Angel investing takes off

Still wondering what to do with your lump-sum or seeking a slightly more active retirement, then angel investing could be for you

INSPIRED BY Dublin’s recent Web Summit? Looking to get in on the action of a start-up but reluctant to get involved in the day-to-day grind of a young company? If so, angel investing might be for you – and if you’re over 50 with a lump-sum or retirement package to invest you can now avail of targeted seminars to learn the tricks of the trade.

Historically, the rate of informal investing has been low in Ireland, with a recent report revealing that just 3.2 per cent of Irish adults said that they had invested in a new business started by someone else between 2008 and 2011. But, as investors seek out new investments away from property and the stock market, investing in smaller and growing companies has come to the fore. Indeed earlier this year the Halo Business Angel Network (HBAN) estimated that some €90 million was available to Irish companies from angel investors.

And now a new EU-funded initiative is hoping to get more people with extensive business experience involved. Senior Enterprise aims to offer advice to those aged 50 or over on how to put their money to work by investing privately in companies. It is set to offer a series of training programmes for potential “informal investors”, at which participants will learn how to assess the trading performance and potential viability of new businesses worthy of investment.

“What our training programme aims to do is demystify the investment area for those who have never invested before and impart to participants the basics of sound investment practice,” says John Byrne, project director with Senior Enterprise.

The organisation has already held one well-attended seminar, which costs €25, and is set to schedule another before Christmas.

“We had an unbelievable reaction, with twice as many people turning up as we thought, and we then had a flood of emails looking for another course,” notes Byrne.

With some 8,000 people having left the public sector last February, with lump-sums of anywhere between €20,000 to €200,000, it’s no surprise that there’s such a demand.

However, it’s not for the faint-hearted. As venture capitalist and business adviser Bob McGowan Smyth warns, “the most likely outcome of any one angel investment is failure. You have to know it’s high risk.” Apart from the company collapsing, the biggest other risk, which has particular relevance to those in retirement, is the illiquidity of the investment.

“If you invest in a private company you can’t sell shares in that company easily. If you die, it might be difficult for your estate to realise that value,” warns McGowan Smyth, adding that investors should go into an investment with the “objective” of getting out within five-seven years, but being prepared to wait for longer.

In an ideal world, your company will be sold in a trade sale, reaping you a multiple of your original investment. Other alternative exits, which are unlikely to be as attractive, include the existing shareholders buying out your share, or another investor coming in.

To ensure you get some kind of a return on your investment, you could agree a dividend policy with the company, whereby some of the profits are paid out to shareholders. However as McGowan Smyth notes, “angels generally don’t invest for an income; it’s a capital play instead.”

So how can you minimise the risks? Firstly, by picking the right investment. An Intertrade Ireland survey amongst venture capital investors revealed the top three criteria used in assessing the attractiveness of a proposition:

1) management team; 2) exit opportunity; and 3) revenue potential.

Opting to spread the risk by adopting a portfolio approach and investing in several companies through a syndicate might also be wise.

“There is a comfort factor when someone else is investing with you,” says McGowan Smyth.

However, this is not without its own challenges. “There could be conflict with your fellow investors, and having been united with agreed goals and time frames, there is room for fall-out as well,” says McGowan Smyth, adding that a syndicate charter can help mitigate risks in this regard.

A fund is another option. Davy Stockbrokers runs its own EII fund in conjunction with BDO, while cleantech fund manager BVP Investments is currently looking for investments for its sixth “Simple” Green Fund. Minimum investment in the fund is €5,000, and it is targeting a return of 17 per cent a year, including tax relief.

Looking for the right investment can be difficult. Often it can start at home, through a family member who is either in the process, or has already set up their own business. Or it might be your objective to invest in a company with which you have no personal relationship.

Accountants and financial advisers are often sources of investment opportunities, while another route is through HBAN. To register as an investor, there is an annual administration fee of €100. And there are other sources too. Irish start-up Seedups.comis a portal that looks to match investors with start-ups in the tech sector who might be struggling to fill the sub-€50,000 equity gap problem.

Another resource is irishinvestmentnetwork.ie, which is run by UK firm Angel Investment Network Ltd, and is again, a matching service for angel investors seeking investment opportunities and entrepreneurs seeking capital.

The Employment Investment and Incentive Scheme (EIIS), which also comes with the added advantage of tax relief, is another option. At a time when most legacy tax reliefs are on their way out, this scheme remains one of the few sources of total income relief.

Under the new scheme investors can get relief on all their income, including rental income, by investing in certain qualifying small and medium-sized trading companies. The investment term runs for three years, and relief is available at up to 41 per cent – 30 per cent in the year of investment and a further 11 per cent once the term has ended. Relief is available on an investment of up €150,000 a year.

But it’s not just about making money – there are also emotional benefits for those who have left the workforce to keeping in touch with the world of business.

“By investing in a company, you’re actually getting involved in business yourself. You’re giving yourself an interest where you can use your skills and build up contacts. That’s very positive,” says Byrne.

And taking on a non-executive role in line with your investment can potentially boost your rewards. “There are statistics that show that two days a month enhances a company’s performance. If you’re involved more than that however, the company’s performance starts to fall,” says McGowan Smyth.

So there’ll still be plenty of time for that golf course.

START WITH A START-UP - OPTIONS FOR INVESTING:

* An Irish-based daily deals site is looking for one or more silent investors to put up €100,000 (min €25k) to boost its sales and marketing capability and take it "to the next level". irishinvestmentnetwork.ie

* Quotefish, a "reverse Yellow Pages" which connects consumers with local businesses via a web app, is looking to raise €50,000. seedups.com

* An Enterprise Ireland (EI) High Potential Start-up in the internet/ecommerce/apps sector looking for €200,000 to match EI funding and put towards its working capital. irishinvestmentnetwork.ie

* MobaNode aims to democratise the development of mobile apps for events, festivals and tourism, making apps faster, easier and affordable. It is hoping to raise €300,000. hban.org