Angel Investors Need Better Tax Incentive
Angel investors are private individuals who support fledgling ventures with equity investment. By taking a stake in young businesses, they help provide funding that startups might struggle to raise elsewhere.
For businesses such as Galway software startup Ronspot, angel investors can also provide the cash and expertise needed to launch the company into its next phase of growth. Ronspot recently raised €650,000 in a round that included €400,000 from angel investors and €250,000 from Enterprise Ireland. Founded in 2018 by Michael Furey and Brendan McLaughlin, Ronspot has developed an app-based staff parking management system for businesses.
In Ronspot’s case, angel investors were coming to a business that was already off the ground and required funding to scale. Cofounder Michael Furey is a seasoned entrepreneur who ran tech company Eirnet before selling it to Huveaux in 2006.
Angel syndicates usually invest in tandem with taxpayers through Enterprise Ireland – they both leverage each other. Ireland’s umbrella angel network is Halo Business Angel Network , and it was HBAN investors who joined EI for Ronspot’s fundraiser.
HBAN is a go-to for around 150 companies every year, who pitch to the network’s 700 or so investors, grouped into 15 syndicates and regional networks. On average, one third of the pitches will secure investment, and since being founded in 2007, HBAN’s angels have invested c.€120m.
HBAN investors will only alight on companies that are already generating revenue, or med-tech, life sciences companies and university spinouts with defined routes to market.
Ventures still at the idea stage or raising funds for prototypes will need to look elsewhere. HBAN investors prefer companies in the software, technology and life sciences sectors, and they avoid services, restaurants and the tourism sector.
HBAN director John Phelan explains that the funding journey for startups usually begins with whiprounds from family or friends, or early-stage funding from EI and accelerators prior to market launch.
After that, angel investors enter the mix, particularly where a clear growth roadmap has been established.
Phelan believes that the Employment and Investment Incentive Scheme provides insufficient benefit for angel investors. “As the economic impact of Covid-19 continues, angel investors are exercising more caution. Their investments are now less likely to attract follow-on funding from venture capital firms,” says Phelan.
Phelan adds that investors would be better incentivised if the EII tax relief was raised from 40% to 60%, as well as raising the annual amount eligible for relief from €250,000 to €1m. In Phelan’s view, a simpler version of EII for funding rounds of less than €500,000 should also be considered.