Angel investing is often the primary source of funding for start-ups and early-stage companies in order for those businesses to accelerate their growth. These types of investments are long-term and risky, so experienced angels usually invest no more than 10% of their total investment portfolio into angel businesses.
Angel investors are typically high-net-worth individuals, investing across a diverse portfolio of early-stage businesses. This is Don McQueen, DBA Chairman’s experience;
“Out of 10 investments, one may perform extremely well compensating for the others in the portfolio that may not do so well and providing an overall profit for the investor. I experienced something similar when a local company I invested in 2016 (Wizzle), was acquired in 2021 (carwow) for a substantial sum, resulting in a positive return on my original initial investment.”
Read more about that story here.
Mentoring and support
Angels usually originate from a strong business background. Often entrepreneurs themselves or having held senior positions in large companies. Their aim, which is to get a return on their investment is clear, but not always the only factor. Often, in addition to providing finance, angels are keen to use their knowledge and experience to help entrepreneurs on their business journey through mentoring and support.
“Angel investing is risky and market research has shown that 58% of angel deals may not return the original stake money and that most investment returns come from 10-20% of the portfolio.”
So why do it? Why are there 15,000 angel investors in the UK investing £1.7bn in early-stage companies through EIS and SEIS in 2020/2021?
Jenny Tooth CEO of UK Business Angels Association (UKBAA) says this;
“Anything can happen to a business along its journey. So, making money isn’t the primary motivation for angels – or they just wouldn’t do it. It’s as much about being a part of the entrepreneurial journey and seeing the success of a business that you backed.”
The opportunity for angels to be involved in mentoring and support roles of early-stage businesses is seen as a major contributing factor in the angel investing success story. It’s why we suggest that investors get involved in companies where they can use their previous experience to add value. Referring to the article mentioned earlier; Sebastien Duval one of the founders of Wizzle said;
“I would say that the advice actually outweighed the money. It was crucial to our success.”
Angel syndicates and groups
Though you can go it alone as an angel investor, most of the investments made in the UK come from groups and syndicates. Dorset Business Angels bring together investors and entrepreneurs and through our pitch events helps to accelerate the growth of early-stage businesses. Working in a syndicate means that as well as spreading the monetary risk you (and the company) can benefit from others’ expertise. A lead angel is usually appointed, and this person is likely to have some experience within the sector of the company seeking funding, others may have complementary experience.
The route for founders to access angel groups and syndicates is usually by way of a ‘Dragons Den’ type of pitch event. These could be in-person events or online events which became popular throughout the pandemic in 2020/2021. Pitch events and the networking that surrounds them are rich sources of knowledge and expertise. People come together from different backgrounds, different sectors, and different cultures. United in a common goal to support early-stage businesses financially and tangibly.
DBA hold 4 pitch events a year, usually at a Bournemouth hotel. 5 entrepreneurs pitch to investors in a bid to secure their interest. The pitch events have networking opportunities before and after the event, a welcome opportunity for fellow angels to get together and share common interests.
Aside from the obvious (potential) opportunity for a financial return on your investment, the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) provide investors with attractive tax breaks. If you want to know more, check out our blog here or read the Benefits of Angel Investment on our website here.
Max Wright is a Board Director at DBA and shares this about his motivation to be an angel investor;
“I particularly like to invest in businesses that I really understand, especially if I can also get involved (to a small extent) and offer my knowledge and experience of running businesses myself.
I find best way of investing is where the business qualifies for EIS or SEIS, in these cases, you get huge tax advantages as well, both when you make the investment and also when it exits. Even if the business fails, there are ways to recoup some of the investment through careful tax planning.
I have been angel Investing for the past 15 years and over that time, I’ve had winners and losers, but I am pleased to say the former has exceeded the latter!
Being involved with DBA, originally as a member and more recently as a director, has been great for me, I have met many like-minded investors and made some great friends as well as making some joint investments and I would highly recommend any potential investors to come and join us.”