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New Zealand angel investors are backing too few start-ups and should broaden their portfolios if they want to improve their chance of a return, according to Angel Association chairman Marcel van den Assum.
The success of software companies such as Wellington-based Xero had helped foster an environment where start-ups can flourish, though local angel investors have been reluctant to expand their portfolios, van den Assum, who was part of the successful sale of local software firm GreenButton to Microsoft earlier this month, told an audience at the Lightning Lab demo day in Wellington yesterday.
"A lot of angel investors looking to hit home runs and that places unreasonable pressure on ventures and boards," van den Assum said. "We need to start encouraging angels to broaden their portfolios, and as they start to build the portfolio, it improves their chance of ultimately achieving a successful return."
Van den Assum warned against getting too carried away by the success of the local digital sector, with last year's listings of Wynyard Group, SLI Systems, GeoOP, and the upcoming initial public offerings of Gentrack and Serko.
"We need to be careful we're not marching ahead of expectations," he said.
Van den Assum spoke ahead of pitches by nine start-ups which went through the Lightning Lab's digital accelerator programme to prepare early stage companies for investors. Of the nine companies pitching, eight sought a total of $2.24 million from investors, of which five had already received commitments of $740,000.
Common Ledger, which developed a platform allowing accountants to integrate different accounting software, sought the biggest amount, asking for $550,000, of which half was already subscribed, on a pre-money valuation of $1.75 million to help fund the completion of an enterprise deal with a major accounting firm and boost sales and distribution.
Cloud Cannon, which developed a platform makes it easier for web designers to deploy and maintain websites, asked for $450,000, of which half was committed, to expand its customer base and develop new add-on products. GlassJar, whose software allows shared rentals to better manage their finances, asked for $400,000, with $110,000 in soft commitments, to fund the next 12 months when it plans to develop mobile apps, integrate bank fees into the software and secure 20,000 users before advancing into the US.
CoachSeek, whose software helps sports coaches manage their programmes, asked for $450,000, of which $100,000 was committed at a pre-money valuation of $1 million to fund the next 18 months. Twingl, which developed software to track a secondary school student's learning process, sought $90,000 in a convertible note, with commitments of $30,000, to fund a pilot programme in New Zealand and push into the US.
Floc, whose software allows restaurants to forecast customer traffic, was seeking $100,000 in a convertible note. Keen, whose software connects social media users to meet up for activities offline, sought $150,000. Mish Guru asked for $50,000 in convertible notes to build a platform allowing corporate users to manage social media sites such as Snapchat.
Cogo Digital, whose software helps manage institutional knowledge built up by staff, didn't ask for a specific amount in its pitch.