This guide is our take on NZ’s tech investor landscape. If you know of some investors we’ve overlooked, please get in touch. The more investors we can find that are interested in NZ tech companies, the better!
|who||Often referred to as friends, family and fools.|
|when||Usually seed to early stage investors. Can also, unfortunately, end up being the investors of last resort.|
|pros||Informal investment process. Willing to back an individual with a business plan, before any commercial traction has been achieved. Unlikely to require onerous investment terms.|
|cons||Often not smart money as they may not be able to contribute to the business strategy and operations. Lack of arms-length negotiation can result in unrealistic valuations, hampering future fund raising efforts. Christmas can be uncomfortable if the venture struggles. It can be hard to fit friends and extended family members within the Financial Markets Conduct Act 2013 private offer exclusions.|
|who||Includes Sparkbox, First Cut Ventures, Pacific Channel, Global from Day One (GD1) Fund 1, Powerhouse Ventures.|
|when||Usually seed and early stage. Pacific Channel and Sparkbox have a bias towards companies commercialising science (i.e. companies with patentable IP). First Cut Ventures is a student run fund (affiliated with Ice Angels) focussed on backing young entrepreneurs. GD1 mainly invests in SaaS and software companies.|
|pros||Active investors, usually willing to work alongside entrepreneurs in the early stages. Used to operating on a limited budget and will bring their own network of professionals who can assist the company on a cost-effective basis.|
|cons||Usually have limited capital to deploy, so the company will need to raise further rounds from investors with deeper pockets. There can be an element of sweat equity remuneration for some investors in this space, which does not suit all companies/entrepreneurs.|
|who||Tend to be semi-retired business people, senior execs and professionals. Kiwi expats wanting to re-connect with the NZ business scene. International business people and professionals in the process of immigrating to NZ.|
|when||Usually seed and early stage investors, as many wish to get actively involved with companies and projects that will benefit from their experience.|
|pros||Informal investment process. Less likely to require onerous investment terms than professional seed investors or formal angel investors. Can add their professional credibility to the company’s brand. Can bring business and/or domain experience.|
|cons||Can be hard to tap into this category of investor, as unlike the formal angel networks, there are no public contact points. Often have limited experience in the early stage and/or tech space, and experience in large corporates etc. does not always translate. Networks may be of limited use to an early stage company.|
|who||Ice Angels (Auckland), Flying Kiwi Angels (Auckland), ARC Angels (Auckland), Enterprise Angels (Tauranga), Manawatu Investment Group (Palmerston North), Angel HQ (Wellington), Otago Angels (Dunedin), Venture Accelerator (Nelson), Canterbury Angels (Christchurch) and Taranaki Investment Group (New Plymouth).|
|when||Usually seed and early stage investors.|
|pros||They continue to be very active in the early stage investment space. Easy to connect with and commonly work together on deals across several clubs. Ability to match companies with investors with domain or other relevant experience. Usually realistic about the risks and challenges inherent in early stage investing.
They also have the ability to draw on matching co-investment from the NZVIF SCIF fund, which helps the angels to build larger rounds (although there is some uncertainty about the future of NZVIF SCIF). Ice Angels and Enterprise Angels can draw on their associated funds for further co-investment (or those funds might lead with co-investment from angels).
|cons||Angel clubs mostly invest using NZVIF’s standard investment documentation to secure co-investment from NZVIF. Those terms are relatively onerous for seed investment deals, with little scope for negotiation. This can make angel clubs a less attractive source of capital than informal angel investors.
The number of investors that participate in angel club deals can become unwieldy, with individual investors contributing as little as $10k. Investors writing smaller cheques can be less experienced and more sensitive to the speed bumps that early stage companies usually have to navigate.
Due diligence and investment completion processes can become onerous and disjointed due to the number of cooks in the kitchen.
|who||Includes K1W1 (Stephen Tindall), Evander Management (the Holdsworth family), Lewis Holdings (Sir David Levene), Jasmine Investments (Sam Morgan), Hoku Group (Emily & Rowan Simpson), Danny Chan.|
|when||Some HNW investors lean towards expansion stage investments, as the time commitment involved in seed and early stage investment can be unattractive.|
|pros||Larger cheque books than angel investors mean a smaller number of shareholders. Can add substantial value to the company’s brand, particularly in follow-on fund raising. Can add substantial domain expertise and connections.|
|cons||NZ HNW’s generally don’t have the same level of management resources to draw upon as VC and private equity investors. HNW’s are often time poor, so their input may reduce as other projects catch their interest.
