Bizstartup.ie - Start Up Kit

Angel investors or business angels are fast becoming a successful route for start-up businesses in Ireland to obtain that vital seed capital to take it to the next level.

They play a key role in the seed and early stage of start-ups, as they are catalysts for bringing in additional money, be that through venture capitalists, through the State via Enterprise Ireland, through State funds or through the AIB Seed Capital Fund, for example.

Michael Culligan of the Halo Business Angel Partnership, an all-island network that is funded by InterTradeIreland, Enterprise Ireland and the Business Innovation Centres, explains that angel investors invest in high-growth, seed and early-stage companies, which generally operate in internationally traded services or technology-based spheres.

“They are companies that would see Europe and beyond as their marketplace, while Ireland is their seed market, and would have significant potential to grow,” he says.

Because the angel investor understands this type of investment is relatively high-risk, they look for uncapped upside.

Business angels themselves are high net-worth individuals, who typically have a portfolio of assets, ranging from equities, to cash, property and business interests. Says Culligan: “They take a portion of that overall portfolio and invest it in higher-risk, early-stage business opportunities, where they understand higher-risk growth brings the possibility of much higher reward.”

Business angels generally come with good, reputable business acumen and experience and look to impart some of this knowledge to the start-up they are investing in such as an independent set of eyes and a strong pool of contacts, and often have direct experience of growing a company.

Matching investors with companies

With the Halo Business Angel Partnership, the aim is to match high net-worth individuals with high-potential start-up (HPSU) companies. The network firstly identifies the sector(s) the business angel has interests in; what level of capital they are able to invest; and the number of deals they want to take part in.

Equally, with companies, the network seeks ones with high-potential growth; a good investor-ready business plan; good people and the ability to present and tell that story very well. Companies and angels can be matched electronically, but the deals generally happen through the conduit of investor forums, which Culligan describes as being similar to Dragons’ Den, without the drama of TV.

At these forums, a company presents to up to 12 business angels for about 10 minutes, followed by 20 minutes of question and answers and a networking session. If there is further interest from a particular angel, they are linked up directly with a company.

Depending on their drive, angel investors look to get involved at different levels. Some opt to get involved at a passive level, as a silent partner; others prefer to get involved at an executive level; while many opt to have a small role a couple of days a month in a non-executive capacity. Once a deal has been done, an angel investor will generally stay with a company for three years.

Aside from the Business Angel Partnership, Culligan says there is a lot of informal business angel activity on the island, which comes around through business networking on an ad-hoc basis.

He says the key message to project to business angels initially is the business opportunity, how the business is going to extract money from the marketplace, while also being aware of how it will overcome barriers to entry in markets and competition etc.

In terms of what a business needs to look for in an angel investor, the background experience of an angel is important, as well as the value they will bring to the company and the level of involvement they desire.

TOP TIPS

1. Angels invest in people in the first instance. Therefore, ensure your management team covers all the key bases — product development, sales/business development and finance. If you do not have all bases covered, acknowledge same and demonstrate a willingness to bring on the necessary skillsets.

2. Focus on the key business benefits of your product or service when initially engaging with the business angels. Highlight the business model and revenue model and in particular any market engagement — ie paying customer ("Golden Reference Customer"). Such marketplace validation is very important for early-stage companies.

3. If you have a choice, go for smart money as opposed to just money.

4. Be realistic about your valuation.

5. Be conscious of the need for follow on investment money. If your business goes well, you will likely need a follow-on round of funding in a couple of years time. Where possible, take on an angel in combination with a seed fund such as the AIB Seed Capital Fund or other early-stage fund.

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