Enterprise Angels (“EA”) is the largest, most active and best resourced Angel network in New Zealand. EA has a unique angel group model whereby they have professional staff with capital raising expertise. EA staff work closely with members to source deals, undertake due diligence and work with companies post investment.
EA is an Incorporated Society with three forms of membership – individual, corporate and strategic. EA currently has just under 200 individual and 23 corporate and strategic members in five chapters – Tauranga, Hamilton and Gisborne – and a Board elected by members, a Screening Committee elected by the Board and a staff of eight. For current investment statistics and membership information refer here.
Some of the most effective and efficient models worldwide for investing in early stage businesses are based upon an Angel network and a fund working closely together. This approach of combining the strengths of an Angel network (members’ breadth and depth of experience and expertise) with the strengths of a fund (coordinating and streamlining the investment decision process) is intended to attract better deals and deliver a better result for investee companies and investors. This model has worked well with EA Fund 1 and 2 and with the establishment of EA Fund 3, EA is looking to continue to provide this important funding option for entrepreneurs and investors.
Knowledge in numbers
A key advantage of investing with an angel group is their ability to draw upon the early stage capital market, industry and sector expertise of members. EA staff work with relevant member investors to assist the Investment Committee in investment decisions, manage and undertake due diligence, invest and provide ongoing support and direction to investee companies (in advisor and/or investor director positions).
In addition, the EA Fund Investment Committee and EA GP Board are comprised of members with significant expertise in capital markets (early stage, private equity, venture capital and publicly listed) and with the establishment, operation and success of investment funds.
Rigorous due diligence
Business angels are typically successful business people so they can apply their expertise to the research and analysis of a company; its team, market, opportunity, competition, and other business fundamentals. Due Diligence is typically undertaken by a team of business angels, each member looking at a specific area which utilizes their specific knowledge.
Negotiating the valuation
Investing at the appropriate valuation is crucial to generating a good return for investors, and for entrepreneurs. Valuation is critical to the entrepreneur’s ability to grow the company – it has an effect on the ability to raise later rounds of capital from other investors and the way a company, and its team, is viewed by those investors. Entrepreneurs tend to value their companies higher than angels. They dedicate a lot of time, money and heart into their business and it’s hard to put a value on that.
What really needs to be understood is the changing capitalisation table with each additional funding round. Setting milestones, growing value and knowing who potential future investors are is critical to getting the valuation piece right.
Investing with good terms
Investor protective terms are negotiated by EA staff and experienced angel investors and we aim to align them with industry norms. These may include anti-dilution rights, pre-emptive rights, voting rights and tag-along and drag-along rights. A couple of key terms are anti-dilution and pre-emptive rights.
- Anti-dilution prevents the dilution of early investors in the case where a company may sell shares to someone else for a lower price than the earlier investor paid.
- Pre-emptive rights ensure investors have the opportunity to maintain their holding in a company in future capital raises.
Supporting growth post-investment
The company’s growth path can be affected dramatically by having successful business angels as investors. Angels add their experience, domain knowledge and often have an extensive network which they can call on to help a company grow. Often angel investors invest sufficient capital to obtain the right to appoint an investor director in the company. This director should have a skill set that will benefit the board of the growing company.
Build a diversified early-stage investment portfolio
Any investor knows that one of the keys to investing success is to diversify. It’s no different with angel investing. You should build a portfolio of early-stage investments.
If you leverage the experience of all the members in an angel group, you have the opportunity to invest in a range of deals that have been reviewed by domain experts to increase the chances of success. If you did this on your own, you simply couldn’t cover such a range of deals. We discuss diversification in more depth here.
Why choose an Enterprise Angels Fund?
EA funds are ‘sidecar’ funds – funds established by an Angel network that invest alongside it.
The funds do not undertake due diligence, but rather rely upon the investment expertise and commitment of EA members in a deal. EA funds have an investment committee (many members are directly involved in assessing investment opportunities through EA’s screening committee), but their role on the EA funds investment committee is primarily to ensure the fund is aligned with its investment mandate and is building a well balanced portfolio.
Currently, Enterprise Angels manages two funds, EA Fund 1 and EA Fund 2. EA Fund 3 is accepting investments now.
- EA Fund 1 was launched in 2014 and raised $2.4m. It is now fully paid up and fully invested in 16 portfolio companies. Statistics: IRR is 12%, TVPI (Total Value to Paid In Capital) is 1.42, 2 failed companies, 2 positive exits, 5 companies have secured post-angel funding
- EA Fund 2 was launched in 2016 and raised $2.6m. It is 75% paid up and has invested in 20 portfolio companies with scope for follow-on funding of the most promising. Fund 2 is still very young however we have had two positive exits (2.4x return for SwipedOn, 1.1x return for OnesixOne).
Our funds rely on the combination of Enterprise Angels professional staff and the enormous sectoral expertise of the group’s members (approximately 200 experienced business people).
Enterprise Angels members undertake due diligence and take up directorships on investee company boards using their experience and contacts to enhance investee companies successes.
To find out more about becoming an Enterprise Angels member – read more here.