Angel investor's mission to share his knowledge

Bill Payne will be in New Zealand for six months. Photo / Steven McNicholl

In baseball parlance, angel investing is about being able to handle a cruddy batting average, according to a leading American angel investor.

"The concept that you're going to lose 80 per cent of the time, that you're going to either lose all your money, or most of your money or make a little bit of money for the efforts you put into this venture is not acceptable to all people," said Bill Payne.

Payne is in New Zealand for nearly six months, basing himself at the University of Auckland incubator The Icehouse as its entrepreneur in residence.

During that time, Payne will be passing on his knowledge to angel investors and entrepreneurs at seminars and workshops around New Zealand.

Payne admits coping with the fallout from such a risky investment category can be hard for those new to angel investing, although he is inclined to be less emotionally attached.

"That company went under? I thought it was better than that. Too bad, move on to the next one," he said.

The version of his long career given by Payne has the Midwest-raised engineer working in California before moving to Las Vegas and splitting his time between there and a small town in Montana, where he keeps himself busy playing golf and fishing.

In reality, he has been involved in building up businesses for almost 40 years and as an angel investor has put money into about 50 companies.

His first venture in 1971 was a business that made ceramic multilayer capacitors, a component used in electronics.

After selling the company to DuPont in the early 1980s, Payne realised he enjoyed being involved in start-up businesses and the "thrill of the hunt" in finding a buyer for those businesses, so has been angel investing ever since.

"The part in the middle, the operating part, I was okay at it but I don't think I enjoyed it as much as the beginning and the end," said Payne.

The trick was to have investments staggered so that each was at a different phase of development, he said.

His first investment as an angel was shoulder tapping a friend who he thought had the skills to get a company off the ground but not the cash.

It was not the traditional approach to angel investing, he admitted, but having the right people is an important element in successful investing.

One of the mistakes he has made in angel investing has been to overestimate the skills and experience of the entrepreneur.

"When we deal with entrepreneurs at the start-up stage, we're dealing with them in the role as a visionary. Now we're actually asking them to execute on a plan, keep their nose to the grindstone, don't screw up too often and ask for lots of help. That execution is by far and away the biggest reason that companies fail," said Payne.

Back when he began in the early 1980s, access to deals was awful, Payne said.

"You just couldn't find interesting deals, so you tended to work through a close network of friends to get to these deals."

The rise of angel investors organising themselves into groups in the 1990s has meant an improvement in deal flow, due diligence, negotiating term sheets and mentoring companies.

About six or seven years ago Payne decided he was no longer going to work with entrepreneurs as a solo angel, choosing, instead, to invest through angel groups.

Payne said the high-risk world of investing in start-ups was not for everyone. He said investors might need to sink their money into 10 or 12 businesses in order to make any money.

Angel investing was also hands on. Fronting up to help get a company on its feet was not going to appeal to those who inherited their wealth.

"People tend to self-select after they see what is involved, who else is in the group and the people who tend to stick around are the exited entrepreneurs and the retired business people," he said.

While New Zealand angel investors and start-ups may benefit from Payne's advice, he is unlikely to invest cash in a local company.

As a rule, Payne invests only in businesses close to where he lives so he can keep an eye on their activities.