Angel investor club is open not only to the wealthy
Whatever sum of money you may have to invest in an exciting start-up, beware of the substantial risk of loss.
It’s hard to argue with returns of as much as 700 per cent. Yes, there are risks to angel investing, but, as a recent report from the Halo Business Angel Partnership (HBAP) showed, some investors earned as much as a 700 per cent return following the sale of companies in which they invested.
Recently we looked at the growth in individuals lending money to a company, or so-called “peer-to-peer lending". But if you want super-sized returns, it’s equity, rather than debt, you need to get.
So, if you have a dream of being a successful “angel" to rival those on Dragons’ Den, what do you need to know?
Finding an investment
This is the hard part. Pick the right investment and you can sit back and watch the money roll in. When Mark Little’s start-up Storyful, for example, was sold to Rupert Murdoch’s News Corp for €18 million in January, investors made a return of seven times their investment, while the sale of 2020 Insights to Swiss Post netted a return on investment of seven times to the original angel investor.
On the other hand, pick the wrong one, and you can expect to wave bye-bye to all your hard-earned cash. Stephen Houston, a professional angel investor and Halo’s Angel Investor of the Year for 2013, knows this only too well. Since 2009, he has made five investments; in one of these he made a 100 per cent loss and he had to completely write off his €25,000 investment. The others have yet to exit.
But if you’re up for the challenge, there are some portals out there to help you find a suitable investment.
The Halo Business Angel Partnership, managed by the Dublin Business Innovation Centre, offers some protection, as it aims to match private investors with pre-screened investment opportunities in start-up, early-stage and developing businesses.
“We filter companies as they come through, and also angels as they come through, in terms of the quality of companies," says manager John Phelan.
It doesn’t, however, recommend companies. Companies and investors come together to discuss the opportunities, with companies presenting for 10 minutes, followed up by a Q&A. “It’s Dragons’ Den without the drama" is how Phelan puts it.
With HBAP, you’ll need at least €25,000 to invest, and you can do so either on your own, by co-investing in a deal, or by joining or forming a syndicate. The partnership charges an annual fee of €123.
Another option is the Irish Investment Network, which has about 500,000 members around the world, and allows investors to invest from “a few thousand euro to millions of euro".
Angel investors registered with this website range from a Dublin based accountant with between €10,000 and €250,000 to invest, to a software engineer in Boyle, Co Roscommon, looking to invest up to €5,000.
Syndicates can also be a way of accessing an investment. Typically constructed of two or more private investors working together to share the risks and rewards of investing in private companies, they can be organised via the Halo Business Angel Network or Irrus Investments, for example.
If you go down this route, Houston recommends that you look for an “alignment" in investors’ expectations. “It’s not fair on the company for a syndicate to have multiple voices. The idea of syndication is singular, that you have a single voice."
And it’s not just Irish-based companies you should be considering, with online platforms for discovering and investing in start-ups abounding.
While offering equity stakes in companies is as-yet restricted in the US – at least until Title III of the Jumpstart Our Business Startups Act comes into play – in Europe it is growing in popularity.
In the UK, Seedrs. com accepts Irish-based investors and you can invest from as little as £10. It doesn’t charge a fee, but will take 7.5 per cent of any profit you might make. Another option is seedups.com – an Irish start-up itself – which allows you invest in companies across Ireland, the UK and US via its crowd investing mechanism.
When it comes to picking the right one, Houston recommends that the skillset – and the personalities – of the founders is key.
“It’s a very intense relationship in the early days, and you have to make sure that the ‘chemical connection’ is right. As an investor, you have to be able to sit down and talk to them."
You also want to make sure that the company’s product or service addresses a real need in the market. While it’s dangerous to let your emotions rule the decision, “your initial reaction is enough to let you know whether or not a second meeting is worth it", says Houston.
URL : http://www.irishtimes.com/business/personal-finance/angel-investor-club-is-open-not-only-to-the-wealthy-1.1809542