A HNW brand on the share register is only helpful in follow-on fund raising if he or she is participating in the round. If they choose not to participate, this will discourage other potential investors. If your relationship has broken down with a HNW investor, this may make it impossible to raise more capital unless you can manage to buy them out.
|who||Technology-focussed incubators (TFI’s) were started by Callaghan Innovation in 2014. The goal of TFI’s is to create businesses around complex IP from universities and other public research organisations. Powerhouse Ventures, Astrolab and WNT Ventures are the initial batch of TFI’s.|
|when||The scheme is intended to put the incubator in the role of founder entrepreneur, taking the risk and reward that goes with picking new technologies to commercialise. The intention is that TFI’s will form companies to commercialise publicly funded intellectual property, building a management team around the IP rather than building around a group of founders.
Callaghan Innovation provides each company a repayable grant of up to $450k over two years, matched by $150k from the incubator.
|pros||The repayable grant reduces the amount of equity that companies need to give up to investors at the seed stage (when valuations are at their lowest).|
|cons||Although the Callaghan grant is on favourable terms, the investment terms offered by the TFI’s are tougher. This is probably a reflection of the cost of incubating/supporting very early stage companies – the TFI’s need to recover these costs from their investment portfolio one way or another.|
|who||Snowball Effect, PledgeMe, Equitise, CrowdSphere, AlphaCrowd.|
|when||Unlike in the US or (more recently) Australia, there are no per-investor limits on NZ equity crowdfunding campaigns, just a global limit of $2m per company per 12 months. So, crowdfunding is likely to appeal to companies from seed-stage through to small established companies.|
|pros||Equity crowdfunding is the only low-cost way for a company to raise funds from the general public in NZ. It allows a company to market the offer directly to its customers, users and business networks and to the general public with limited formal disclosure requirements.
Equity crowdfunding can be used to top-up existing sources like angel groups and professional seed investors, and will enable the company to generate publicity during and after the funding process through its shareholders.
NZ Crowd funding platforms are coming up with innovative ways to extend their offerings to tech companies raising capital. These include developing wholesale investor networks to enable the platforms to raise more than the $2m limit, managing out standalone offers to wholesale investors and using crowd funding to provide additional spread to support small cap IPO’s.
|cons||An unsuccessful crowdfunding campaign is a public affair.
Companies with a lot of unsophisticated shareholders are harder to run, and having large shareholder numbers is likely to be a turn off for professional investors. Plus having more than 50 voting shareholders = Takeovers Code Company, which is likely to make future capital raisings more difficult.
The Takeovers Panel has provided a limited exemption from the Takeovers Code for transactions involving the increase of holding or control of voting rights in small companies. However, it is not a complete exemption from the Takeovers Code itself and it is still advisable for companies using crowdfunding platforms to offer non-voting shares or use a nominee company investment structure if they wish to avoid the problems caused by the Takeovers Code.
|who||Movac Fund 4, GD1 Fund 2, Punakaiki Fund, Tuhua Fund, Zino Ventures, GRC SinoGreen Fund III.|
|when||Movac’s Fund 4 is targeting tech companies with demonstrable revenue traction. Punakaiki Fund invests in early-stage companies that have some revenue traction. GD1 Fund 2 invests in early-stage software, internet and lean hardware startups at a pre-Series A and Series A stage, typically with revenues of $1-2 million. GRC SinoGreen Fund III invests in primarily science based/deep IP companies focussed on the Taiwanese and Chinese markets, from seed stage through early expansion capital.
Movac and Punakaiki are focussed on New Zealand investments. GD1 invests in New Zealand and Southeast Asia. GRC invests in New Zealand, Taiwan and China.
Tuhua Fund has raised $11m in partnership with Ice Angels and the Ice House, and invests in seed and angel stage deals. Zino Ventures also operates in partnership with Ice Angels and the Ice House to invest in early stage startups looking to enter the China market.
|pros||All of these investors have (by New Zealand standard) significant funds to invest. They all have substantial investment and tech sector experience.
Movac has the largest fund and the largest team amongst NZ VC’s.
GRC has its main offices in Taiwan and China and deep experience in these markets, which would be valuable for tech companies that want to enter Taiwan or China.
Punakaiki Fund offers founder friendly investment terms, and is quick to make investment decisions.
|cons||None of the large VC funds are investing in blue skies, pre-revenue startups. Tuhua and Zino are investing in early stage companies, but the deal size is more akin to an angel investment.
