Reference

General FAQ and Glossary of Terms

General FAQ

What is Enterprise Angels

Enterprise Angels is one of the largest, most active and best resourced Angel networks in New Zealand.  It is an unique angel group model whereby we have professional staff with capital raising expertise who work closely with members to source deals, undertake due diligence and work with companies post investment.

The core of the organisation is the membership which comprises experienced business people with a broad range of expertise. Members make individual investment decisions but do so together drawing on each other’s experience and expertise. This approach increases the returns from and success of investments. 

Enterprise Angels is an Incorporated Society with three forms of membership – individual, corporate and strategic. It is governed by a Board elected by members, has a Screening Committee and Exit Committee. For current investment statistics and membership information refer here.

Who is Enterprise Angels for?

Enterprise Angels objective is to connect experienced investors with entrepreneurs and innovators looking to raise capital in early stage New Zealand companies. 

Enterpirse Angels investors are savvy business people who have the understanding, experience, skills and money required to help early stage companies grow. They may have successfully built their own or other businesses to exit stage in the past, or have available funds from past business success, and the time and drive to help. View the key qualities of an angel investor here. 

Investors need to qualify as a Wholesale Investor under the FMCA 2013 Schedule 1, read here for more.

 

How does Enterprise Angels work?

The Enterprise Angels investment team screen deals opportunities from early stage companies and put forward selected deals to the Screening Committee to consider. Approved companies are then invited to pitch to members. If there is significant interest in a deal, members with specific experience will under due diligence on the opportunity and present the findings. Due diligence will help form the deal structure and terms. Due diligence may have already been completed by another Angel group.

Finalised deal information is sent to investors for their consideration and financial commitment are sought.

Funds and compliance documentation is then collated from investors and funds transferred to the company.

Post investment Enterprise Angels provides ongoing support and mentoring to founders, guiding and providing expertise in many areas including international markets, governance, sales, finance, technology and operations.  An Angel Member who has invested in the company has the opportunity to put their experience, skills and connections to work by becoming Investor Director or Investor Representative.

Investee companies provide quarterly reports of the performance to Enterprise Angels and return for follow on investment rounds.

 

What fees do Enterprise Angels charge?

Fees for Companies

  • 3% on capital raised

Fees for Enterprise Angels Members

  • Administration fee at time of Investment – 2% of investment costs – (min. investment $5k)*
  • Exit fee at time of divestment – 5% of any profit
  • Exit fee at time of divestment for investments made prior to 1 May 2022 – 0%

Fees for Non- Members

  • Administration fee at time of Investment – 4% of investment costs – (min. investment $10k)*
  • Exit fee at time of divestment – 5% of any profit
  • Exit fee at time of divestment for investments made prior to 1 May 2022 – 2% of sale price

Fees for small EA Nominee investment parcels

  • In handling pre-emptive rights rounds, a minimum fee of $300 per nominee parcel applies to compensate for staff time involved in facilitating the transaction

Fees for Internal Share Sales

  • Administration fee for buyers and sellers, regardless of membership status – 2% of sale price*

* Minimum Transaction Fee –  a fee of $300 per nominee parcel applies to compensate for staff time involved in facilitating the transaction. This is split amongst all parties involved.

Fees for Shareholder Management Services

Details of these services can be found here

  • $150 per month for up to 10 shareholders. $5 per month for each additional shareholder

Fees for Partners

  • Strategic and Corporate Partnerships are for organisations that wish to support the growth of young New Zealand companies and work with Enterprise Angels.  If you are interested in partnering with us, please get in touch.

Have another question?

Send it through to the team on our contact form and we will be happy to answer.

Glossary

There are many terms and acronyms frequently used in Angel Investing. Below we have a highlighted a few of these.

For a more extensive list that has been put together by Angel Association New Zealand click here . For SaaS specific metrics click here

 

ADI (Angelic Drop-In) Clinics

Angelic Drop-In Clinics are a great way to engage with angels whether you have just an idea, a team and first validation, or recurring revenue and need money to scale.

