Angel investment is growing in popularity as a source of early-stage funding for start-ups. Better Business looks at the relationship between company and investor and uncovers how best to strike a deal.
Last year Halo Business Angel Network (HBAN) announced its aim to increase the funding going into Irish start-ups to €25 million a year by 2020. HBAN is a joint initiative by InterTradeIreland and Enterprise Ireland and serves as a “dating agency” of sorts to bring companies and angel investors together. Since 2007, HBAN angels have invested €85m in 407 separate deals.
John Phelan is the National Director of HBAN and says the organisation has 12 syndicates of investors that have come together around the country based around sectors such as medtech, tech and food. “We’ve meetings every month and we have pools of companies that we present to each syndicate – that’s the matching element,” he explains. “We make marriages with a planned divorce – investors have to have an exit.”
Phelan says the human element is really important in this type of investment and says it’s really valuable for investor and company to see the whites of each other’s eyes. He also says though the relationship between
investor and company tends to vary, sometimes they can be quite involved.
“We had one company called Phorest that got investment quite a few years ago, and the founder, Ronan Perceval, said one of the investors [tech entrepreneur] Pat Garvey was really instrumental in helping grow the business and gave a lot of time and advice. He’d also be more than a soundboard in that he’d open a whole network in terms of sales and contacts. So some investors bring a huge amount of value other than cash; some are more passive, and we’ve seen everything in between too.”
A Question of Funding
Dr John Tinsley is CEO and co-founder of Iconic Translation, a language technology software company. The business is a DCU spin-out and Tinsley and business partner Dr Páraic Sheridan decided to launch with a few existing customers, but when it came to growing beyond that, the question of funding came up.
“We looked at the option of VC funding but you’re probably talking about larger sums and it’s a yes-or-no situation when you pitch to a VC. With the syndicates, it’s one to many – you pitch to maybe 20 people and while it may not be everyone’s fancy, it might appeal to five or six. When we raised our seed round we pitched to syndicates in Dublin and Cork through the HBAN and a number of individuals came together to invest.”
Iconic Translation received over €400,000 in funding from Bloom Equity and the Boole Investment Syndicate. Tinsley says the relationship with his investors is mixed, with some quite involved and some essentially passive, but he does advise knowing who your
investors are and how they could be helpful in growing your business.
“They’re minority shareholders at the end of the day; they will be able to help but it’s up to them what kind of input they want to have. Of nine, one of the angels is a board member, one is an observer on the board and the rest are more passive. They come from quite a wide range of backgrounds and when you’re aware of their skills and disciplines you can leverage that and they tend to be quite open to it, like in teeing up introductions. So understand who your investors are and what their strengths are. As a start-up, your network is one of the most important things you have.”
Tinsley also has some advice for companies looking to secure angel investment: “You need to have a compelling proposition and market. The investors will have successful business backgrounds so you need to know your numbers inside out. They’ll be used to looking at these things and if you’re dealing with them for the first time, take time to really understand your numbers and the implications of your proposition. And come prepared for questions.”
The Right Stakeholders
Payslip is a payroll management software founded by Fidelma McGuirk. When launching Payslip, the entrepreneur says she didn’t want just one investor, but a combination.
“I have VC, Enterprise Ireland funding and angel investment. Why did I want a mix? I wanted funding but I also wanted investors with a track record of investing that knew about growing investment, and attached to that they’d have weight in the market. So while it was about getting investment into the company, it was also about getting the right stakeholders to support the business and fill in the gaps.”
Payslip has received investment through two HBAN syndicates, Bloom Equity and WxNW HBAN Syndicate, and McGuirk also stresses how important the angel network has been. Business leader and tech executive Andrew White of the Bloom syndicate sits on the Payslip board, and McGuirk says his participation has been very positive.
“The angels have been very useful. Maybe I’ve been lucky with the ones I have, but the Bloom syndicate are all tech or ex-tech and they offered additional support that I have availed of – they knew people they could introduce me to to help me beef up my offering.”
McGuirk also stresses that angel investment is a two-way street and says it’s important to be honest with your potential investors but also to ask them open questions. “There’s a second stage after
the pitch where the investors and business meet and have an open conversation and you find out how interested they are once they really get under the bonnet of your business,” she says.
“Choose an investor that understands what it means to be an investor – they need to understand that there may be multiple possible exits. You’re going to be honing your business, your market, your
product and pricing and everything else along the way.”
For HBAN, Phelan says the aim is to bring in new investors consistently. He believes the Employment & Investment Incentive (EII) needs to be overhauled to drive this type of investment and support Irish companies and investors.
“One of the important things for investors coming in is tax. I have potential investors telling me that the property down the road has a much better tax incentive, so why should they put money into a tech company? The EIS in the UK in comparison is a win-win and hence the volumes that have gone into investment there is phenomenal compared to what we have here.
“Five years ago, an investor might have needed a minimum of €100,000; now that’s not the case. We’re hoping to drive a lower barrier to getting in and that’s why we have syndicates, so people can come in with €20,000. So if we have efficient EII relief and an investor puts in €20,000 then they should be able to get a good return."
This article was originally published by Better Business and is reprinted here with permission.