6 April 2018
Startups in New Zealand recorded an unprecedented level of funding last year, with $86 million flowing into early-stage businesses across the country. That's 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).
Anand Reddy, Partner at PwC New Zealand says:
"It's exciting to see such a large number of deals coming through to support early-stage companies. We're seeing investment levels that are almost three times what we saw just five years ago."
"We've seen success stories like exits from TradeMe that created a whole new generation of angel investors. Now, with other high-profile exits like Power by Proxi, we're going to see an even stronger network of skills and financing for early-stage companies."
Driving the growth in investment dollars is an increasing number of larger deals in 2017, compared to the year before. While the number of deals in 2017 held steady at 111 – one lower than the 12 months previous – the total amount invested has risen by $18 million, a 26% increase.
Offering some insight on the larger amounts invested in a similar number of deals, John O'Hara, AANZ Chair, says it reflects a maturing ecosystem.
"A number of the ventures angels have backed are now looking for larger capital injections to fuel their growth," says John. "With a thin VC industry, it's not surprising we are seeing larger deal sizes in our part of the market."
However, John offers a word of caution to investors and founders.
"The market's a little frothy right now and we're seeing some strong valuations. Entrepreneurs have to be sure they're not setting the bar too high with their forecast results. If they fail to meet these, it’ll make it make it harder for them to get the next round of funding.
"Investors will be similarly affected. Flat and down rounds do not impact well on portfolio return prospects."
NZVIF CEO Richard Dellabarca says one of the reasons for the surge in angel investment is that investors are seeing higher quality deal flow from aspirational entrepreneurs seeking to address global opportunities, not just New Zealand-focused or lifestyle businesses.
"With the mandate changes to NZVIF's Seed Co-Investment Fund last year, we are seeing this quality deal flowing from both angel groups and also individual angel investors," says Richard.
"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."
John notes that membership of angel networks continues to grow with a new network in Marlborough last year and a budding network in the Hawkes Bay.
Established networks like Ice Angels in Auckland, AngelHQ in Wellington and Enterprise Angels in Tauranga are also experiencing growing memberships.
"We've gone from having 200 angel investors in four networks a decade ago to more than 650 now, split across 12 networks," says John. "This breadth is really helping us strengthen the ecosystem right across the country."
More than half the investment made in early stage companies last year was in the software and services space (53.8%), followed by 17% in technology hardware and equipment.
"Technology is increasingly the engine of growth for all companies, regardless of size" explains Anand.
"It's no surprise that it's these areas where the most activity is happening and where angel and early-stage investors are putting their energy."
Of the $86 million invested into young companies in 2017, over half ($49 million) came from angel investment networks, rather than individual funds or institutional investment.
"The strength of our angel investment networks in New Zealand is growing every day, which helps to explain why they’re responsible for a growing share of overall funding" says John.
"They're responsible for more than double the funding that's coming through the next most-popular channel of angel funds."
About the Young Company Finance Index
The Young Company Finance Index is a database of deal activity in early-stage companies in New Zealand. The Index draws on angel investment networks and individuals, and is gathered by NZVIF and the Angel Association of New Zealand, and published in partnership with PwC.
Highlights from the Young Company Finance Index are also published in Startup Investment New Zealand, the magazine for angel investors.