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Who

So what is an angel investor? The term angel stems originally from the private investors that would fund Broadway musicals. Over the years, the term has become more encompassing and now business angels invest in industries and countries all over the world.

The UK angel market is a thriving one as more and more investors look for investments outside the traditional stock market and property market. The UK now has around 18,000 business angels. Collectively, it is reckoned they invest around £500 million a year in around 3,500 businesses – though since a lot of deals are private in nature the exact sum is unknown. One way or another, however, angel money is a growing source of funding for early-stage business.

So who are these people? A recent survey tried to paint a profile of a typical investor. It found that the majority of angels in this country are thought to live in London, the South East or East Anglia, although there seems to be a growing contribution from the Midlands. Most of them – around 95% it is believed – are male. In the main they tend to be over 35, have experience of running a company and often have directorships at one or more firms.

That is another defining factor. Many of these people are looking for investments with which they can be involved and over which they can have a degree of control. Around 39 per cent have active managerial involvement in the majority or all of their investments. A further 40 per cent have involvement in selective investments. Just 20% prefer not to be involved.

This is a very satisfactory arrangement for most companies seeking funding. In my experience, companies are often looking not only for funding but also for an investor with managerial experience and industry contacts. The “marriage” can therefore be highly beneficial for both parties.

Where

It is traditionally thought that angels like to invest in a business located close to their home. There is some comfort in being able to go and ‘kick the tyres’. Some 17 per cent of target companies tend to be located within 50 miles of the angel’s home. A further 30 per cent are within 150 miles. Most of the remaining 53 per cent are further away within the UK.

A small, but growing, percentage of investments are abroad. Proximity, it would appear, is becoming less of an issue. With the advancement of technology, angels are getting more comfortable investing cross-border. The falling cost of communication and travel has meant that it is now easier than ever to check up on investments in the US or elsewhere.

The rise in communications has certainly made it easier for angels to find investment opportunities. There are a number of websites dedicated to bringing investment opportunities to potential investors such as the angel investment network (www.angelinvestmentnetwork.co.uk) which allows investors to scan hundreds of potential proposals. However some investors still prefer the old-fashioned method of finding investments in printed publications or by attending presentation days.

One of the keys to success is what corporate financiers call ‘deal flow’. The more deals that cross your desk, the more chance you have of spotting a genuine growth opportunity. To that end, the majority of business angels are members of at least one angel association or network, and most have joined two or three. These associations and networks however tend to be quite regional in nature and often angels take it upon themselves to seek out investments outside their immediate community.

Around 55 per cent of angels interested in doing a deal prefer to share the risk with like-minded people, and be able to access other investors. However, according to the survey, only around one in six prefers to invest with friends or as part of a syndicate or club – a desire to keep business, friends and family separate perhaps?

What

So what is a typical angel investment? The majority of angels spread their investment around two or three companies. This makes sense. They probably look for one to generate a stellar performance, one to produce no more than an average return and one to go bust. Typically, angels invest on average around £30,000 but obviously this figure can be considerably higher, with many investments around £100,000 and upward.

Angels want to see an executive summary or short précis at first contact. Many angels feel they are presented with too many complicated business plans and do not wish to be over-burdened reading long reports at the outset. It’s a bit like reading someone’s résumé. The recipient of a new plan probably spends less than two minutes evaluating the initial submission, so attention has to be grabbed by an articulate, compelling and concise writing style that focuses on the excitement of the opportunity.

Often the original investors are unwilling to give enough away to the new investors or there may be problems over the ownership of patents and rights. Some of these things really need a corporate financier to come in and advise on how to structure them properly before they go and raise money.

Why

Why are Angels looking to invest? Although it is thought that many individuals invested for tax reasons, recent surveys have shown that angels actually invest for a whole host of reasons – of which tax planning and tax optimisation came surprisingly low.

Top five Investment Reasons

5. Fun – small amounts

4. Have built and sold companies before

3. Discretionary capital

2. Portfolio diversification

1. Higher ROI

Higher ROI is key. Invest in the stock market and you are lucky if you see more than single-digit growth year-on-year. Invest in a start-up and the sky is the limit. And not just start-ups. By and large, private companies are valued at about half what their equivalents are worth on the stock market. So you get in more cheaply. Of course, the corollary of this is that the risks are higher – often much higher.

When

Angel investors are normally weighted towards the earlier stage investment, despite the past and current market condition. This seems to reflect a desire for larger speculative returns over so called safer investments. The average business angel is a lot more inclined to accept a lower return than that of the 1990’s and over a longer period. An exit strategy is also an important concern for angel investors. Most investors like to get in and out in 3 to 5 years. It is important to know when you want to get your money out.

