By Bryan Keating, Chairman of HBAN’S Northern Ireland Syndicate
Throughout the world, local knowledge economies tend to generate high wages, high levels of skill and high productivity. They attract investment, raise standards in technical education and training, and deliver economic growth driven by innovation. That’s a quote from the most recent Knowledge Economy Report commissioned by Catalyst Inc and produced by the Ulster University economic policy unit.
Our knowledge economy is intimately linked to the broader economy. It doesn’t just reward those with advanced skills who work directly in it. It provides benefits to Northern Ireland as a whole. It generates significant indirect, downstream benefits for the service sector, in retail, transport and infrastructure.
An important element of the knowledge economy is the role played by young technology companies – the type of companies that Silicon Valley was built on and who typically rely on venture capital or angel finance in the early stages.
Oxford Economics analysis identified 15,000 angel-backed businesses over five years to 2015, which had turnover of £9bn, contributed £4.5bn to GDP and created 69,700 full-time equivalent jobs in the UK economy.
The entrepreneurs of young start-up companies here in NI rarely lack vision, drive nor courage. More often they lack the funds needed to achieve meaningful market penetration through cash generated from their own sales. Having exhausted family and friends, start-ups seeking in the region of £50,000 through to £500,000 can struggle as often they don’t quite fit the criteria of some of local investment funds such as those operated by Clarendon Fund Managers, Crescent Capital, Kernel or Techstartni.
This early stage of funding is exactly where angel investors like to invest. The classic definition of a business angel is a high net
worth individual who provides finance up to this £500,000 level. Angels usually contribute much more than pure cash – they often have industry knowledge and contacts that they pass on to entrepreneurs and will often also take non-executive board positions in the companies.
According to the UK British Angels Association 2018 report, across the UK 69% of angels invested in between one and five companies in the previous financial year, with a median number of two investments. Only 9% made no investments over this period but had invested in the previous two years, while a small group (7%) made more than 10 investments. In total the 643 investors listed made more than 2,500 investments, although the total number of businesses receiving investment is unclear as many investors work together in syndicates.
With the recent formation and growth of angel syndicates, equity from business angels is becoming more and more important to the equity capital industry in Ireland and Northern Ireland.
In the stage of development of new ventures where angels come in, the risk of failure is significant; many aspects of the business including customer relationships, pricing strategy, talent, and other key factors are quite unclear. Yet there are a growing number of investors willing to invest at this point.
Being an angel is risky and market research has shown that 58% of angel deals may not return the original stake money. However, the way to mitigate the risk and increase the odds of good returns is through developing a diverse portfolio of investments and taking reasonable steps to carry out due diligence.
HBAN is the all-island umbrella group responsible for the development of business angel syndicates and supporting the early stage entrepreneurial community on the island of Ireland. Evolution has seen syndicates investing with other Irish syndicates and more recently alongside international syndicates. We see this model having enormous potential for growing access to international funds and international markets
The well-established HBAN angel network – which is closing 45+ deals a year - is now established in Northern Ireland. HBAN will support the creation of a sustainable and driven investor syndicate and forum that will support early stage and scaling companies. The local HBAN team will source high quality deal flow and match this with active and engaged angel investors.
Being in the position to be a business angel is a real privilege which is not available to everyone. The risks are high, but the financial rewards can be tangible and if the angel picks a company with a team they can really relate to, there can be a great emotional upside to being with people you admire to do well. It’s rarely a smooth ride but being a business angel is definitely never dull.
Haircare company We are Paradoxx recently received angel investment. Company founder Yolanda Cooper (right) celebrated with Jim Curran and Claudine Owens from HBAN