Guardian angel funding gives business a guiding vision
THE advent of Dragon’s Den has popularised business angel investing as a type of asset, and a key source of funding, experience, and contacts for start-ups.
When we sit in front of our televisions and watch the passionate pitches of entrepreneurs seeking dragon investment, we get a great insight into the value that start-ups perceive in angel support.
Over the past two decades, the business investment landscape in Ireland has been transformed. There is now significant funding available for very early stage and growing businesses. In recent times, and despite our economic difficulties, we have seen strong growth in angel investment. In 2013, €70m was invested by business angels on the island of Ireland.
There is much growth to come as we have some way to go to catch the US, where 90% of all equity for start-ups comes from business angels. Making a direct comparison, business angel investment in the US is equivalent in scale to all venture capital investment. In Europe, angel investment is just one quarter of venture capital investment.
The level of business angel and angel syndicate investment is increasing as a result of growing levels of awareness of business angel investment as an asset class and due to an increasingly strong focus on it from a national and European policy level.
There is a clear financial reason to be an angel investor. International research shows that angels realise an average return of two and a half times their investment over a portfolio of companies, which typically means five or six deals per investor.
There is a huge variability with individual companies, with 10% of individual investment deals producing a return more than 10 times larger than the investment; 34% delivering a return of between one and 10 times investment; and the remaining 56% producing a return of less than the original investment.
Ireland is a great place to invest. There is a vibrant entrepreneurial culture, a growing number of accelerator programmes as well as a symbiotic mix of international and start-up companies. Together, this all positions Ireland as one of the start-up centres of Europe.
Most people agree that developing our entrepreneurial sector is essential to job creation and wealth creation.
Without angels, who are really key in the very early days of a business, few start-ups would survive to become successes on a bigger stage.
The fact that funding for start-ups in Ireland comes from both public and private sources — including Enterprise Ireland and a range of seed funds and business angels — gives our indigenous start-up sector a key competitive advantage. Many European countries do not offer all of these important sources of seed and growth capital.
Ireland is well positioned, but we cannot rest on our laurels. We know, for example, that some of these seed venture capital funds are coming to an end and it is very important that replacements are established.
The difference a business angel can make extends well beyond the cash. It is the experience and expertise that really count. It is the fact that angels have been through the process of growing, and maybe even selling, a business before.
Most importantly, angels have probably come across significant challenges on that journey. The reality is that there are very few start-ups that don’t hit a lot of road blocks. Excepting a few stellar successes, most companies only succeed over a longer period of time and through a lot of hard work. Research shows that, on average, it takes three years for an investment to fail, but six years to get to a win.
Business angels who have built and exited their businesses understand that and bring excellent insights to entrepreneurs that will help them significantly improve their chances of success.
Businesses which get investment from angel syndicates are often getting wider expertise from a larger group of angels. Increasingly, these syndicates are becoming domain- specific, so, for example, a start-up food company may be able to tap into the experience of 10 founders of successful food companies who might invest together.
In many cases, angels are already wealthy. They are not simply measuring success in economic terms. They are often more motivated to help other entrepreneurs succeed.
As part of our process of raising the profile of angel investment, we have brought the European Business Angel Congress to Dublin. This is the second largest business angel event in the world.
The objectives are two-fold. We are looking to learn from global experts in the field and to attract more Irish business angels to invest in the next generation of Irish start-ups to create jobs and grow economic wealth.
Halo Business Angel Network is an all-island umbrella group responsible for stimulating angel investment and facilitating the formation of angel syndicates. The organisation is a joint initiative of InterTradeIreland and Enterprise Ireland. www.hban.org.
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