Last month we ran an A-Z of Angel Investing webinar alongside GC Angels where we explored everything from what it means to be an angel investor to building a diverse, successful portfolio of early stage investments. Rod Beer, Managing Director for UKBAA and Jessica Jackson, Investment Director at GC Angels answer some of the delegates questions:
How closely do we link to the VC community and how?
Angels invest at a certain stage, but when a company grows and gets to a time where they need that third stage funding that comes from VCs. We find that angels have worked quite hard to build relationships with the VC community so that’s incredibly important, and I recommend to do that.
There are also a number of VCs out there, who invest alongside angels. In fact, a lot of VC funds run their own sidecar angel groups and there are now a lot of angel groups who run their own sidecar VC funds. There’s quite a range of investment taking place, which is incredibly exciting.
How does the recent budget impact angel investments?
At the moment the budget is very supportive of angel investments and there is more information to be released soon. We know that an additional £200 million pounds have been pushed towards the British Business Bank in terms of support, mainly during this coronavirus pandemic, and we’re looking at seeing how some of that can be deployed as a short-term loan alongside angels. Investors invest at that early point when companies are at that growth stage, so more government support in innovation, increasing the amount of R&D credits to 13% as well is a fantastic option.
There is now more support for angels from Government off the back of this recent budget announcement. It is Interesting to point out that there’s no mention of SEIS and EIS in the budget so we’re assuming its business as usual but we are always fighting for more tax advantages for angels.
You can find our full response to the budget from UKBAA CEO Jenny Tooth here.
Most pre-revenue start-up businesses over value themselves. How can you advise people to fairly assess their true valuation?
When it comes to valuing a business and taking the right amount of equity, there are two key things to watch out for. Firstly, you don’t want to take a huge amount of equity in a business. If you take more than 30%, you cannot claim EIS or SEIS relief and you also don’t want control of a company. The whole point of angel investing is to provide support and to put money behind someone you think can actually succeed and grow, you want them to be able run the show.
We hear a lot of investors who want to take 50% of the business but it’s just not reality. Investors need to think about when a company comes to raising second, third, or even fourth rounds of funding, that entrepreneur and the founding team, get diluted down every time – angels do too. What that actually means is if you took a massive chunk out of that business at the beginning, that team may not be adequately incentivized to stay in the business. Often we see, particularly for university spinouts, where they take 50% because of the IP play, the VCs won’t invest because there is not enough in it for the management team.
The overall rule of how to roughly value a company – the less scientific way – is you look at a business, it’s traction, it’s team, it’s stage, and how much it could justifiably raise and deploy in this funding round. A company should be looking to give away anything between 15% and 20-25% per funding rounds, depending on how much they can raise.
We want to invest in more females but there are less applicants…
This is a big problem. Only around 2% of start ups are all female founders and only 10% have females on their board. There are a number of initiatives out there who are helping to support that. Jessica Jackson at GC Angels has done a lot of great work and I also know that Innovate UK have done a lot of work around supporting female founders too. If you wanted to chat about where and how you can help support women founders, get in contact and we can point you in the right direction.
The number of women founding businesses is about half compared to men. We have to be really honest with ourselves that the makeup of our investment teams can really impact the amount of people that approach us as investment professionals for funding. If you work at a VC, or a co-fund you won’t be surprised to see a very strong white male team that are responsible for deal flow, and it really, really does have an impact. A lot of what I talk about if I have a VC or private equity audience is for them to really look at that because it does have a huge impact on your pipeline and who approaches you. We had a roundtable on barriers facing black entrepreneurs as well and the same facts applies to people from different ethnic backgrounds. We as an industry have got to do better across the board.
Do GC Angels invest across the UK?
GC Angels are Greater Manchester predominantly from their own funds but they do have flexibility to support businesses regionally. The Northwest is a region that struggles economically and also from being under represented in angels and funds.
Is there an equivalent to GC Angels in the East Midlands region?