We can help with Advice, Connections and Funding.

Our mentors are all Enterprise Angels members or partners with a wealth of expertise and want to help guide and help you. with Advice, Connections and help with funding.

Anti Money Laundering and Counter Financing of Terrorism (AML/CFT)

Money laundering is happening every day across the country. It’s estimated that over $1 billion a year comes from drug dealing and fraud, and can be laundered through New Zealand businesses. However, the true cost and impact is many times that figure when you factor in all the crimes that generate “dirty” money and the suffering they cause.

People who finance terrorism also use these methods to send money to violent causes and to disguise who is providing and receiving the money. While the likelihood of terrorism financing is low, the potential consequences are significant.

Phase 2 of the Anti Money Laundering and Counter Financing of Terrorism (AML/CFT) legislation came into effect on 1 July 2018.  This legislation is aimed at keeping our international corruption-free reputation and making sure Kiwi businesses are informed and prepared to be vigilant in order to make it harder for criminals to damage our country and people.

Investors will be required to provide extra information, when they’re conducting business with us – refer here for full compliance requirements.

Annual Recurring Revenue (ARR)

Annual recurring revenue (ARR) refers to revenue, normalised on an annual basis, that a company expects to receive from its customers for providing them with products or services. Essentially, annual recurring revenue is a metric of predictable and recurring revenue generated by customers within a year.  It is a key metric for SaaS (Software as a Service)  companies with term subscription agreements.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC), is the total cost of marketing and sales efforts used to acquire a new customer. CAC can be measured by dividing all the expenses in getting new customers by the number of customers gained during the period the money was spent

Cap Table

Cap table – (also called a capitalisation table) is a spreadsheet for start up or early-stage ventures that lists all the ownership stakes in the company. It indicates each investor’s percentage of ownership in the company, the value of their securities and dilution over time.

Client Agreement

Compliance is relatively straightforward for individuals, however more challenging for Legal Entities.

We would certainly prefer you make your investment in your personal name or a Company due to the nature of compliance requirements to invest via a Trust. AML/CFT compliance for a Trust requires you to provide a copy of your trust deed, proof of ID and address for each and every Trustee and Proof of the Trust’s source of Wealth and will necessitate all Trustees executing the documents outlined in item 3 below.

We strongly recommend that you talk to your lawyer and/or accountant to ascertain if your legal entity is in fact the best option for investments, especially if you have children living overseas, or are part of a blended family. There are situations where allocations from a Trust may be taxed when it is not income.

Investors will be required to provide extra information, when they’re conducting business with us – refer here for full compliance requirements.

Common Reporting Standard (CRS)

The Common Reporting Standard (CRS) is an information-gathering and reporting requirement for financial institutions in participating countries/jurisdictions, to help fight against tax evasion and protect the integrity of tax systems.

Called the Common Reporting Standard (CRS), it has been initiated by the Organisation for Economic Co-Operation and Development (OECD) under the Automatic Exchange of Information (AEOI) regime. The obligations to provide information also extend to the Foreign Account Tax Compliance Act (FATCA) as well as the CRS.

For most customers, CRS has minimal impact, however, Enterprise Angels will require you to confirm provide a number of details about you or your Investing Entity regarding your Tax Residency for CRS purposes.

Your Tax Residency will depend on where you live and your circumstances. Enterprise Angels cannot offer advice on your tax residency nor your CRS status or classification, however will require you to complete our Client Agreement including a CRS declaration. If you need further support you should visit the OECD website or contact a professional tax advisor.

Enterprise Angels will respect your data privacy. We will only disclose your information to the relevant tax authorities if we are legally required to do so.

CRS is an ongoing process. If your account information changes, we may be required to contact you to obtain additional information or documentation so that we are able to update your account classification under CRS.

EA Fund Investors will be required to provide extra information, when they’re conducting business with us – refer here for full compliance requirements.

Convertible Notes

A convertible note (CN) is short-term debt that converts into equity.  In the context of Angel investing, the CN typically converts into preferred shares at the next capital raising round.  The company valuation of the CN round is typically set at a discount to the valuation of the company at the next capital raising round.

