch Taranaki Taranaki
HB Angels Hawkes Bay
MIG Angels Palmerston North
Angel HQ Wellington
Nelson Angels Nelson
AIM Angel Investors Marlborough Marlborough
Canterbury Angels Christchurch
Powerhouse Ventures Christchurch
Otago Angels Otago
Venture capitalists typically invest larger amounts of money than angel investors. In New Zealand this might start at around the $5M mark at the lower end of the scale. While they may invest in companies at the seed or early development stages, they are generally only interested in opportunities who can demonstrate significant and rapid international growth potential, with a clear exit pathway to crystalise investment profits.
Unlike angel investors who typically invest their own personal funds, venture capital funds often invest money on behalf of institutional investment organisations, for example, pension funds or other commercially or publicly traded investment funds.
Their primary job is to make money for the people and organisations who have invested in them, and therefore venture capital will often be accompanied by more stringent requirements than angel investment. For example, they will often require representation on your board of directors or the ability to appoint (or remove) key members of your team.
Artemis Capital Auckland
Business Bakery Auckland
Direct Capital Auckland
Global from Day One Fund Auckland
Hunter Powell Investment Auckland
Maui Capital Auckland
New Ground Capital Auckland
NZ Super Fund Auckland
Pioneer Capital Auckland
Spark Box Auckland
Tuhua Ventures Auckland
Waterman Capital Auckland
Tainui Group Holdings Hamilton
Oriens Capital Tauranga
Quayside Holdings Tauranga
Taranaki Investment Management New Plymouth
Endeavour Capital Wellington
Green Investment Fund Wellington
Pencarrow Private Equity Wellington
Te Runanga O Ngai Tahu Christchurch
Punakaiki Fund West Coast
Invest South Invercargill