Last Thursday, over 70 Auckland-based investors attended the Wharf42 investor presentation at the Cube Events Centre in ASB Bank’s Wynyard Quarter HQ.

The focus of the event was to talk about the current Silicon Valley tech and investment landscape and how it can potentially engage with New Zealand’s own innovation ecosystem. Bill Reichert, Managing Director of Garage Technology Ventures was joined on stage by Adiba Barney from Silicon Valley Forum as he introduced the session with a set of slides entitled, The Art of Angel Investing.

Bill at the ASB: Photo: Gareth Cooke / Subzero Images

Bill at the ASB: Photo: Gareth Cooke / Subzero Images

It set out ten myths around angel investing and set the tone for the lively 60 minute conversation that followed. I have tried to set out some of those myths and why they are important. Full credit of course to Bill and Garage for the content of these slides.

Myth #1

‘Invest in what you know’

Unlike most investments, the reality is that most winners in the start-up world are black swans. They succeed because they disrupt what you already know.

Myth #2

‘Focus on making money’

Investors and the entrepreneurs they invest in should focus on creating value. A making money focus can destroy customer engagement. Customers like to buy, rather than being sold to. Creating value is the best long-term strategy for building customer retention for the business.

Myth #3

‘The key is good due diligence’

The reality is that the key is good intuition. Most start-ups are too early stage to tick all the DD boxes. Investors can get lost in checklists when what is really required is good gut feel for the entrepreneur and the opportunity.

Myth #4

‘Don’t let emotions cloud your decision’

Instead, recognise your emotions. Don’t deny them. If you don’t think much of the entrepreneur for instance, don’t invest.

Myth #5

‘Build consensus amongst a syndicate of investors’

The reality is that history has shown that controversial investments do better. If every investor agrees to an investment through consensus, it is likely to be middle of the road. Think Uber or AirBnB.

Myth #6

‘Success comes from adding value’

I’ve personally heard this one nearly every time I have spoken to a VC or angel! “We can add value as well as funding”. The reality is the more time and effort you have to contribute to a start-up investment, the less successful it is likely to be. The start-up team should drive the business. If there are deficiencies that only an investor can fill, think twice before investing.

Myth #7

‘Make sure you protect yourself’

The reality is keep it simple. If you are concerned about control, don’t invest. Anti-dilution clauses and the like can destroy future funding deals. If you can, have some dry powder, so you can participate in a future round.

Myth #8

‘Valuation is important’

Shared expectations are more important. If the entrepreneur and investor have shared expectations, the business can grow with all parties in sync. If the entrepreneur is beaten up on valuation, the chances are that the start-up is more likely to fail.

Myth #9

‘It’s cheap to start a company now’

Starting a company today can be cheap. Building a globally successful company is however very expensive. Angel investors must consider the impact of future rounds on dilution. Early stage investors can get cruched. Today’s unicorns have often raised hundreds of millions of dollars to get there. Becoming big is not cheap.

Myth #10

‘Diversify your portfolio’

This should apply to your overall investment strategy. Venture / angel funding should only be a small part of that. It is difficult to diversify across a start-up portfolio. You just have to grab the best opportunity.

On stage at the Cube Events Centre - Photo: Gareth Cooke / Subzero Images

On stage at the Cube Events Centre – Photo: Gareth Cooke / Subzero Images

Bill’s presentation set up a lively conversation and debate. What interested me was that most of those attending the event actually agreed with what Bill was saying; even though it might have contradicted some long-held beliefs. That of course is the benefit of these opportunities to meet experienced investors from other ecosystems. What might appear as common cadence in one light, may well differ in another.

Other truths to emerge were that US investors are still more likely to invest in a US structure. New Zealand start-ups need to think about this early on if they plan to engage with the US market. US investors also like to see senior management teams relocate to the US. It is fine that research & development and some operations remain in New Zealand. New business and marketing teams however need to be based stateside. That reality was re-inforced several times by both Bill & Adiba. It was a reality that most of the audience seemed to understand. Some more reluctantly than others.

Wharf42 are grateful to ASB Bank for making the Cube Events Centre available and to Bill & Adiba of course for their insightful contributions to this discussion.