9th May, 2021
Photo: our youngest, age 3 days
This is part of a series of posts looking at building an ecosystem of innovative technology startups in New Zealand.
Last week we looked at what it actually takes to scale something, from first experiments to genuine system level growth.
And we came up with some simple questions we can use to assess the impact of each initiative that aims to grow the ecosystem (what I called “start-up derivatives”):
Who does this initiative help and how? (specifically: what constraint do you think people have and how will you reduce or remove that constraint?); and
How will you show that it’s working?
So, this week, let's drop into the weeds and look closer at three common interventions and apply these criteria to each of them...
In a hospital, an incubator is a safe place to put a sick baby – somewhere they can recover without worrying about the stresses of the outside world. Our youngest son was born with jaundice and spent the first week of his life in an incubator. It was not a time we look back on fondly!
For a moment in time, business incubators were the hot new thing. The idea was similar: to create a protected and supportive environment for fragile young companies.
Typically they offered:
A funky office space (often designed to within an inch of its life with bean bags, pool tables, tables of lego etc);
Other early-stage companies to share it with; plus
Access to advisors and mentors etc.
These days, perhaps because of the negative connotations I described above, very few business incubators are brave enough to still use that label. They prefer to be called innovation hubs or technology clusters. More accurately they would be described as co-working spaces. However, the services they provide to start-ups haven’t really changed at all. So for our purposes, let's treat all of these as the same thing and just call them incubators.
How do they stack up against our impact assessment questions?
Who are these spaces set up to help and how?
There are quickly and obviously three challenges when we look at this from a founder’s perspective…
The value of the solution is limited by the size of the problem
Firstly, and most importantly, those three things incubators offer founders are not usually big constraints, so immediately the benefits are limited.
It is good to have a comfortable desk to sit at and to be surrounded by supportive and like-minded people who you can give you advice and support. But this is very easy to arrange when you need it, especially in a place like New Zealand where the business community is small and well connected and people are generally very happy to help if asked.
Plus, the optimal amount of time spent networking with other founders is “occasionally and intentionally” not “all day, everyday”. My long-standing advice for those who like the idea of incubators because they prefer the company of like minded people is: seek out non-like minded people. You'll learn more, and faster.
If you think finding a desk and some sympathetic friends is the hard part of starting a company, wait until you try to find your first customer!
Who incubates the incubators?
Secondly, incubators are expensive to create and run. This means the help they offer comes at a price. There are four possible business models incubators use to cover these costs, none of which are founder-centric:
User pays. This effectively makes the incubator a real-estate venture, renting office space one desk at a time, meaning start-ups end up paying more rent than they should. Paying market rates for a desk and access to a fancy coffee machine isn’t a good deal for cash-constrained founders.
Investment. This doesn’t work for either side: founders need to give up a percentage of their company in return for the limited benefits of the shared working space – in the short term equity costs nothing to give away, but in the long run a “free” place in an incubator can end up being hugely expensive if things go well; on the other side of the equation, any incubator taking an equity position in the companies they host quickly ends up with a large portfolio of small stakes in ventures into which they are reluctant to continue investing time and money. As a result, very few incubators contribute more value as shareholders than they extract.
Corporate sponsorship. There is no such thing as a free lunch. Large companies are always keen to be associated with helping start-ups, especially when they can also supply products or services to the companies they host or when it gives their own staff something interesting to work on occasionally as mentors. So founders need to be aware of the strings that come attached to this sort of “free” support.
Government subsidies. Who incubates the incubators? We all do! I'll look much more closely at how we think about the return on investment from government funding of the ecosystem in coming weeks, but, in the meantime ... given that many incubators already use all three of the methods described above, it’s slightly depressing that local or central government funding is required at all. On the other hand, if the incubators had to fund themselves as businesses very few would survive.
How can you tell if the advice you’re getting is great?
Finally, from observation over the years, the advice that start-ups get while in an incubators is often terrible.
This is a pattern I’ve sadly seen repeated too many times: a promising start-up which has built a good enough v1 product, and needs to get out of their own heads and start talking to potential customers, but instead wastes its time working on crafting an investment pitch deck or market positioning document or equivalent nonsense, all because the incubator has a methodology and their mentors need them to progress through each of the steps.
When you're at the very beginning it's not always obvious if the advice you're getting is smart, or something that might make sense for a larger company but misguided for a start-up. It's hard to tell whose advice to take, but when your incubator comes with advisors on tap, it's easy to assume, incorrectly, they are the people who are best qualified to guide you.
