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Business angels light the way for companies
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Entrepreneurs are putting themselves and their good ideas to the test with Dragon’s Den-style groups in hope of winning over investors
With the banks still in crisis and proposed Government funding cuts threatening to slash the ability of Invest NI to support businesses, entrepreneurs are having to look further afield for support with new ventures.
Luckily, business help is at hand in a new form of an increasingly common type of lender, the business angel.
Taking a leaf from the book of shows like Dragon’s Den, groups of business people and potential investors come together to hear pitches from small companies and decide whether or not they are ‘in’.
One such heavenly venture is Halo, described as Northern Ireland’s “business angel network”, a joint initiative of Invest Northern Ireland and InterTradeIreland based at the Northern Ireland Science Park.
The aim is to match the right entrepreneurs with the right investors, who plough their money into the new company in exchange for shares. Normally 40 to 50 companies apply to attend each Halo event, whittled down to 12 and then a final shortlist of between five and seven who come along to pitch their ideas.
The start-up companies, who normally have little or no capital, are put before an audience of up to 50 ‘angels’ — which might sound like an intimidating prospect.
However, in the early stages, the companies are working for a second meeting, rather than hard cash, in a bid to grab the angels’ attention.
The Halo network has grown to over 130 members within the last year and already includes a sig- nificant number of business angel investors from across the UK and Ireland.
The Northern Ireland Network was named UK Business Angel Network of the Year in 2010 and £2m has been invested in companies here over a two-year period.
Halo director Alan Watts describes the network meetings as more like an episode of Blind Date than Dragon’s Den, acting more like matchmaker Cilla Black than acid-tongued millionaire Peter Jones.
“The angels sit and have dinner with the companies. It’s a much more one-to-one atmosphere — the pitchers are not pushed up the stairs, shot to bits and dragged back down again, like on the television.
“In the early stages, all they are pitching for is another meeting held behind closed doors — there isn’t enough time to bore the investors or talk valuations.
“The spreadsheets and negotiations are brought out a few weeks later.”
While it can be a high-risk strategy for the angels, with over half shown to lose money on initial investments, huge companies like Ford and Microsoft started with similar support and an American businessman invested $100,000 in a fledgling internet firm called Google — and reaped a return of approximately 21,000 times his initial investment. Northern Ireland angels are looking for companies which could increase their value by around 10 times over approximately six years.
Mr Watts says that despite our relatively small stature, Northern Ireland’s business angel network is healthy.
“We are behind other areas of the UK, about 10 to 15 years behind — in fact Scotland is one of the best areas with a total of £22m angel investment. But when you think we restarted in 2009, and have invested £2.5m from a standing start and won an award, we are actually doing well, coming from a low starting position.
“We perhaps have a little less sophistication, but we’re doing well.”
He added that modern technology has a big part to play too.
“We make very good use of video and footage of pitches available on our private website within 24 hours.
“People forget that we have angels not based in Northern Ireland, we have 15 from outside, from the UK, and three of the investors have never even been to our meetings, but these guys have done dozens of deals.”
Mr Watts said there is a huge variety of business types looking for funding.
“Some ideas make your jaw drop and think ‘what the hell is that’?
“We have the popular businesses — iPhone apps, software, engineering, right through to chocolate, graves, films of the Titanic — amazing things.
He added that the average investment is just over £150,000, with lows of £50,000 and highs of £500,000.
And more and more angels are working together to provide funding packages. “We’ve had angels in the group who have made 25 times, 45 times, what they put |in — it’s high risk and high reward.
About 56% of start-ups do go down the toilet.
“We’ve found it takes six years to make money and thee years to lose it.”
Mr Watts said there is also plenty of cross-border co-operation, but that tax still remains a sticking point — with Northern Ireland’s corporation tax rate at 28%, over twice that of the Republic’s at 12.5%.
He added: “We do have a southern equivalent of what we do.
“We work very closely together and a lot of cross-border deals are done.
“We do have Dublin companies coming up here, and Belfast companies going down there.
“It is more difficult for Irish angels to invest here because of tax reasons, but the border does not exist for angel investors by and large.”
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