So to sum up, one thing I think is important is that people should concentrate first and foremost on the sort of businesses they know something about. So if you have spent your life in engineering, you’ll probably be able to evaluate an engineering proposition very well – and you’ll know the pitfalls and the difficult questions to ask. But you won’t have a clue how a chilled foods business is run – and you probably shouldn’t go there, however attractive the numbers may look.

Other rules: don’t invest ‘rainy day’ money somewhere where you can’t get your money back out easily (and that’s most of these things).

And don’t throw good money after bad. Many investors in these things end up being called on for a second or third round of financing because the original plan has fouled up or there are delays in turning something into a commercial product. Be prepared to cut your losses.

And diversify. If you are going to take this seriously, two or three investments make sense. Good Luck and happy investing!

The Angel Investment Network has opened local branches within the US, with the intent of connecting local entrepreneurs in these regions, with business investors both locally and globally.  This service helps bridge that gap between entrepreneur and investor and offers them the opportunity to get in touch with each other.

The Central Investment Network features opportunities for new business start-ups located in markets such as Denver, Salt Lake City, St. Louis and Kansas City, and offers a chance to connect people online with potential investors across all types of industry sectors.

Other branches include the Mid-Atlantic Network, which includes Philadelphia, Pittsburgh and Washington DC, along with five states in the eastern part of the United States.  The New England Investment Network is now available to business entrepreneurs located in the North Eastern states of the US, including major markets such as Boston.  

From ideas in transportation, clothing, communication and consumer goods, to entertainment, film and publishing endeavours, many local entrepreneurs want to connect with local investors.  The networks mentioned above are just three of the eight local branches of the Angel Investment Network in the US. However, while start-ups can look for investors to provide capital (whether seed or venture) in their local market, the websites also allow the opportunity to connect with foreign investors, should the entrepreneur want to explore this option.

Central (Colorado, Kansas, Missouri, Montana, Utah, Wyoming) – http://www.centralinvestmentnetwork.com

Mid Atlantic (Delaware, Maryland, Pennsylvania, Virginia, West Virginia & District of Columbia) – http://www.midatlanticinvestmentnetwork.com

New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) – http://www.newenglandinvestmentnetwork.com

A typical angel group meets on a regular basis to discuss matters that would be of interest to its members. Some, like Gathering of Angels, a national network, gather once a month to listen to 6 companies as they make 20-minute presentations each. As a member, you can ask questions, compare notes, and weigh your options as to whether any of their ventures are worth investing in.

One good reason for joining is that even if the entrepreneur is looking for a seed money that is bigger than what you can afford individually, other interested members of the angel group can add to what you can invest. This can be particularly useful when a venture is very attractive but too expensive for a single angel to afford.

On the other hand, if you are not 100% sure of the venture’s potential and yet would like to risk a little because you perceive that it can be very profitable if ever it succeeds, you can still proceed by investing a fraction of what you would have invested fully. Anyway, other angels can pitch in until the entrepreneur gets his desired amount.

Some groups have a way of filtering proposals of interested entrepreneurs. For example, angel investor network like the Tech Valley Angel Network have managing partners who will review and screen business opportunities for you and then provide feedback so that only those that are worthy of your time will reach you.  

Practically all of these networks have regular workshops and seminars that tackle ways of honing your skills as part of the angel group. A typical activity is the Venture Evaluation workshop which discusses how you can render intelligent judgment on a presentation.

There are at least 5 national groups, while at least 25 are concentrated in certain geographical regions across the country. It is therefore possible to find an angel investor network near your state. Be sure to inquire first since some of them have temporarily stopped accepting new members.

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With a newly elected pro-business government looking to increase financial-sector productivity, a surge in the number of start-up businesses has put pressure on the venture capital market to come up with more funds to allow those businesses to keep going.   New Zealand’s  low taxes and lack of restrictions on the market makes it a very appealing place to do business and allow investors to utilize its advanced technological capabilities in biotechnology, wireless communications and medical diagnostics to create investment relationships with research institutions, technology and production companies.  As a result, opportunities are available for investors who are looking for upstart entrepreneurs who may have the next “big” idea.
Angel investors (http://www.newzealandinvestmentnetwork.co.nz/angel-investor ) are people with significant capital, often entrepreneurs themselves, who provide guidance and access to vital contacts to prospective entrepreneurs who need that initial investment to get them started.  Over the past two to three years the angel market in New Zealand has gained momentum as a result of valuable knowledge gained from experienced investors who help young companies with high potential expand globally.  Just recently, Christchurch’s Indigo Systems received a considerable investment from a group of Canterbury angel investors who, according to Indigo director David Rankin, would “boost the company’s New Zealand market and investigate an Australian expansion”.
As part of the largest online angel investment community in the world, the New Zealand Investment Network connects entrepreneurs based in cities such as Auckland, Wellington, Christchurch and Hamilton with angel investors in New Zealand and worldwide. A list of recent investment proposals from entrepreneurs based in New Zealand is available at www.newzealandinvestmentnetwork.co.nz/home