Business mentor: Angels to the rescue with a cash injection

Q: As a new company, where can we look for money to grow? We've gone through the "friends and family" option - what else is there?

* Small business sector specialist Sarah Trotman asked chief executive of the Icehouse business incubator Andrew Hamilton to explain:

A: It's a question that tests companies at any level of growth, from good idea at start-up time through to mature companies looking for capital to expand or rejuvenate products.

There are the conventional sources (bank, finance company, merger or international partnership and even sales) or a number of Government initiatives that might suit your company, depending on its growth cycle and what specific problems the cash injection will address.

The growing venture-capital industry is a useful fishing ground for businesses looking for capital, but generally "new" companies are less attractive than those which already have some sales to provide a predictor to growth.

So, for young companies, a logical option to explore is angel investors. Business "angels" are generally high net worth entrepreneurially-minded individuals who have a genuine desire to help young businesses grow.

You can expect somewhat more than just money from an angel investment. Many angels have walked the dangerous early-stage entrepreneurial path and are keen to impart their wisdom to others. Apart from making an investment, angels often fill advisory or management roles.

It's a relatively new exercise for New Zealand and small, but powerful, pockets of angel investment have arisen during the past three years clustered around key centres of innovation and incubation (Auckland, Wellington, Hamilton, Dunedin and Christchurch), leading to the successful formation of a series of regional and over-arching angel networks.

At this stage, the key players in the angel network are WIN Angels (Wellington Incubator Network), the South Island-based CIN (Canterbury Investor Network), BIZ Angels (Manukau) and ICE Angels, comprising business accelerator The Icehouse and other incubators eCentre and the AUT Tech Park in Auckland.

The Angel Network is based on a trend in the US to formalise angel investing around networks to manage risk and the complexities of the scale of the deals. It's not a venture capital fund, but the networks are partnering with local venture capital funds and a handful of high net worth individuals on an ad hoc basis. Surprisingly, angels don't place high importance on a young company's product; it's probably only 10 per cent of the picture.

The available market will be a more important consideration.

What is of even greater importance is the young company's management.

Potential angel investors will want to know if there is a good team and whether the CEO is coachable.

At the end of the day, people invest in people.

Key turn-offs for angels?

According to Ice Angels chief executive Cory Williams these are generally people issues, including:

* Reluctance to take informed advice.
* Slowness in responding to requests for information.
* Inadequate market research (often for fear of finding bad news).
* For more information on angel investment email info@theicehouse.co.nz or telephone 09 308-6200

www.iceangels.co.nz

www.bizangels.co.nz