How companies can raise funds from business angels

1. What is a business angel?
A business angel is an individual that invests his/her own funds in an early stage, unlisted enterprise.

Business angels have become an increasingly important source of finance for new and growing enterprises in recent years, as many venture capital investors are not in a position to accommodate smaller deals. Business angels tend to bring their own specific expertise to bear on the firms in which they invest. It should also be noted that business angels can secure tax relief arising from their investments, under the terms of the Business Expansion Scheme (BES).

2. How can a company looking for financing find a potential angel investor?
One of the quickest ways for a company to bring itself to the attention of potential investors is to link up with a business angels network, which effectively acts as a matchmaker between early stage firms and high net worth individuals who are interested in investment opportunities. The role of the network is to advise the firms on how to pitch themselves to possible business angels while highlighting quality deals to investors.

3. How much funding can a company raise from a business angel?
Amounts vary but, typically, angels would be willing to invest sums between €50,000 and €250,000. Again, the amounts that are invested reflect the fact that many small firms have difficulty in securing financing from mainstream financial institutions - e.g. private equity houses, banks, etc.  

4. Do business angels tend to focus on particular business sectors?
Business angels, like any other investors, will judge each investment opportunity on its own specific merits. However, as there are a significant number of early stage enterprises in this country in ‘new economy’ industry sectors - e.g. information technology, biotech, digital media, etc - many business angels invest in companies in these areas.

5. Can start up firms secure investment from business angels?
Business angels usually invest in early stage, as opposed to start up, firms. Typically, the kind of company that secures investment has been in business for 3-5 years, has a well defined product or service and an existing customer base, and is looking for financing for the next stage in its growth - e.g. expanding into a new market, developing a new product line, etc. That said, there have been a number of cases in the last year of angel investors putting forwards funds for very early stage - i.e. pre-revenue - enterprises.

6. How big a stake will an angel investor take in an early stage firm?
As the concept of angel investing is still relatively new in Ireland, precise data is not yet widely available. However, a report drawn up in May 2009 by the British Business Angels Association (BBAA) - ‘Business angel investing: Promising outcomes and effective strategies’ - indicated that, on average, angel investors acquire eight per cent of any firm that they are investing in.
Just 10 per cent of the investors that were surveyed took a stake of more than 20 per cent in the companies that they invested in. Anecdotal evidence suggests that the figures for Ireland would be broadly similar.

7. Is business angel investing riskier than other kinds of investment?
Business angel investing is certainly risky - over half of the angel investors surveyed for the BBAA report said their investments had failed to return capital. However, more than 40 per cent said their investments had resulted in a positive return, while nine per cent said that their investment had generated more than times the original sum invested. So, while angel investing may carry a certain amount of risk, the rewards can be significant.

8. Has the level of angel investment in Ireland fallen in the last 12-18 months, due to the ongoing economic downturn?
Again, precise data isn’t yet available to quantify increases or decreases in the level of angel investing in Ireland. However, a report from the Irish Venture Capital Association (IVCA) showed that 86 technology companies successfully raised funding during the third quarter of 2009, up from 64 in the same period during the previous year. While this report relates to a particular industry, and the funds raised came from a variety of sources, it does suggest that are plenty of investors looking for opportunities. Our experience to date indicates that there is still a large pool of possible investment financing in Ireland among private individuals. At HBAN, our focus is on linking these individuals to likely investment opportunities.

9. Do business angel investors tend to hold to their stakes in early stage firms for prolonged periods?
The BBAA report showed that the average holding period was just less than four years. Here in Ireland, our experience so far indicates that a similar pattern prevails here. In other respects, the UK experience mirrors what we see in Ireland. For example, angel investors who have entrepreneurial experience typically tend to outperform those who don’t, those who invest in industries or areas where they have particular expertise usually outperform those who do not, and so on.

Diane Roberts is national director of the Halo Business Angels Network (HBAN). Set up in September 2009, HBAN is an all-island umbrella group for business angel networks. HBAN is focused on promoting angel investment in Ireland and supporting the early stage entrepreneurial community. Further information is available at: www.hban.org.

Dublin City Enterprise Board 'Raising Private Equity Event' on 10 February include Business Angel Finance speaker on the panel from the Halo Business Angels Network. Click here for further information.

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