Why should I consider Angel Investing?

There are a number of reasons beyond the obvious which can make angel investing an attractive proposition. The ‘obvious’ though, by which I mean securing huge returns, remains the principle draw for investors.

High Return on Investment (ROI):

Angel investing has a much greater capacity for high multiple returns on your initial investment than other investment routes. Angel investments tend to be made in early-stage businesses that are, hence, at low valuations– typically £500k to £2m for companies raising their first round of funding in the UK. If the business is successful, its valuation will increase and the angel investors will see the nominal sum that their equity share represents growing manifold. The best data yields estimates of an average return of 250% on the original capital, over an average investment lifetime of 3.6 years.

Tax Breaks:

As a means of offsetting the inherently risky nature of early-stage financing to investors, the UK government offers two attractive tax breaks known as SEIS and EIS (the Seed Enterprise Investment Scheme; and its parent the Enterprise Investment Scheme). These breaks include up to 50% of the sum you invested off your tax liability and capital gains tax exemption! For more information please see section I.3 Tax Breaks.

Reasons to start angel investing often extend beyond financial rewards. There are many other unique draws to angel investing too; both sentimental and practical benefits.

Flexibility:

One of these reasons is the breadth of investment levels available. As angel investors typically participate in funding rounds that range from one hundred thousand to one and a half million; this allows for substantial variation in how much funding an investor can choose to provide. There is no ‘fixed amount’ of funding required, and can run from a few thousand to a few million. This means that the size of investors’ investments does not need to be consistent across time, it can vary across industries or across people. This allows for investors to vary their investing habits to suit personal circumstances. In this sense, it is not as exclusive, nor as restrictive as other forms of investing.

In addition, investors can decide their involvement level, investors can choose to operate anywhere from a completely silent financier to a de facto partner. If the investor chooses the more hands-on approach, they take an active role in the development of the business. Being able to directly help the firm grow and succeed can be very rewarding. If, on the other hand, the investor opts for the ‘silent investor’ approach, they are able to enjoy their involvement in the startup, without having to deal with any of the day-to-day issues of running a business.

Another convenience is the flexibility associated with the types of ventures available. Angel investors have complete control over what company to invest their funds in, and they have a lot of options: R&D to profitable businesses, from recent graduate to business veteran, from tech to food, from the USA to Iraq. This variety allows investors to choose to invest in areas they’re particularly interested in, or where they have specific expertise.

Angel investing is also a great opportunity for community involvement. It is not uncommon to hear an angel investor speaking of the fulfilment they get from providing the much-needed funding (and often mentorship) to small businesses. It provides a sense of ‘giving back’ to the community, as their funding backs new entrepreneurs and exciting ventures that could otherwise not have been undertaken. These ventures, in turn, bring about the creation of employment opportunities and stimulate growth locally. 

Finally, from a slightly less philanthropic perspective, angel investing provides investors with access to the very forefront of innovation, and the minds behind it. Working alongside great talents and on hugely interesting project is frequently stated by angel investors as being one of the highlights. Angel investing is the opportunity to connect with other investors. Investors can join syndicates, and connect with other investors who have also invested in the same business. This provides access to other high worth individuals with whom they can learn and share.

In summary, here’s why you should seriously consider angel investing:

• Potentially huge returns
• Generous tax breaks including capital gains exemption
• Excitement of being involved at the forefront of innovation
• Flexibility of amount to invest 
• Flexibility of when to invest
• Wide choice of ventures to back
• Opportunity to be as hands-on or –off as you wish
• Chance to be involved at the forefront of innovation
• Chance to help realise a project without the day to day running stress
• Great dinner conversation!

Q&A with an Angel Investor

To allay any lingering doubts you may still have about whether Angel Investment is the right route for you, here’s a short Q&A with Jos Evans an investor on the UK Angel Investment Network. Jos’ background was originally in options trading, but he is now a self-employed Angel Investor.

Q: How and why did you get into Angel Investing?

A: My first investment was through AIN [(Angel Investment Network)]. I started looking at startup investing primarily because of the EIS and SEIS and a dearth of opportunity in the public markets.

Q: What positive experiences have you had?

A: I have met a huge amount of amazingly talented people. I have had one exit since I started in 2012 and other investments have increased in value according to their later round valuations. Doing due diligence on many companies has vastly increased my network and led to a large amount of business opportunities outside of the actual investments themselves.

Q: Any negative experiences?

A: One company I invested in went bust because the people involved were incredibly wasteful with finances.

Q: Any advice for people thinking about getting into it?

A: Everything comes down to the quality of the founders. If the people are excellent they will succeed regardless of whether the initial business idea works. Meet as many people as possible and cross check your network for people who might know the founders of a company you are considering investing in.