Due Diligence

Due diligence is a comprehensive appraisal of the opportunity undertaken by a team of Enterprise Angels members, to verify and fully understand the various aspects of the business and evaluate the risks and potential benefits.

Being involved in due diligence is a key benefit of being a member as this is your opportunity to have a good look “under the bonnet” of any investment offer to satisfy yourself of the risks and benefits.

A team of 4-6 members met with each other, the Founder and other key parties, and delve into the “nitty-gritty” of the offer. The areas they cover are:

  • Corporate Organisation
  • Financials
  • Real Property, Plant and Equipment of the Business
  • Intangibles of the Business
  • The Industry
  • Marketing and Distribution
  • Products and technology
  • Production
  • Other Contracts and Commitments
  • Management and Employees of the Business

Being involved in the due diligence team is an ideal way to “wet your feet” in angel investing, as it is a sure fire way to understand the offer and what it takes to choose an angel investment.

Equity

If you have equity in a company, you own a part of that company. Equity capital raising essentially refers to the sale of an ownership interest to raise funds for business purposes. Most investment opportunities on the Enterprise Angels are offers of equity.

Financial Markets Conduct Act (FMCA)

The offers made on Enterprise Angels are governed by the Financial Markets Conduct Act 2013. The relevant sections are Schedule 1, Part 1, 3, to review, click here.

There are two types – Eligible Investor Certificate and Safe Harbour Certificate.

If you qualify as Eligible Investor under Clause 41, you will need to provide an Eligible Investor Certificate which is certified by a New Zealand FCA, Chartered Accountant or Lawyer.

If you qualify as Wholesale Investor under Clauses 37-40, you will need to provide a Safe Harbour Certificate.

It is an offence to give a certificate knowing that it is false or misleading in a material particular. The offence has a penalty of a fine not exceeding $50,000.

Investors will be required to provide extra information, when they’re conducting business with us – refer here for full compliance requirements.

Foreign Account Tax Compliance Act (FATCA)

This legislation administered by the United States government encourages better tax compliance by preventing US persons from using non-US financial organisations and foreign entities to avoid US taxation on their income and assets.

Under FATCA, New Zealand banks and financial institutions are currently required to identify and report annually on any accounts held by US Persons or foreign entities that have US Persons as beneficial owners.

Enterprise Angels cannot offer advice on whether you are considered a US Tax Resident nor your FATCA status or classification, however will require you to complete our Client Agreement including a FATCA declaration. If you need further support you should visit the IRS website or contact a professional Tax Advisor.

Enterprise Angels will respect your data privacy. We will only disclose your information to the relevant tax authorities if we are legally required to do so.

FATCA is an ongoing process. If your account information changes, we may be required to contact you to obtain additional information or documentation so that we are able to update your account classification under FATCA.

Fund Investors will be required to provide extra information, when they’re conducting business with us – refer here for full compliance requirements.

Lifetime Value (LTV/CLV/LCV)

Lifetime Value (LTV) is a prediction of the net profit attributed to an ongoing relationship between customer and product. LTV is calculated by finding out the average churn and average spend of a user over the course of a specific period to predict their overall spend in an app/service.  LTV helps set marketing budgets and ensures that companies pursue the most effective users. The term itself is also known as customer lifetime value (CLV or CLTV) and lifetime customer value (LCV).

Mininum Viable Product (MVP)

A minimum viable product, or MVP, is a product with enough features to attract early-adopter customers and validate a product idea early in the product development cycle. In industries such as software, the MVP can help the product team receive user feedback as quickly as possible to iterate and improve the product.

Nominee

Most investments facilitated by Enterprise Angels are made through a nominee company.  A nominee company groups together all investments from Wholesale Investors to allow you to invest in smaller investment parcel sizes, to simplify the Share Register and minimise the administrative overhead for investors and investee companies by streamlining the communication.

