What is HBAN and how can we help?
HBAN makes over a thousand investor introductions each year, introducing investors to the vibrant start-up scene on the island of Ireland. We make these introductions through a combination of pitching events, via a private online investor platform and through direct introductions based on your area of interest. Our experienced team pre-screens investment opportunities and can connect you with like-minded individuals so you can get the most out of business angel investing. We host events all year round and across the country
Not sure if angel investing is for you? Here's some questions to consider
- How much are you prepared to invest?
- How much time can you commit to the process?
- Can you act as a mentor?
- Are your business experiences & skill set something that can benefit the type of companies you wish to get involved in?
- Can you accept new roles (e.g. Company Director) and incorporate them into your business life?
- Can you resist the temptation to micro-manage your portfolio of investments?
- How much are you willing to learn in order to become a capable Angel if you have little experience?
If you are positively disposed to these questions, then HBAN is interested in hearing from you. By registering with HBAN we can give you online access to investment opportunities that fit your investment criteria. HBAN uses the GUST platform to share and access deal flow online from where you can access new deal flow as it emerges, and view the relevant documentation on each investment opportunity.
HBAN has lots of resources to help its members source, build and manage their portfolios. As a member you will be invited to masterclasses, educational webinars and you will receive a quaterly educational newsletter with investment advice from the experts. HBAN has also published a guide to explain fully the process of business angel investing “Investing in Private Companies Insights for Business Angel Investors”, click on the link for the full pdf version of this free guide.
Business Angel Landscape Overview
Business angel investors are high net worth individuals who provide smaller amounts of finance (typically in the range €50,000/£40,000 to €250,000/£200,000) at an earlier stage than many venture capital funds are able to invest.They are increasingly investing alongside both seed venture capital funds and government agency funding on the island.
Angels usually contribute much more than pure cash – they often have industry knowledge and contacts that they pass on to entrepreneurs. Angels will often take non-executive board positions in the companies in which they invest.
The importance of business angels to the equity capital industry has grown significantly in recent years. In the United States business angels invest a similar quantum of money as the US venture capital (‘VC’) community (seed and growth capital) on an annual basis. They invest in many more companies than VC's since the average business angel investment is much lower than the average VC investment.
The growing role of business angels as catalysts in many start-up companies is now well recognised in Europe including the island of Ireland. It is worth noting that much of the business angel community is ’ad-hoc‘ involving family, friends and private individuals investing directly in start-ups but not as part of any formal network.
Return on Investment
Investing in private companies is very high risk.
Recent studies in both the United States and the United Kingdom have indicated that angel investing can generate significant returns through portfolio investing (i.e. investing in more than one company).
A study conducted for ACA showed that overall returns in the US for angel investment were 2.6x in 3.5 years.
The study also showed that rate of return improved with the following three core factors:
1. Increased due diligence prior to investment;
2. Experience of the angel investors; and
3. Active involvement in the company once the investment has been made.
A similar UK study¹ by the same researchers showed that Business Angel investing is risky, but overall appears to generate attractive outcomes:
- 44 % of investments that generate positive exits win at a larger multiple than the costs of the negative exits, the overall return to business angel investing in the UK is 2.2 times the invested capital.
- It also showed that 56% of the companies fail
- 9% generate a return of more than 10x.
- Given the holding period of just under four years, this is approximately a 22 percent gross Internal Rate of Return (IRR).
Both studies also showed that investing in follow on rounds often had lower returns. This could be related to the difficulty investors have in determining when to exit investments, particularly ones that do not appear to be successful. It can be more of a challenge to admit to other syndicate members that an investment has failed and should be written off.
The most likely outcome of any one angel investment is failure. However studies show, overall, business angel returns are enhanced by using a portfolio approach to investing. Angels do not necessarily measure success purely by return on investment. An individual investor determines success according to personal interests and needs.
These could include a mix of:
2. Satisfaction from having helped other entrepreneurs (‘giving back’ – perhaps reminding them of themselves when younger)
3. Interest in a business model or sector, etc.
Tip: It is important at the outset for you to decide how you determine success
Key strategic choices are significantly related to better investment outcomes
- Angels with entrepreneurial expertise outperformed those without it, especially in earlier-stage opportunities.
- More than half of the investments were very early-stage, going into pre-revenue ventures.
- Those who invested in opportunities where they have specific industry expertise failed significantly less.
- Those who perform at least some due diligence, even just 20 hours, experienced fewer failed investments.
- After the investment is made, some involvement with the venture was related to improved investment outcomes. However, failure was greater where investors were perhaps too involved, specifically when they held management roles.
- Exits where the business angel investor had made follow-on investment in the venture were significantly less successful.
1. NESTA Research report 2009, Sliding with the Angels
Top Tips for Investors
The following are tips to be aware of for any potential investment
• The relationship between investor and entrepreneur is like a marriage but one with a planned divorce;
• Start the process of relationship building well ahead of when the money is needed;
• You should undertake due diligence on the company prior to deciding to invest;
• Entrepreneurs can also undertake due diligence on you, checking your record of support or otherwise, so be prepared for this…;
• You should commit to a non-executive director or advisory role but not an executive role;
• Make sure that every contact with a company addresses the top three investment criteria in some form;
• The best exit is a trade sale for cash…it usually maximises value for all shareholders;
• The revenue potential of the company must demonstrate a scalable business that is capable of producing significant returns for you;
• The best business plans have a great executive summary – the point of an executive summary is to succinctly sell the investment opportunity, not to just describe the business;
• A compelling and fully costed business plan is essential;
• It is important that the company's management team understand and be on top of the numbers;
• Investors rarely want to 100% fund a business and will take comfort from other funders;
• Founders should have ideally had made or intend to make a cash equity investment in the company, i.e. have ‘skin in the game’;
• Have a realistic valuation expectation – entrepreneurs have to be incentivised;
• An equity deal is not just about the headline valuation;
• An apparently unattractively high valuation can be mitigated by a liquidation preference;
• When considering an investment, you need to take into account any potential future funding rounds and the effect that may have on your ultimate shareholding and returns;
• Whilst there have been many successes by individual investors, participating in an angel syndicate can have significant benefits; and
• Syndicates need to be well managed to take advantage of the benefits and mitigate the pitfalls; the best syndicates use a charter.
• The most likely outcome of any one angel investment is failure. However studies show, overall, business angel returns are enhanced by using a portfolio approach to investing;
• It is important at the outset for you to decide how you determine success;
Investing in private companies, whilst high risk, can be rewarding and worthwhile with positive financial and non-financial outcomes. If it accelerates the growth of company then entrepreneurs will reap similar rewards. This is a win-win.
If you are interested in joining HBAN, please register with HBAN here.