Dunedin angels considering "side-car"

The Dunedin City Council and local business incubator Upstart are cofunding a study to look at establishing a so-called ‘‘side-car’’ investment fund for local investors.

They would co-invest alongside Dunedin’s angel investors in local, early-stage, high-growth companies.

The difference between the two is that local investors would rely on the fund’s management to make investment decisions, whereas angel investors make that decision for themselves and often bring more than equity to the table.

Upstart chief executive Norman Evans says if the fund goes ahead it will help boost investment funding in the region and reduce the risk for local investors interested in high-growth, and thus higher risk, investments.

‘‘Anything that stops people putting their money into bad investments by spreading their risk is a good idea. A lot of New Zealand investors have lost their money in high-growth, risky businesses because they didn’t take a portfolio approach.’’

The idea for the fund came from conversations Evans had with local farmers. One farmer had invested $1 million in a local ICT company. But it was clear the investment wasn’t going to be successful for the farmer, says Evans.

‘‘I thought, ‘poor guy, he’s just blown a million bucks in a sector he knows nothing about trying to do the right thing to help a young company get going’. There should be a place for people like this to invest.’’

If a fund was to go ahead, it would sit alongside (hence a ‘‘side-car’’ fund) Upstart’s seed investment fund, which matches up to $4m of the Government’s Venture Investment Fund (VIF) capital with investments made by Upstart’s angel investment network – a group of experienced investors used to analysing early stage investments.

The fund would be passive, investing only once Upstart’s angels and VIF had agreed to invest. Likely recipients include members of the Upstart incubator.

To date, Upstart Angels has made eight investments in Upstart companies, including global tracking company TracPlus Global, discount card firm Wicard, data telemetry and management company Daestra and Trac- Map, developers of a GPS guidance system for agricultural vehicles.

Evans says there are no similar local passive investment funds in New Zealand, but VIF’s Halo fund is a national side-car fund.