All of these funds are relatively small by international standards, so companies looking to compete internationally against tech companies backed by international VC’s need to develop sources of funding above and beyond these NZ VC’s.
In our experience, Movac’s investment terms are relatively onerous in comparison to Punakaiki, GD1 Fund 2 and NZ private equity investors (who will compete with Movac for deal flow at the lower end of their target market).
|who||NZ corporates investing in NZ tech companies include Spark Ventures, BNZ, Heartland Bank, Trade Me, Fonterra Ventures and Gallaghers. Kiwibank’s involvement in the Kiwibank Fintech Accelerator suggests that they are open to investing in innovative NZ fintech companies.|
|when||Spark Ventures has to date invested in early stage ventures with a strong NZ market focus. The focus of other corporates will obviously vary, but relevance to their customer base will virtually always be important.|
|pros||Deep pockets. May bring strong domain expertise and offer strong sales/distribution channels. Spark Ventures has a relatively founder friendly investment stance.|
|cons||The objectives of corporate investors are not always aligned with those of tech company founders. Corporates often invest to obtain early and ideally preferential access to new technologies, markets or channels, and it will often not be in the interests of a corporate investor to see those opportunities offered to its competitors. On the other hand, an early-stage company is likely to want to market its technologies to as many customers of possible, irrespective of the competitive sensitivities of its corporate investor.
This misalignment can be particularly apparent when founders want to exit the company. The founders and other shareholders are likely to want to sell to the highest bidder, whereas if the technology has become strategic to the corporate investor, it is not in the interests of that investor to allow the sale price to be pushed up in that manner.
Big corporates often struggle to work well with small companies. Corporates tend to have a lot of reporting and compliance requirements which can overwhelm small companies. Corporate decision-making also tends to be bureaucratic and political, which can feel like slow death for a tech company operating in a fast-paced market.
|who||Pioneer Capital, Rangatira, Pencarrow Private Equity, Invest South, Milford Asset Management, Todd Capital, Christopher & Banks Private Equity (private equity vehicle of the Huljich family), New Zealand Superannuation Fund, Accident Compensation Fund.|
|when||Expansion stage and pre-IPO investors.
NZSF and ACC are major investors in other NZ private equity funds and as a consequence don’t make many direct investments outside pre-IPO placements.
However, NZSF’s substantial investment in LanzaTech in 2014 and purchase of a cornerstone shareholding in Datacom in 2013 indicate they will occasionally invest in businesses with significant scale or potential.
|pros||All have significant funds to invest. Pioneer has lots of experience investing in the NZ tech sector, and has taken several companies through to a successful listing. Rangatira, Christopher & Banks and Todd are able to take medium to long term positions in companies, and support a steady growth strategy. All are able to offer corporate level governance, finance and similar types of support to companies.
Having a major fund manager on the register is likely to help with a subsequent IPO, as it makes the company more attractive to other fund managers (particularly investment from NZSF and/or ACC who tend to lead the fund manager pack).
|cons||Usually only invest in well established companies, although most have made exceptions for companies with significant growth potential.|
|who||We noticed an increase in the number of offshore VC’s interested in NZ tech companies. VC’s that have invested in NZ companies, or that are actively looking in this market, include Horizons Ventures (Hong Kong), Sequoia Capital India (via Singapore office), Jubilee Capital (Singapore), Airtree Ventures (Australia), Blackbird Ventures (Australia), Bailador (Australia), Reinventure (Australia), and the Rocket Lab investors (Bessemer Venture Partners, Khosla Ventures and Data Collective).|
|when||Not surprisingly, overseas VC’s are interested in companies that address substantial markets – generally meaning markets in the US, Asia and/or Europe. Some VC’s are willing to make substantial Series-A investments in startups (e.g. Horizon’s investment in Soul Machines), but companies that can demonstrate revenue traction on the open market (i.e. not just to beta customers) are likely to find capital raising easier.|
|pros||Write larger cheques than NZ investors. Usually have better networks than NZ investors – including in some cases, to the biggest companies, investors and founders in Silicon Valley. Generally, grant much better access to later-stage investors for subsequent larger investment rounds.|
|cons||International VC’s are usually pretty hard-nosed, and many are quick to change management of an investee company if things aren’t going to plan (i.e. founders are often less secure in their roles than in NZ). May be a requirement of investment to flip the country to another jurisdiction, and for the founders to move with their company.|