HOW DATA IS DRIVING BETTER INVESTMENT DECISIONS
Claudine Owens is HBAN Coordinator in NI and Portfolio Manager at Clarendon Fund Managers
One of the most important decisions angel investors face is choosing the right business to invest in. Make the right decision and you can make a very profitable return. One wrong decision, while maybe not catastrophic, could see you squander valuable time and resources. So, how do we know when a company is at the right stage for investment to drive growth?
We have 70 business angels involved in HBAN (Halo Business Angel Network) Ulster. Our angels are a mixture of high net worth individuals, people who have sold companies and moved on to new business ventures. One of the benefits of having an active syndicate is the combined wealth of experience and knowledge these angels bring from working across various sectors. 22 deals were reported by HBAN business angels at the end of December 2019 following the HBAN Ulster launch at the beginning of October 2018. These deals represent £4.1m of investment from the HBAN business angels within deals totalling £16.5m.
But our investors don’t rely solely on their own past experience - technology, and in particular analysis of data, is increasingly helping to drive their investment decisions. Next week, Dublin hosts the HBAN All-island conference with a range of speakers from Ireland and the US. The hot topic is how we can use data to better inform our investment decisions that ultimately lead to faster growing, more sustainable companies and ultimately, more exits.
Dubbed as ‘alternative data’, it is by no means a new phenomenon. In the 1950s, Walmart founder Sam Walton flew planes across car parks to see how many people were visiting his stores. 70 years on and we can leave the planes on the ground because of the abundance of data available at our fingertips.
Alternative data comes from outside the realms of normal data provided by companies. It is being retrieved from a number of sources, for example social media sentiment analysis, app logins, mobile phone usage and even satellite imagery. Last year, MarketWatch estimated that fund managers would spend $1bn on alternative data to get ahead of the competition – rising to $1.7bn in 2020.
Investors at all levels are embracing the availability of such insights and while that undoubtedly demands more from companies who are seeking investment, it is leading to smarter business decisions. One of the conference speakers will be John Harbison, Chairman Emeritus of Tech Coast Angels (TCA), one of the largest and most active angel investment organisations in the US. TCA has achieved a 4.9 multiple return collectively on its angel investments and has developed insights using data analysis to give new angel investors the confidence to build and expand their portfolios.
So, is data the silver bullet investors have been searching for? Can it take risk out of the process? Not entirely. While data gives you a good insight into the potential growth of a business, it is still ultimately up to the investor to be able to identify whether a business has a potentially game changing product, is primed to make the most of opportunities in the market and is led by people with the skillset needed to scale up. Data should be viewed as an additional tool to help make better informed decisions, but on the assumption that everyone has access to more or less the same data, judgment and instinct remain as important as ever.
Of course, investors need to be prepared for failures and use those failures to help them make better investment decisions in the future. Consider the lifecycle of the company you wish to invest in and ask yourself how committed you can be. Some early stage companies need an investor who is there every step of the way in order to help the business grow.
After committing to a company, the temptation can be there to exit at the earliest opportunity. But John Harbison believes keeping your money on the table for the right amount of time is important, as success can attract additional funders. If TCA had taken the first available exit on their portfolio, their returns would have dropped from 4.9 to just 2.3. So perhaps another key element to securing a good return on investment is patience.
In short, there is never a ‘right time’ to invest in a company - often it comes down to being in the right place at the right time to hear about a good opportunity when it comes up. Northern Ireland is home to many high-growth potential companies and throughout 2020 we will be encouraging investors to look close to home for their next great investment opportunity.
The next HBAN NI pitch event takes place on Wednesday 4th March.