The problem is so much of the start-up thinking fed to naive founders in incubators is the equivalent of a back country survival guide written by somebody whose own “experience” is watching re-runs of Survivor.
“The key is alliances and winning the immunity idol”.
We'll talk a lot more about reality television next week ... !
Who are incubators really for?
It's easy to understand the allure of incubators. From the top-down, a building feels like a very tangible thing we can invest in to try and help start-ups. If we're honest, that is the real value of these spaces - they allow people who want to encourage start-ups to feel like they are contributing to the ecosystem. It seems that every town around the country has decided it's important for them to be able to point to the space they have created to host start-ups. However, if they took the amount they have “invested” so far in incubating incubators and applied it directly as seed capital it could have completely funded a large number of start-ups.
Also, if we look at the start-ups that have gone on to become successful high-growth companies, almost all did their hard yards, in the beginning, in a dingy flat or borrowed office, rather than emerging from the safety and comfort of a business park.
Most founders don’t really need a special desk in a special room and a poorly qualified grown-up in a nice suit or branded hoodie to hold their hand or to be constantly surrounded by other founders.
There are babies that really need the protection of an incubator and qualified specialists when they are fragile. And there are start-ups that benefit from having a safe space in the very early stages too.
But we need to be much more particular about who and really understand how to help them while they are in that mode, and always with a view to graduating them out.
The best measure of an incubator is actually easy: how many babies make it out alive and go on to thrive?
As an aside, while we’re talking about real estate interventions, here are two random suggestions I think actually could make a difference for high-growth companies (as opposed to the early-stage ventures we currently target):
As teams grow they quickly get too big for the dingy flat or borrowed office I mentioned above. There is a valley-of-death moment I've seen repeated a few times, where they get to a size where they really need their own office space, but they are not yet steady-state enough to take on a long-term lease. A solution that gave these growing companies dedicated space (big enough to host the whole team away from distractions) and didn't require directors to provide personal guarantees or commit for multiple years would be a much better use of the office spaces we’ve created and funded.
There is also a gap for distributed teams who mostly work remotely (which, over time, will become most teams1). For them, there is a lot of value in getting the team together from time to time. Much larger fully-remote companies often have their own drop-in spaces for this purpose. The gap is a Koru Lounge-like space where smaller high-growth teams can book meeting rooms, get good coffee and overlap with each other (not necessarily all day) on an ad-hoc basis.
Accelerators are the opposite of incubators. They are all about speed!
The intention is to take a promising idea and brand new team and attempt to fast-track the venture to a funding event – ideally in just a few weeks or months.
Accelerators try to select the best founders from a big group of applicants, surround them with the best available mentors and advisors, invest a modest amount (for Y Combinator this is US$125k or enough for “founders to be able to run their company and pay expenses for around 5-6 months”, in NZ this seems to range from $0 up to ~$100k3) and take a small shareholding in the new venture (typically somewhere around 6% or 7%, although some programs take more and others have some flexibility for ventures that might be slightly further along and so justify a higher valuation). The goal is "demo day", which comes at the end of the program and is a chance for the start-ups to pitch themselves to investors4.
So, again, let's think about this in terms of our impact assessment questions:
Who are accelerators trying to help and how? And, does it work?
To start with, let’s think about this at a program level, and consider what it takes for an accelerator to be successful...
The goal of an accelerator is to mass assemble start-ups the same way as manufacturing companies in China mass assemble electronics. You’re not just trying to build a start-up, you’re trying to build a machine that builds start-ups.
To make this model work you need a lot of volume.
At the top of the funnel you need a large pool of capable founders applying to be part of the program.
Y Combinator now has over 10,000 companies from all over the world applying to be part of each intake, making it very competitive. They can accept the very best companies into their program.
By comparison it's common to see local accelerator programs pleading for applications and taking more-or-less everybody they can get.
You also need a big group of mentors and investors who can add value to the ventures during the program and fund them once they graduate.
The mentors at the established programs overseas are predominantly experienced alumni paying it forward. And investors are normally queuing up to attend demo day.
In New Zealand the people involved tend to be corporates, angel investors (more on them soon) or people whose main experience is running accelerator programs. These programs promise founders “unparalleled access” to the “best technical and business talent in New Zealand”. Is it, though? My worry is there is actually minimal value-add for founders in these programs. My advice to founders considering an application is to look closely at the people involved and think carefully about who can help you most with your venture at this stage.
