Finding your guardian angel

Ronan Perceval started his salon software business by working in a hair salon to find out for himself what they most needed from technology.

He discovered that no-shows were costing time and money. One of his first ideas was to send out text reminders. All sorts of businesses do them now but at the time it was highly innovative.

He then went on to develop a range of solutions which improved everything from marketing to stock management. The company he founded in 2003, Phorest, has since grown into one of the Ireland’s most successful businesses, employing more than 200 people in Ireland, Germany and the US, with a customer base that spans half a dozen countries.

It was also highly successful for its early backers, many of whom were business angel investors. Phorest recently won a major European angel investment award, which acknowledged it as the most successful businesses financed by early-stage investors at the European Business Angel Network annual congress in Helsinki.

The company’s growth attracted multi-million euro worth of funding from US investment firm Susquehanna Growth Equity, which allowed angel investors a chance to cash in their chips. In some cases, a return of 10 times their initial investment was netted, in less than seven years.

Many of the business angels who backed Phorest had done so through the Halo Business Angel Network (HBAN), an all-island umbrella group responsible for the development of business angel syndicates and the support of the early-stage entrepreneurial community here.

HBAN is the largest business angel network in Ireland, with 10 different angel groups and syndicates, in operation both across Ireland and overseas, investing directly into Irish companies.

Though successes like Phorest don’t come along every day, its statistics suggest that 9 per cent of its deals see a return averaging 10x. Other successful exits enjoyed by the network include iCabbi and CroíValve.

In the past five years, more than 210 start-ups received funding from HBAN's angel investors, to a total of €138 million. Last year, HBAN business angels invested €9.3 million into 44 companies. Its direct investment leveraged a further €7.5 million of additional public and private funds from organisations such as Enterprise Ireland, venture capital companies and founders.

Typically, angel investors are wealthy people who provide perhaps €50,000 at an earlier stage than many venture capital funds are able to invest.

‘Smart money’

For businesses, the benefits of angel investment is that it brings so-called “smart money” to the table, that is, investors who also have the experience, knowledge, contacts and time to help the start-up team.

For investors, getting involved in a business angel syndicate is a way of de-risking what is by its nature a high-risk investment strategy. The benefit of pooling your money into a syndicate, which invests across a range of businesses, is that diversification mitigates risk. Put simply, you’re not putting all your eggs into one basket.

The added benefit is that syndicates tend to be led by someone with “real, deep domain knowledge who knows exactly what’s going on in a company”, says HBAN national director John Phelan. The result is that “it’s not a punt, it’s a considered risk”.

The network currently has about 600 business angels on its books. It is currently looking to double that amount, and in particular is keen to attract the kind of lead angels that have direct industry experience and the domain knowledge “to look under the hood”, he says.

“By their nature, existing angels come in, invest in five or six deals, and then go and look after their babies, make it happen and look for an exit, which can take three, four or five years, so it takes that long before they come back.”

Don’t do it unless you have the money to lose, and no more than perhaps 5 to 10 per cent of your liquid assets. Typically, you can expect to see it tied up for three to seven years. For people who have experience of business, it’s a lot more interesting than watching your money sit in a bank. Of course, there are no guarantees – you can lose your entire investment. But if it goes well, “the returns can be great”, Phelan says. Just ask Phorest.