Prepped for battle, the first founder confidently marched up to present, armed with a Powerpoint remote. 50 angel investors looked on, packed into a freakishly brightly-lit room overlooking London’s financial district.
The founder began, his speech complete with rehearsed, weighty pauses as he explained his life’s work to a crowd of potential financiers sitting cross-armed and expectant.
“Insane valuation”, one investor nearby scribbled; “Overinflated revenue. Will need to raise again.”
Welcome to Angel’s Den, where companies pitch to pre-vetted, high-net-worth, individuals, eager to find the Mark Zuckerberg of fintech.
The investors (overwhelmingly men) pay to be part of the network which in return sifts through startup candidates over weeks of intensive due diligence.
The network then selects the top handful of companies to give 7-minute pitches, each hoping to convince the audience of a £1m investment. Among its successful alumni is Bean, a personal finance app that was acquired last year by online giant CompareTheMarket.com.
Of the lucky few picked that day, the majority were business-to-business fintech companies.* Several explained their products relied on distributed ledger technology (a version of blockchain). One founder said his payment solution had been used at the Grammy awards.
The event’s name comes from the hit TV program Dragons Den, where eccentric inventors pitch wacky ideas to notable business leaders. But Angel’s Den is a real-life version that plays out every month in Central London. It also feels distinctly like speed “dating” for startups — even down to the warm wine.
It’s clear why Dragon’s Den makes such good TV now; there’s something weirdly captivating about seeing founders present themselves to a sea of hungry investors. It’s also a snapshot of what goes into fintech deals every day around the world and the arduous reality of fundraising.
It’s almost a necessary evil for founders to secure backing, and for investors to find their golden ticket. Indeed, one longstanding veteran of the club that Sifted met said two of his three investments had secured lucrative exits.
Angel investing – why do it?
Although fintech has attracted more money in the UK than any other industry, studies show 75% of the funds have been concentrated into just 22 companies. That leaves something of a shortfall for smaller newcomers, who must fight to be seen amid the high-profile challenger banks and dominant payment solutions.
While there are dedicated early-stage funds, crowdfunding sites and accelerators, attracting seed money in Europe often falls on angel investors. Even the British Business Bank is not active in this space, while its subsidiary Angel Co-Fund, has only backed 18 seed rounds across 49 investments.
“The reality is that most seed or post-seed-stage companies don’t meet the monthly or annual revenue threshold levels of VCs. Therefore Angel networks are the main way for them to raise funding,” one regular Angel’s Den attendee, Brendan Bradley, explained.
Angel investors like Bradley are required to earn over £100,000 a year in the UK. This is because these investments are very high-risk (9/10 startups fail), and capital is normally locked up for 7-10 years. Participating investors also often also have broad domain expertise in the sectors they finance.
“Angel’s [Den] is essentially a more sophisticated version of the crowdfunding approach where investment is more concentrated in a smaller number of investors that have more experience and conduct more in-depth due diligence.”
To coordinate these efforts, most high-net-worth investors form part of the UK Business Angels Association (UKBAA). The Association’s chief executive, Jenny Tooth, told Sifted that this sort of network offers entrepreneurs much more than just cash injections — and could prove particularly helpful amid the UK’s departure from the EU.
“These investors are sector alumni who can bring a wealth of experience in a range of different industries, which is vitally important to young businesses,” she said. “As seasoned investors who have often navigated the far more dangerous waters of global recessions or banking crises [than Brexit], the advice they can offer could help SMEs make the best of this period of uncertainty.”
Tooth also noted that there is “an extraordinary amount of business potential outside London and the South East of England” and that investors “are missing a trick by ignoring” regional investments outside of the so-called Golden Triangle.
“The UKBAA has set up angel hubs across the regions in the UK…To bridge the gaps caused by investment disparities, we need angel investors to use the hubs to connect with local entrepreneurs to ignite growth within local economies.”
Other initiatives include Angel Academe; a network of 400+ (mostly) women who seek out female founders. They are hoping to correct the major imbalance in funding between the sexes, whereby for every £1 in venture funding men receive, women receive less than 1p. Female founders also report facing subconscious sexism from investors and employ tactics to wedge their foot in the door.
“Several women who have fundraised have put a male name on the email. And I’m ashamed to say it but it seems to work,” says Leona Mondsee, founder of pension fund-comparison service, Reitly.
Behind this push for gender balance are firms like Catalyst at Large, and Enterprise Alumni, who teach and encourage more women to get into angel investing. This has helped bring in the likes of Louise Samet. In an op-ed for Sifted last year, she wrote that while angel investing was fundamentally a bad idea, the “rollercoaster ride” was too much to give up.
Not everyone enjoys the thrill of course. But as a mere spectator, these “dens” are admittedly an inspiring way to spend an otherwise dreary winter afternoon.
*For confidentiality reasons, the companies and investors featured in Angel’s Den cannot be named.