To make it even harder for the local programs, they are competing in a global market. The best accelerator programs overseas are happy to take founders from all over the world. The best founders are naturally going to be drawn to the best programs - and there are lots of examples of Kiwi founders who have taken advantage of that (to pick just a few examples: Science Exchange, founded by two Kiwis, is a notable alumnus from Y Combinator; Melodics and Thematic are two companies I have invested in, who went through 500 Startups and Y Combinator respectively; Trade Gecko was the star company in the JFDI TechStars accelerator program in Singapore, where I was a mentor at in Singapore in 2012, and recently announced its acquisition by Intuit etc). We’ve also recently seen Australian programs such as Startmate run dedicated intakes for New Zealand founders5. This further reduces the size and quality of the pool of founders available to local accelerators.
Unfortunately, to repeat a point I made a few weeks ago, we can't just replicate models that are successful overseas and expect them to produce the same results, unless we can identify a competitive advantage6. Comparing our local accelerator programs to the international equivalents is a bit like comparing Rainbows End with Disneyland.
Our strength is not mass assembly!
Rush to pitch
Or, think about it at an individual company level.
Good companies take a long time to build. That’s actually a good thing, because you learn as you go. Too much attention too soon can ruin a new venture just as badly as no attention at all.
Watching accelerator programs rush to make early-stage companies investment-ready often makes me feel like one of the old guys in the vintage Mainland cheese ads, sitting patiently and bemused as younger cheese-makers lose their patience.
I’m not at all convinced it helps founders as much as we think to try and compress the development of a start-up into an arbitrary period for the benefit of advisors and investors.
Many of the start-ups I’ve seen coming out of local programs chasing investment way too soon remind me of young kids whose parents push them into competing in pre-pubescent beauty pageants.
When you observe how companies in accelerator programs actually spend their time it seems the focus is much more on polishing the pitch to investors than on actually building a great company worthy of investment. It's like the difference between cramming for exams and actually learning.
There also always seems to be a strong ethos of “fake it ‘till you make it”. In my view this is dangerous advice to give founders. Try the opposite: don’t let a big gap grow between others’ perceptions and your reality. It’s a healthier path, albeit likely without so much attention or recognition until you've earned it.
There is a famous rule of thumb in project management:
“Good, Fast, Cheap – Choose Two”.
If you must pick an accelerator for your start-up I recommend choosing one that has optimised for fast + good rather than fast + cheap. But you should also question if there is an alternative that doesn't depend on fast at all.
One shot for glory
Many years ago, before drones were as reliable as they are today, I was taught a great mindset by a remote controlled plane enthusiast. He explained to me,
“We try and fly three or four mistakes high ...”
In other words, when (not if) something unexpected happens and the plane suddenly drops, the plan is to be flying high enough that this doesn't immediately cause it to crash. There is tolerance for mistakes.
This is not how accelerators are set up. For founders the “demo day” is often a do-or-die moment. This begs the question: who are these programs really benefiting?
Those who promote accelerator programs will generally explain this away by referencing the benefits of failing fast.
I'm sad to see “failure” become a buzzword in this context. I've even seen some advisors advocate failure as a good and useful way to cut your teeth in start-ups. Too often those acting on this advice say “I failed fast” when what they actually mean is “I always knew my idea was never very good to start with”. In that case what did they actually learn from their failure? There is no feedback loop in that case.
The whole idea behind “validated learning” (first popularised in the Lean Startup by Eric Ries and now a bible of accelerator programs) was to encourage founders to create feedback loops in order to avoid failure. It's depressing to see the most vocal adherents of this philosophy get it completely backwards.
If we bring this back to our impact assessment questions…
I find it frustrating that the same people who promote these programs to founders by saying “in just 12 weeks you will prove if your venture works or not - fail fast!!” will typically squirm when I ask them how quickly they can show if the idea of their accelerator program itself is working and will make the excuse “it takes 10+ years to build an ecosystem” 🤨
For me, it’s not enough to justify these programs on the basis they train a small group of inexperienced founders in a customer discovery process. The cost per person is too high and the collateral damage is too great.
At some point every founder needs to face the dangers of the real world. Eventually plans need to get punched in the face. It’s nearly always better to do this sooner rather than later.
But, any accelerator program encouraging founders to be cannon fodder and fly one mistake high just because investors are waiting to pass judgement in a few weeks’ time is a bad deal.
Just as with incubators, the measure of an accelerator program is also easy: how many start-ups make it out with escape velocity and go on to thrive?
