An­gel in­vest­ment

By Bryan Keat­ing, Chair­man of HBAN’S North­ern Ire­land Syn­di­cate

Belfast Telegraph - Top 100 Northern Ireland Companies - - ANALYSIS -

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

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