The Nominee is the legal owner of the shares as a bare trustee; however the your investing entity remains the beneficial owner and retains full economic rights.

Non Enterprise Angels Members pay a 2% administration fee on all investments and exits to cover the cost of these services

Enterprise Angels Members pay an annual membership fee which covers these costs.

Nominee Deed

A Nominee Deed is an agreement between yourself and a Nominee company acknowledging the nature of the relationship. Most investments made via Enterprise Angels are made through EA Nominee Ltd, our Nominee Company.

Investors will be required to provide extra information, when they’re conducting business with us – refer here for full compliance requirements.

Software as a Service (SaaS)

Software as a service is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. SaaS is also known as “on-demand software” and Web-based/Web-hosted software

Seed

Seed capital is the money raised to begin developing an idea for a business or a new product. Funding is provided by private investors—usually in exchange for an equity stake in the company or for a share in the profits of a product. Much of the seed capital a company raises may come from sources close to its founders including family, friends, and other acquaintances. Obtaining seed capital is the first of four funding stages required for a startup to become an established business.

Series A

Series A financing refers to an investment in a privately-held, start-up company after it has shown progress in building its business model and demonstrates the potential to grow and generate revenue.

Trusted Referee

Acceptable trusted referees include:

  • Minister of religion
  • Justice of the peace
  • Registered medical doctor
  • Lawyer
  • Chartered accountant
  • Registered teacher
  • Kaumatua
  • Commonwealth Representative
  • An employee of the Police who holds at least the office of constable
  • Notary public
  • New Zealand Honorary consul
  • Member of Parliament
  • A person who has the legal authority to take statutory declarations or the equivalent in New Zealand

However, the trusted referee must not be:

  • related to you; for example, a trusted referee cannot be your parent, child, brother, sister, aunt, uncle or cousin
    your spouse or partner
  • a person who lives at the same address as you
  • a person involved in the transaction or business requiring the certification

Unicorn

Unicorn is the term used in the venture capital industry to describe a startup company with a value of over $1 billion. Example of New Zealand companies that have become unicorns are Xero, Trade Me, Allbirds, Rocket Lab, LanzaTech, A2 Milk, and FNZ.

U.S. Specified Person

This is a summary of the definition of a Specified U.S. Person in the Inter Governmental Agreement (IGA). Please read the IGA for a full definition.

 

A Specified U.S. Person is a U.S. person other than the following:

  • a corporation the stock of which is regularly traded on one or more established securities markets
  • any corporation that is a member of the same expanded affiliated group as a corporation the stock of which is regularly traded (see above) on one or more established securities markets;
  • the U.S. or any wholly owned agency or instrumentality thereof;
    • any State of the U.S, any U.S. Territory, any political subdivision of any of the foregoing, or any wholly owned agency or instrumentality of any one or more of the foregoing;
    • any regulated investment company as defined in section 851 of the U.S. Internal Revenue Code or any entity registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-64);
  1. a dealer in securities, commodities, or derivative financial instruments (including notional principal contracts, futures, forwards, and options) that is registered as such under the laws of the U.S. or any State;
  2. any one of the following as specifically defined in the U.S. Internal Revenue Code: certain organizations exempt from taxation (including certain trusts that are tax exempt or that are otherwise described in the U.S. Internal Revenue Code), certain individual retirement plans, certain banks, certain real estate investment trusts, any common trust fund, certain brokers.

A U.S. Person means:

  • a U.S. citizen or resident individual;
  • a partnership or corporation organized in the U.S. or under the U.S. law;
  • a trust if it is subject to U.S. law in terms of its administration and is controlled by a U.S. person;
  • the estate of a deceased U.S. citizen or resident.

Venture Capital

Venture capital (VC) is a source of financing for start-up companies made by entities and individuals seeking higher returns for taking greater risks. Also called risk capital. VCs do not normally fund startups from the onset. Rather, they seek to target firms that are at the stage where they are looking to commercialize their idea. Once promising emerging growth companies have been identified, the pooled investor capital is deployed to fund these firms in exchange for a sizable stake of equity.