Three weeks ago I wrote about the Venture Investment Fund (VIF).
But that was only half the story. The piece I missed out was the Seed Co-Investment Fund (SCIF)7, which is a separate government fund established in 2006, five years after VIF, to invest in ventures at the seed and start-up stage of development (i.e. at the very beginning).
Where VIF was set up as a fund-of-funds, investing in venture funds that select companies to support, SCIF was able to invest directly in companies, but only when investing alongside8 “accredited investment partners”. The idea, presumably, was this would reduce the effort required to filter investments because SCIF could pick the partners they wanted to work with and then the partners would do the work to validate the investment opportunities and, vitally, the heavy lifting of working with the founders of these companies to help them grow after the investment is made. (We'll come back to this recurring pattern of assuming somebody else is doing the work shortly). The goal was to create a pipeline of companies that could eventually be funded by the later-stage venture funds VIF was hoping to bootstrap.
So, there are two layers to assessing the impact of this:
How has it performed as an investment fund (i.e. what is the return on the investment)?
What contribution has it made to the ecosystem (i.e. what other derivatives have been developed with support from SCIF)?
It’s surprisingly difficult to answer the first question using the information they share publicly. According to the Cabinet Paper I linked to previously when talking about VIF, as at September 2018 SCIF had invested $58.8 million into 215 ventures and achieved a return of just 4.38% per annum. The results in the years since then don’t suggest this has improved significantly9.
Perhaps, given this, it’s no surprise they don’t publicise their returns. 4.38% per annum is a shockingly low result, given the risks and rewards involved in early-stage investment. By comparison the same amount of money invested into index funds would have more than doubled these returns (NZX50 has returned ~9% pa and S&P500 in the US has returned ~8% pa over that period).
There have been more than enough amazing early-stage investment opportunities available over these years. But, these results suggest that SCIF has missed nearly all of them. I’d love to see a breakdown of these results by partner, so we could see how much has been invested alongside each accredited investor and what the specific returns have been. But, I don’t hold my breath for that.10
The primary beneficiaries of SCIF from an ecosystem perspective have been so-called “angel networks”, which have proliferated all over the country with this support. There are now groups in Auckland, Tauranga, Taranaki, Palmerston North, Wellington, Nelson, Marlborough, Canterbury and “Mainland”.11 They are all “accredited investment partners” and so had their own investments amplified by SCIF investing alongside them.
An angel network is an easy way for a group of high-net worth people to invest together in a portfolio of start-ups. The purpose of these groups is often presented as an opportunity for successful business people to “give back”12 and contribute to the ecosystem. 🙌
The concept is great on paper: You convene a group of people who want to invest (current groups apparently range in size between 20 and 200 people) and founders come to the group to pitch for investment. The group choose the founders they like and then the haggling starts.
Anybody who has watched Dragons Den knows how this works, right!
So, think about our impact assessment questions:
Who are these groups designed to help and how?
Taking the cream of the crop or getting the leftovers?
In my opinion the biggest mistake new investors make is assuming there is a large population of impressive but unfunded start-ups out there who just don't know how to find the capital they need. And that, as a result, founders will be willing to jump through the various hoops these angel groups require them to navigate in order to get investment. And, watching founders try, there is a significant amount of faff involved in pitching and due diligence relative to the modest amounts of money available.
In reality, the best founders pick their investors carefully, and you have to work hard to be the sort of investor they will choose to work with.
New Zealand is small and the credible early-stage investors are all well known and easily reached. In my experience, the best founders are happy to approach investors directly, skipping the “start-up busking” step entirely.
This means the deal flow available to angel groups ends up self-selecting for the worst opportunities from those that remain otherwise unfunded - i.e. they are funders of last resort, and only seeing the leftovers.
Who's doing the work?
It gets worse. When you scratch at the surface of the angel network model it becomes obvious that they don't really put the founders or the start-ups at the centre at all13 - they are predominantly designed to help potential investors who struggle to connect with credible founders and who are reluctant to make their own investment decisions.
There is something about the dynamic of an angel group that makes investors feel more confident, and yet at the same time makes them more lazy. I've seen this pattern over and over again in investment rounds involving groups: everybody assumes that somebody else is doing the work to validate the opportunity, meaning actually nobody is.
Typically in each group there are one or two key individuals to whom everybody else in the group looks for leadership and tends to follow. It sucks to be them!
