The Voice Of An Angel
Do Macro Events and Uncertainty Influence the Activities for Business Angels? 4 Experts Share Their View
Jenny Tooth – CEO, UK Business Angels Association
A number of factors have transformed the landscape since the financial crisis. We have a new wall of capital, investors with a lot more enthusiasm, and a new wave of start-ups. Fintech is booming, furthering the development of new interfaces. This makes for an exciting market.There has been an influx of like-minded people forming syndicates of different types. Angels more closely interface with VCs and PE, and there is a wider range of venture money flowing in from multiple sources.It’s also become a more visible market. People are happy to say they are looking for funding; investors are more explicit about where they want to commit capital.
It’s also become a more visible market. People are happy to say they are looking for funding; investors are more explicit about where they want to commit capital.
There is so much choice, with potential deals coming to you via various channels, from LinkedIn to syndicates to crowdfunding platforms, there is a danger of becoming inundated. With all that noise, how do you find quality deals? Curated deal-flow becomes more important than ever.
One downside, possibly, is inexperience – in accelerators and equity crowdfunders, this can sometimes result in extremely high valuations.
One of the big issues for angels is in finding flexible entrepreneurs who understand the value of the capital they want to access. We need clear ground rules and a framework for founders and investors – we’re developing an e-learning programme to tackle this.
Another big challenge is how we build scale-up capital for the longer term. We’re very conscious that angels can be involved in a deal for a long time – and that 60 percent of their deals will fail. It takes 10 to 12 years to build a great company, but further up the line, there is a lack of scale-up, patient capital.
Regional discrepancies also need addressing. Investment is largely centred around London and the south-east, with a bit in Scotland. But it’s less accessible in other parts of the UK, so we’re looking at ways of stimulating more risk-capital visibility in order to build a more effective ecosystem around the country.
The other big issue we want to tackle is diversity – or the lack of it. Women make up around 14 percent of the visible investment community. Our aim is to reach at least 30 percent. There are existing networks, but we need more awareness, role models and education.
Divyang Mistry – An entrepreneur and PWC alumnus, Mistry began looking at angel investment about eight years ago.
Initially, I was a bit unfocused, but I soon determined that the best fit for me were scalable, B2B businesses – I’m not as comfortable with B2C.
I also wanted to be more hands-on. I still see angel investing as a niche thing – the vast majority wouldn’t necessarily know about it. But in the last four or five years, returns on other forms of investment have been so poor, people are looking to diversify.
There are loads more entrepreneurs coming through, though I see crowdfunding as a mixed blessing: you need to work harder, be very dynamic and capture investors’ imagination. You have to spin it, and there is a danger the financial sense of the business may not add up.
It also meets a need for people who want more control over their money.
I am always involved – it’s the best way to add value. Many new businesses lack the expertise of an FD, so it’s a win, as I have a background in finance.
In the end, it’s a selfish thing, but there’s an element of altruism: when I get involved in a business or I want to influence the investment, to see it succeed.
Founders are very driven people, so you can’t be too prescriptive or you’ll clash. But Envestors will make them aware of any gaps in what they are offering, and that’s where it adds value.
I’m not a fan of political meddling in business, and overall, I don’t see macro-economic issues influencing entrepreneurs unduly – you’re usually so small you’re head-down, concentrating.
On the investment side, there is a big gap for businesses that fall between angels and VCs, so we need to close that, perhaps pooling funds more so that they grow themselves. It’s important to talk to other investors about the issues they’re having so that you can stay informed.
Martin Rai – A chartered accountant with a background as director of both multinationals and start-ups, Rai was the FD-founder of Powwownow and is currently FD and advisor to three small companies.
I invest in three private companies with around £1m turnover each, where I’m also a director. I then have four or five angel investments, so I’m quite at home in the sector. But I wouldn’t call myself a guru.
Years ago I thought that high-tech was everything, but I’ve since discovered there are other industries that are interesting. At the moment, my investments are varied: a manufacturing company, a fishing accessories business and a tech company among them. I’ve come to realise that product matters, but primarily, it’s about the people. You can get swept away by enthusiasm for a sector or product, but if the people aren’t right, it doesn’t matter how brilliant a business looks. What I look for are people with vitality and vision, who will stick with something. It may sound obvious, but unfortunately, it’s not always what you find in new businesses. So that’s where I do my due diligence. You have to dig deeper, look at the drive of the individuals involved and really probe whether their hearts are in it. When I started out, angel investment wasn’t as established as it is now, but I’d never invest without meeting the people involved.
It took me six years to make my first two investments. Past performance is an indication of what they’ve done, but it doesn’t always follow that a second-time founder will be a success: maybe they were just lucky with their first idea. I’ve seen that happen before.
Often, there is one individual who keeps it all together – a problem-solver who binds everyone together and keeps them on track. But there’s no specific formula that you can apply to determine an investment’s success from the outset. Sometimes it’s easier to tell if something is not going to work, if there are obvious flaws in the management team.
The difference is so great between a team that is firing on all cylinders and one that is in disarray.
I think potential investors should be perfectly frank about any issues they foresee being a problem. There’s no reason why you shouldn’t raise questions that may help that company, whether you invest in it or not. Because the worst thing for a growing business is a problem that’s left to fester.
Tony Goodwin – Chairman and CEO of Antal International, a management and recruitment specialist, and an experienced angel investor.
My early investments eight years ago were very diversified. But I found I didn’t know enough about the key performance indicators.
I now gravitate to business services and to technology that I understand. About 75 percent of my investments tend to focus around sectors I know well, then the remainder are less specialised, just for fun and interest.
I like simple, straightforward businesses. I know there are fabulous algorithmic innovations out there, but unless the result is blindingly simple, I steer away.
We’re seeing a lot of great ideas emerging, but some have no idea about how to build a business. Everyone’s an entrepreneur today. I’m all for that. But a lot are ill-equipped, ill-prepared chancers. More and more are being rebuffed. They must be more prepared. You quickly identify what will work when you see hundreds. That said, you’re not going to get it right every time.
As for potential growth areas, edtech looks promising. I’m investing in what could be a ground-breaking educational platform, something that seeks to raise standards across the board and take the postcode lottery out of schooling.
I’m also more globally-minded because of Antal’s international reach – as an internationalist, it’s an investment criterion. I believe now is the time to invest in Russia, and Asia Pacific. International business expansion opportunities have never been better.
Geopolitics will always play a part, but as an entrepreneur, you look for your own niches and opportunities. And if everyone is flying this way, you should be flying the other way.
This post was created on April 12 2017 by Oliver Woolley