$100m angel cash will give firms wings

A surge in the number of start-up businesses gaining funding has put pressure on the venture capital market to come up with more cash to enable those businesses to keep growing.

The Angel Association, a network of investors which supports and invests in mainly start-up companies, says $100 million in new capital is needed every year for the next three years to enable those businesses to expand.

But that is five times the average amount of money raised by the industry for the last three years.

Association chairman Andy Hamilton said there had been steady growth in the angel investment market in the past three years.

In 2006 $19 million was officially invested into the angel market. That grew to $24 million in 2007 and last year was on track to be even higher until the collapse of the credit markets but $22 million was still raised.

Hamilton said there had been a drop-off in the numbers of deals done in the second half of the year and those deals that were done were mainly investments into existing companies to ensure those businesses were able to survive. But since the start of 2009 the market had taken off again.

The Government's seed investment fund, which invests alongside private investors, is expecting to have completed the same number of deals in the first half of this year as for the whole of 2008. But Hamilton said one of the key issues for the industry was follow-on funding for companies already in the pipeline.

That money would normally come from venture capital fund managers, larger institutional fund managers and overseas investors.

The Government's Venture Investment Fund works with six venture capital firms but only one is currently looking to invest.

New Zealand Venture Investment fund chief executive Franceska Banga said while there were not many venture capital funds looking to invest a pipeline of new funds was expected to come through in the next 12 to 24 months.

COUNTING HALOS

Investment in the New Zealand angel market:

* 2006: $19m
* 2007: $24m
* 2008: $22.4m