A great way of measuring the health of an angel group would be to look at the number of people who actually lead investments vs those who attend mostly for the wine14 and fellowship.
Post-investment this pattern of lack of respect for founders and decision-making-by-committee manifests in ways that are also unhelpful to founders. Too many angel group members invest immaterial amounts and then struggle to justify committing much of their time to the ventures they've backed – so they end up watching from the sidelines and learning very little from the process.15
It's common to hear angel investors complaining the companies they have funded are struggling to raise a Series A round (this is the name typically given to the investment that comes after an angel/seed round). The often overlooked question is how many of these angel-backed companies are big enough and growing fast enough to justify that next round (i.e. with revenue > $1m and growing at 2x or 3x per year).
This again suggests a simple metric we could use to assess the value-add from angel groups individually - what percentage of their ventures have raised further capital from new investors? It would also be relatively easy, and revealing, to compare that to a control group of ventures who didn't raise their first round from angel groups.
When I look through the list of founders and companies that have been backed by angel groups over recent years there are just too many that are very unlikely to ever get venture funding. That should have been more obvious at the outset.
Ensuring that there is somebody who is willing to do the work to validate the size of the opportunity and then roll-up sleeves and do what is needed to help the company realise their potential is the difference between success and failure for early-stage investors.
Lastly, but perhaps most importantly for founders, there seem to be very few people in these groups who are prepared to really back any one venture.
In fact the opposite. One of the publicised benefits of an angel group is the portfolio approach they promote. Members are encouraged to spread their investment across a number of start-ups, in the assumption that most of them will fail, some others will break even, but a small number will be big winners that return their overall investment.
I've written an entire essay explaining why diversification doesn't work for early-stage investors, which I'd encourage you to read if you're interested in the details: Diworsification
But, to summarise...
The purpose of diversification is to narrow the range of possible outcomes - that is, by spreading your bets you eliminate both the worst outcomes and the best outcomes.
This approach makes a lot of sense when you're investing in larger public companies. The average market return is often good enough.
This approach makes no sense at all when you're investing in start-ups in the early stages, when the return on each investment can range from “you can now buy your own island” (very rare) to “you lose all your money” and, importantly, the average is also “you lose all your money”. Diversification just eliminates the possibility of the island outcome, without reducing the likelihood of losing everything.
More than that, there are two other things investors need to be true in order for diversification to work:
You need to invest in a lot of companies; and
You cannot afford any selection bias in the companies you pick.
We've already seen that neither of these things are true for angel groups - there are only a small number of local companies for them to pick from, and there is an obvious selection bias because the best ventures are often not available to them.
Perhaps if an angel could invest in hundreds or thousands of companies, the portfolio approach would work. But when they are spread across just a handful of local companies then the most likely outcome is that all of them will bomb. And if, miraculously and despite them, one of them does turn out to be a winner, their win will not be as big as it could have been because they didn't invest enough in that one.
Welcome to Happy Valley!
Unfortunately this seems to be the standard angel experience: make a few small investments that struggle, find out that it’s much harder than it looks, become reluctant to continue to invest the time and money required to support the ventures on-going and then bail on the whole thing having made very little positive difference to any founders at all.
I have to admit I find nearly everything about angel groups baffling.
I don't even understand the name. For me, seeing somebody label themselves an angel investor is a negative tell.16 I don’t have wings so I’m happy to just call myself an investor. I don't think the job title needs any other embellishment.
We might call this the Happy Valley effect (after the lovely Wellington suburb which is home to the landfill and recycling centre): if you need to tell everybody that you're smashing it, you're probably not smashing it at all.
This is my advice to nearly everybody who invests via angel groups: invest via venture funds instead.17 That would also have the benefit of increasing the size of the local funds.
(This is where we go back to the harm caused by the first iteration of NZVIF - those failures taught these folks that venture funds are bad investments)
If, after that, you still feel like you want to “give back” then the next level is putting your hand up to be a director or advisor to one venture. Of course, the challenge then is you need to be picked by founders based on the contribution you can make in the future, rather than the cheque you have written in the past.
You might read all of this and conclude I'm exceptionally negative about the start-up ecosystem. Actually the opposite is true: I couldn't be more optimistic about the progress I've seen first-hand, especially in the last few years. I've had the opportunity to work with exceptional founders and invest in some amazing companies through their early stages and it has been massively rewarding. It’s how I’ve filled my days for the last ten years.
Which just makes me doubly sad so many people continue to put so much effort into the various programs I've written about above, and then wonder why their results don't quite match.
