What do business angels invest in?

Angels invest in a wide range of sectors and stages.

Portfolio diversification is a recognised principle of successful investing. It follows the same is true for angel investors who are investing their personal capital into early stage companies.

Interviews with experienced angel investors in a report prepared by New Zealand Venture Investment Fund (NZVIF) revealed their opportunity for positive returns increased due to both sector and stage diversification strategies.

How do angels start investing?

First of all, for first-time investors, it’s often useful to start with what you know.

Use your registered investor status on AngelEquity to get to know the standard and substance of information about companies in industries where you have personal experience. Check out the angel backers and due diligence available about companies in industries you understand. Form a view on whether there is enough information for you to make an informed choice to invest.

Once you have achieved your level of comfort, apply your personal standards to new industries and follow the expertise of angels into other sectors.


Angel investing is private, so data is limited. However, NZVIF which manages the Seed Co-investment Fund (SCIF) invests alongside business angels, so can provide some data. For instance, in April 2016 Startup magazine the top five sectors and amounts were reported to be; software ($39.4m), capital goods ($4.3m), food and beverage ($4.2m) and pharmaceuticals ($3.5m).

This result is in line with overall angel activity captured since 2006 when NZVIF began tracking angel investment. The greater proportion of funding has gone to software & services which received 39 percent of the amount invested. Followed by pharmaceuticals/ life sciences technology (15%), technology hardware and equipment (11%), and food & beverage (8%).


Business angels are often the first investors outside of the founder themselves, and their family and friends. Angels are a bridge from founder self-funding or ‘bootstrapping’ to the point when it needs capital to grow substantially.

Angels invest in seed, startup and early expansion stages. In New Zealand angels usually follow the definitions for these stages laid out by NZVIF.


Seed funding is often comparatively modest. It enables:

  • early development, testing and preparation of a product or service
  • validation of IP
  • initial market validation to the point where it is feasible to start business operations

Seed stage companies are typically pre-revenue. If revenue does exist it would likely come from consulting or grants. In general, companies at this stage will not have a customer base; cash flows are negative, and employees consist of founders, possibly some part-time employees or no employees at all.

Most often there is not yet a board in place. If one does exists it likely includes the Founder and possibly an advisor.

Investment is used to allow the founder to work full time in the business, establish freedom to operate, make initial hires, begin initial market validation and work on product development.

Investment into this stage will likely be for $250,000 to $1,000,000.


An investee company is at startup stage when an investment allows a business to:

  • do further product refinement to ready for commercial rollout
  • conduct ongoing market validation and refinement of business model including a focus on exploring offshore markets
  • make key hires and develop the management team

An investment in this stage will typically be for less than $2,000,000.

Businesses will be generating revenues however angels assess those in the context of ongoing market validation and product development. (Grant revenue does not affect the stage of the company). Revenues up to $3,000,000 put the business in this category. (Higher revenues would mean the business is likely to be regarded ‘Early Expansion’ so further investigation would be required.)

The customer base is often small at this stage. These early customers enable the company to prove out its business, revenue, operating, sales and service models. Often revenues still occur from consulting to these customers (which diminishes over time).

A startup company would probably still exhibit a negative cashflow, but have acquired up to 20 employees. Its senior management team will likely be incomplete. Its board will be a mix of founders and financial investors. It will possibly include an independent director. There is an expectation that all directors add serious operational value.

Early Expansion

At early expansion stage investment provides capital to allow;

  • initiation or scaling up of commercial production
  • execution of international growth strategies
  • building out sales and marketing teams
  • making acquisitions to provide market position or sales, and, or distribution channels.

Revenues of an early expansion stage business are typically growing and sourced from repeat customers who are often offshore.

Cash flow from four previous quarters is required from businesses looking for investment at this stage. Investors understand at this point a company is likely to become cashflow negative as a result of the growth plans.

An early expansion stage investee company is typically finalising its senior management team and as a result, may be establishing offshore offices along with developing sales and marketing team. It could have 40 or more employees and be shifting towards independence or directors with industry or domain experience.