Angel investment in New Zealand
When looking to fund your developing business, angel investment is one of the easier methods to do so.
Generally business angels are business people and sometimes passive investors who finance small companies, hoping that they develop into a larger scale and more profitable operation.
As an equity investment your business receives cash from the angel investor, and in return you generally give that investor an equity stake in your business. There are other methods to raise capital via an equity investment, but below is an overview specific to angel investors.
First of all, what is angel investing?
Business angels are investors with funds available that they're looking to deploy into small businesses. It's more often than not that these angels are investors themselves, either currently active or retired, and occasionally there are investor groups that pool their funds to finance larger scale enterprises.
Generally the process starts with a pitch from the founder to the angel investor, who then assesses the likelihood of success. If it appears to be a good investment the parties reach acceptable terms and the angel provides a capital injection for the business, most often receiving an equity stake. In return for the investment, the angel takes a percentage of the businesses profits (depending on their equity stake). There are occasions where the angel will provide capital in the form of a loan, but this depends on your circumstances and would be advisable to discuss with an accountant and lawyer, to ensure it's best for you. Long term the angel will either look to retain their stake in the business as an investor, purchase more of the company, assist with the development with the aim of increasing profits and therefore their return, or look to sell their stake in the long run. This is something you want to discuss with any investor before you agree on your terms.
What are the advantages of an angel investment?
When you start any business the biggest restriction is generally cash flow. It's vital to growth and a shortage of such is one of the most common causes of business failures. In order to grow you're going to need capital in one form of another. You can retain the earnings as you grow organically, whilst also retaining ownership. This is a great way to keep your equity, but it does restrict your growth potential. Angel investment on the other hand takes funds available from the investor and injects them into your business so you can capitalise on any opportunities available immediately. Compared to banks, finance companies and larger investment firms, angel investors don't often have such strict criteria or the need for assets to support the funding. The size of your venture ay also restrict your ability to raise funds from financiers such as venture capitalists. Another key question to ask any potential angel investor is whether they can add value to your business beyond the funding. If they have expertise in your field, the access to administration resources, contacts and an ability to add to the legitimacy of your business, there's value for you beyond just the money.
Another interesting point, according to Harvard Business School, is businesses assisted by angel investors had higher survival rates and faster growth than those who were funding themselves. This makes sense given the broader resources available to them.
What are the disadvantages of angel investors?
You've got to remember that anyone giving you money is doing so as a commercial investment. The angel name implies it's all goodwill and charity, but no angel investor plans to lose money. As the risk being taken is usually quite large, some angels are looking for larger returns than possible. You need to set these out well in advance of going into business together. As they're a part owner of the business you also have to be ready to involve them in setting the direction of the company. Every angel is different, and different approaches work for different people, but again; this should be pre-arranged in advance of any investment.
How to approach an angel investor.
Every angel is different, but the easiest way to start the process is by giving them your 'elevator pitch.' This is a short overview of your business, aimed at gaining the attention of the investor. If it appears to be a good business idea, the angel will then follow it up and you can take the next step. From here the angel will delve deeper into the financial aspects of the company, and run through forecasts and projections. And if the investment still looks appealing you can get together and discuss terms of the investment.
Avant-Garde Capital: Angel investors in New Zealand
At Avant-Garde Capital we like to do this face to face, so will get on a plane and come to see you. There's never any obligation, but we've found that both parties get a better feel for any potential relationship when they can look each other in the eye.
If you've got a great business idea and want to get the ball rolling, flick through your elevator pitch right now.