I'm also very excited about the future prospects of the ecosystem. The multiplier effect from successes like Trade Me, Xero and Vend is massively underestimated. Unprecedented amounts of capital and expertise are recycling directly into the next wave of ventures. From my perspective, the future is bright.
I think my definition of “ecosystem” is different from many others. Over the next few weeks I'm hoping to write much more about the signal than the noise - much more about what I think we should focus on, rather than the distractions that we should really have moved on from by now.
Here is a spoiler: If you really want to contribute to an ecosystem of great tech companies in New Zealand then focus initially on creating one great company. That’s hard enough and will probably require your full attention! Don’t kid yourself into thinking you can create ten every few months. Don’t pretend creating space for start-ups to start themselves is sufficient. Get as close to the source as you can (don't be too derivative) and try to add more value than you capture for yourself. If enough of us create one great company then the meta problem solves itself and we'll all be better off.
Top Three is a weekly collection of things I notice in 2021. I’m writing it for myself, and will include a lot of half-formed work-in-progress, but please feel free to follow along and share it if it’s interesting to you.
For example, just this week BNZ became the latest corporate to announce they were cutting large chunks of their office space in order to switch permanently to remote work.
It's worth noting that Y Combinator was set up in 2005. Ongoing efforts to bootstrap accelerator programs in New Zealand sometimes feel to me like we're trying to skate to where the puck was 10 or even 20 years ago.
This thread has some ideas for where the puck might be going next, which I’ll pick up in coming weeks:
Curiously, the Lightning Lab accelerator program run by Creative HQ in Wellington now offers $20k "equity-free funding”. Another Callaghan-supported accelerator, Kōkiri, focused on Māori-led start-ups, provides a $10k grant. That's not equity investment in either case, but it would be interesting to know what other strings (if any) are attached.
Presumably that money is sourced from local or central government, or from corporate sponsors, who see benefits aside from the potential of owning a share in the businesses created by the accelerator?
This is where we start to get into the higher derivatives we talked about last week - e.g. an agency funding an accelerator to fund a start-up - and need to think harder about the value created in each step.
If you would like to understand more about the approach and philosophy behind accelerators like Y Combinator, I recommend this quirky old interview with founder Paul Graham from 2009.
Note: Of the start-ups that have come out of Y Combinator so far, one of the most successful to date is Y Combinator itself.
Disclaimer: I am an investor in Blackbird which funds and runs the Startmate program in Australia and New Zealand.
Perhaps a better model for us would be one inspired by the philosophy printed on the back of all of the early-model iPhones: “Designed in California. Assembled in China.”
Originally SCIF required matching private funding, but this constraint was relaxed in June 2020 to allow SCIF to instead invest $2 for every $1 of private funding from “accredited investment partners”.
The latest figures from the 2020 Annual Report show SCIF has invested ~$75m and the current valuation of those investments is ~$85m.
Starting with the 2017 holding value of $61.7m, they subsequently made $25.9m of new investments, received $6.7m from exits and recorded paper gains on the remaining investments of $4.2m.
I expect if the returns by accredited partner were available it would show the results have been unevenly distributed, with better returns from some dragging down the overall average.
This would suggest it’s actually in the interest of the better partners to have these results published!
Hopefully somebody will prove me wrong and point me at this breakdown.
It's interesting, looking at the angel group websites, how many of them describe themselves as “one of the leading groups” in the country and how few provide actual numbers to back that claim up!
When I hear business people talking about wanting to “give back” I always wonder: who did you take it from in the first place?
In my opinion, the way angel groups place themselves at the centre of the start-up universe only highlights how few of their members have ever themselves been founders.
In 2008 the byline of the Angel Association Summit was "The Power of Great Pinot". I’m not even kidding! 🍷
To be fair, you can make the same argument about those of us who invest directly. Kindrick Partners do so in their notes:
NZ HNWs generally don't have the same level of management resources to draw upon as VC and private equity investors. HNWs are often time poor, so their input may reduce as other projects catch their interest.
Actually there are now ranks within the angel fandom, with the most decorated angels given the title Arch Angel!
It's encouraging, for example, to see the Icehouse in Auckland slowly moving their angel group to this model via the Tahua Fund. I predict that consolidating the decision making and responsibility for investments they make in the hands of a few people will produce much better results for them over time. In 2019 they also announced more significant funding support from K1W1 (backed by the Tindall family) and Simplicity which gives them scale. It will be interesting to track their results.