roundtable
Rodriguez admitted to a fairly random strategy. ”Some of my investments have a lifetime return through dividends, some are based on an exit. For me, the trigger is the management team.”
Dan Wagner noted: “Things don’t always go right first time for an entrepreneur, but, because of their inherent natures, maybe it will next time.” Seasoned investors who support promising entrepreneurs often also secure the rights to invest in their future projects.
Noting that true entrepreneurs seldom stop creating after a business failure, Wagner suggested such a confirmed future investment would be attractive. “After all, most entrepreneurs start with 100% ownership, but from one room with a bit of paper.
“Maybe there is an investment model for angels to buy ‘long-term bonds’ in the further business interests of certain executives or managers?”
Sikorski agreed that there were some individuals he would back “no matter what their ideas.” He exampled one such first-time failure, now successfully running a growing business and seeking major second-stage funding. “I stayed with him because I understood that his business ideas would adapt and change, but also that he was driven to succeed.”
“It always has to have an intellectual gain rather than just a financial return for me,” said Hopkinson. His investments tend to be with “businesses I understand and fascinate me.” He doesn’t invest in companies he is privately advising and helping to grow – “otherwise the others I advise want supporting too.”
Interestingly, Hopkinson has recently invested ethically in a private medical practice to assist with community health care locally.
“Over the years, the amount I’m prepared to invest has got smaller. People talk about getting 10 times return over five years, but I’d much rather get a more certain five times ROI or a potential 100 times my money. Today, I tend to take a blended investment approach – safe dividend plays and risky disruptive businesses.”
Sikorski agreed that many angels now adopt this blended approach – having learned the hard way from previous large losses – but ensure they monitor the delivery of essential ‘milestones’ promised by the supported business.
Hopkinson advised watching mature backers with deep pockets. Their investment successes can often guide angel secondary support.
Still working, Malone is time-poor for investment so tends to choose fewer
THE BUSINESS MAGAZINE – MAY/JUNE 2018
but well-researched entities. “I try to find a financial incentive both on the way in and on the way out – leveraging Enterprise Investment Scheme (EIS) tax relief, and Entrepreneur’s Relief on Capital Gains Tax (CGT) based on a targeted 5% exit.
Lack of certainty over long-term tax reliefs pending Brexit re-arrangements remains his current concern.
Harris provided his ‘top ten tips’ for angel investing:
1 Never bet (invest) more than you can afford to lose
2 Spread bet (invest) to increase your probability of success.
3 Use EIS/SEIS to reduce your risk.
4 In general, bet (invest) in what you know, but don’t avoid ‘fun’ investments.
5 Invest with other angels if you can. If things go wrong it’s nice to be part of a group.
6 Invest in the management team as much as the business.
7 Do due diligence. ‘Gut investing’ can work if you know the business well, but it’s not ideal.
8 Take up your follow-on investment rights to protect your position in future funding rounds.
9 ‘Don’t panic.’ If things falter, be patient, work with the management team, help them.
10 As an alternative to the above, there’s always the 2.15pm at Windsor Races.
Can I work with these people?
Rodriquez focused on the qualities and character of the management team. “Do I want to work with them? Have they got talent, charisma – can I empathise with them. The people involved are the magnet for me.”
Wagner felt he was ‘a random investor’ often enamoured by the enthusiasm, drive and persistence of an individual entrepreneur. “I buy into the individual or management team. If they can sell to me, a salesman by nature, persuade me to part with my money, then they will get customers to do the same.” He viewed such investing as buying a piece of entrepreneurial spirit.
Sikorski agreed. “Management teams I invest in have to show business savvy, not just be scientists in love with their technologies. They must know how to create revenue streams and make money.”
While ROI was important, being able to offer his knowledge and experience
Frank Rodriguez Tony Harris
also mattered a great deal within the investment deal, added Sikorski.
Apart from “business savvy first-and- foremost,” he listed other desirable investing qualities as: “Do I like them, can I see a synergy; can I help them with advice and mentoring; are they willing to take my advice?”
And entrepreneurial stamina: “Do they realise that failure is not the opposite of success, but an opportunity to do something again and again more intelligently until you get it right.”
Rodriguez revealed: “Some great ‘angels’ helped get our business off the ground. They invested in me and my colleagues, our passion and vision as a management team. They believed in us, saw that we had ‘va-va-voom’. You have to look at all the other aspects but actually it’s the management team that drives the business and makes things happen.”
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