In a recent post, we discussed Crua Outdoors’ experience with digital funding. Another funding option start-ups might consider exploring is angel investment. With the launch of the HBAN Kerry Angel Network (KAN), in partnership with KerrySciTech, Kerry entrepreneurs now have an alternative avenue for financing their business efforts. Here, we discuss the HBAN model, outline the advantages and disadvantages of angel investment, and offer tips for entrepreneurs seeking angel investment.
The HBAN Kerry Angel Network
HBAN is a joint initiative of Enterprise Ireland, InterTradeIreland and Invest Northern Ireland, focused on promoting business angel investment across the island. The HBAN Kerry Angel Network is a community of business angels with a bias toward supporting and investing in Kerry-based companies. If you are an early-stage start-up based in the county, you will get the chance to pitch your business to potential investors in the network.
The HBAN KAN’s three key aims are:
1. Establish an investment vehicle in Kerry to boost the deal flow into the network and create opportunities for Kerry companies.
2. To highlight KAN and the wider access to HBAN as a potential source of investment for Kerry companies and companies that might want to locate in Kerry.
3. Create a network that will provide value for members in the form of quality deals with the scale and opportunity for substantial returns and potential for success.
The HBAN Kerry Angel Network will be launched online on Thursday 27th November at 1 pm. For more details contact HBAN or email [email protected]
Pros & Cons of Angel Investment
Not sure if angel investment is for you? Consider the following factors before you decide:
An angel investor is prepared to take a risk—but they set high standards
Qualifying for a small-business loan generally entails meeting a lot of criteria because lending institutions have a low tolerance of risk. Angels are often established entrepreneurs themselves, so they know the level of risk involved in starting a company and are comfortable with it.
However, this higher tolerance for risk is usually accompanied by higher expectations. Angel investors are in business to earn money, and they may set standards for generating a rate of return on their investment that you are not comfortable with.
Funding from an angel investor is not a loan—but there are conditions
If you take out a small-business loan, you will have to repay it, whether or not your business takes off. An angel investor will offer you the capital you need to get off the ground in exchange for an ownership stake in our business. If you succeed, both of you will gain financially, but if you fail, you won’t have to repay the investment.
The equity you hand over to your angel investor represents a portion of your future net earnings. If your start-up is highly successful, that could add up to a considerable amount of profit you will not be able to claim. This makes it very important to assess the terms of any offer you receive to ensure the level of ownership expected is reasonable.
Your potential for success increases—but you won’t have complete control
The experience and skills your angel investor has built up will be invaluable for your start-up. This will increase your company’s chances of growing and thriving and give you invaluable insights into the world of business.
Your angel investor is likely to want to take an active role in making decisions that will affect your business. Before you investigate angel investment, be sure that you are comfortable allowing somebody else to participate in the running of your business.
Tips for Entrepreneurs Seeking Angel Investment
“We consider the relationship between investor and entrepreneur to be like a marriage, but one with a planned divorce,” says Siobhán Killen, Communications & Events Manager with HBAN.
Here are some tips from Siobhan on how to get started with angel investing:
1. The best business plans have a great executive summary. This should sell the investment opportunity succinctly and not simply describe the business.
2. Do your due diligence on your potential investor, find out what is attractive to them, and tailor your pitch accordingly. Different investors assess different criteria. Ensure that every contact with a potential investor addresses the top three investment criteria (management, exit and revenue potential) in some form.
3. A compelling and fully costed business plan is essential. Make sure you include detailed financial projections for at least three years. In addition, make sure you understand these numbers because investors will ask you about them.
4. Equally, the revenue potential of your company must demonstrate a scalable business that is capable of producing significant returns for an investor.
5. Ideally, you should either have made or intend making a cash equity investment in the company (“skin in the game”). Many companies who pitch to HBAN investors self-financed (bootstrapped) their first few years of operation.
6. Maintain realistic valuation expectations. The investor has to make an attractive return on their investment. An equity deal isn’t all about the headline valuation, and an apparently high valuation can be undermined by high liquidation preference multiples.
7. Raising external equity is rewarding and worthwhile if it accelerates the growth of your business. If an external investor is getting an attractive return, you are likely to be getting an even better return.
Are you an entrepreneur (or a would-be entrepreneur) interested in alternative funding sources?
This is the second in a series of features in which we explore ways you can access finance for launching and sustaining your venture.
Next Up: LEO funding