Angels Turn Firms Into Bright Sparks

published by on 16th November 2003 under Industry News

Jon Ostler left his job with military intelligence to boost his commercial nous and, hopefully, to make a few more bucks.

Less than four years later his firm, web marketing consultancy First Rate, has a turnover of more than a $1 million, employs eight people and is about to appoint a chief executive to take the firm global.

Behind this success, Ostler said, is the guiding hand of business angel firm Sparkbox.

Business angels are individuals with more than a few spare dollars who want to invest in and help develop a firm before it’s large enough to access traditional venture capital funds.

Sparkbox is a collection of three “professional” angels, according to the group’s spokesman, Frenchman Gael de Kerdanet.

The other two Sparkbox founders are Wellington businessman Henry Tait and UK-based New Zealander Andrew Duff.

Without the $500,000 cash injection – spread over two years – and the Sparkbox guys’ commercial expertise, First Rate wouldn’t exist, said Ostler, who adapted, relaunched and renamed his firm after meeting Sparkbox at a technology conference four years ago.

“(Sparkbox) saw the opportunity and gave us the finance and knowledge to target larger clients.”

In the company’s first year after rebranding itself, First Rate added Air New Zealand and Xtra to its client list. Now it includes more than a dozen larger clients.

“Without the funding and Sparkbox’s marketing expertise, we would still be like all the millions of other small technology companies out there, simply servicing the SME (small and medium-sized enterprise) market.”

In return for its advice and the $500,000, Sparkbox took a 50% stake in the firm.

Ostler said he could have battled alone for another couple of years to build up the business and then sold less of a shareholding.

“It really depends on how patient you are. But it’s far better to have 50% of something rather than 100% of nothing.”

Normally shy and elusive creatures, and thus impossible to quantify, angel investors appear to be fluttering out of the ether. Sparkbox, specialising in the technology sector, shed its secrecy this month after becoming the first angel investor to join the Venture Capital Association.

Meanwhile, Auckland University incubator The Icehouse has announced it is planning to launch its own angels club by the end of the year – until then the club’s 25 names remain firmly under wraps.

De Kerdanet said Sparkbox, like other angel investors, aimed to plug the gap between start up and traditional venture capital, which more often than not required young firms to have customers and revenue streams.

Thus the country’s 16 part-government-funded incubators are Sparkbox’s prime target for tapping into young companies.

De Kerdanet said Sparkbox was already in talks with the Icehouse and other incubators and wanted to tap into the wealth of small companies emanating from New Zealand Trade & Enterprise’s Investment Ready Scheme.

The angel firm also hoped to work with better-known angel service, Industrial Research’s Mentor Investor Network (MINE), which matches investors and small companies at regional meeting around the country.

With more than 300 “angels” on its books and after 13 matching events across the country in just two years, MINE takes credit for introducing about $5 million to 12 small firms.

“The angel market on an organised basis is new. But angel investors have been around for donkey’s years,” said Icehouse chief executive Andrew Hamilton. “They are vital. After all, it’s bloody hard to start up a business.”

Typically angel investors commit anything from $100,000 to $500,000 but boost their investments by committing their expertise. Sparkbox and other “angels” are happy to commit even lower sums, for less than 5% of the company, just so they can get to know the people involved, said de Kerdanet.

Given that many angel investors are unknown, quantifying the angel market is difficult. But according to MINE’s Melissa Yiannoutsos, using overseas estimations, conservatively-speaking angel investment accounts for at least 0.15% of GDP, about $89m a year in New Zealand’s case – compared with $973m committed to venture capital investments last year.

In last year’s Global Entrepreneurship Monitor (GEM) report 4.3% of New Zealand adults invested in start-ups during the past three years, though this percentage rose to nearly 10% among men aged 45-55.

www.stuff.co.nz

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