‘It’s not for women.’
It’s true there are very few female angel investors, with women making up an estimated 9% of all UK angel investors. Considering women own 48% of UK net wealth, it does indeed seem that angel investing currently excludes women with the means to invest. Yet these figures speak of a missed opportunity for women to participate in a sector which is interesting, dynamic and offers a range of experiences not otherwise readily available. Think pitch nights, due diligence, negotiation of terms, the deal close, the journey onward (and hopefully upward), mentoring, follow-on funding and, in the best-case scenario, successful exit. Angel investing offers an exciting experience, shared among a group of like-minded individuals, accessible to men and women alike.
‘It’s hard to get into.’
How, exactly, does one become an angel investor? Some angels go it alone, often stumbling into the game through the FFF (friends, family and fools) round of very early-stage funding. A planned entry into the sector, however, requires little more than a quick web search to uncover a host of angel investing syndicates, supported by a trade body such as the UK Business Angels Association. Some syndicates have niche interest areas or support a particular investor group, such as Angel Academe for female investors and entrepreneurs. An effective syndicate will have a pipeline of businesses ready to present at pitch nights and a group of interested investors ready to listen, with a management team and experienced members supporting both investors and entrepreneurs in navigating the next steps to investment; absolute beginners are welcome.
‘It’s too risky.’
Some ventures fail, some underwhelm, some perform as expected and others succeed beyond the early-stage investor’s wildest dreams. It’s important to recognise risk, and mitigate where possible. Look for a diverse investor group and leverage the collective network and expertise, place many smaller bets instead of fewer large ones, take advantage of tax breaks offered via SEIS and EIS. There are upsides to the early-stage nature of angel investing, like direct access to the entrepreneur and her team, working together on the deal which allows each side to assess character and compatibility. Angel syndicates can advise and mentor an early-stage founder, possibly taking a board seat, giving the founder access to the syndicate’s resources. Group investing also offers safety in numbers, like buying in bulk, so the business has a longer runway and more chance of success. There will always be risk, but risk can always be managed.
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‘It’s too time consuming.’
The prudent investor does her homework, and homework takes time. Group investing can cut the time required and keep a deal moving by sharing due diligence and allocating tasks according to background and interest. A diverse syndicate will be made up of busy, efficient investors including entrepreneurs, senior professionals, portfolio careerists and high net worth individuals. These people are not in the habit of wasting time, nor are they always available, so calls and meetings are planned in advance, held at convenient times, run to schedule and are highly productive. Face-to-face events like pitch nights and investor education sessions offer time for networking, socialising and sharing ideas – quality time.
‘It’s too expensive.’
Angel syndicates usually recommend a minimum spend per investment and prefer members to make several investments per year. This gives a stronger collective bargaining power, making for better value investments, and attracts the most exciting business opportunities. If the minimum investment requirements seem high, equity crowdfunding opportunities on sites like Seedrs, Syndicate Room or Crowdfunder provide a flexible alternative. A well-managed wealth portfolio will generally include some high risk investments, so taken as a small portion of a larger, diversified portfolio, angel investment spend can be considered prudent rather than expensive. Add the benefits of SEIS and EIS income tax relief, capital gains tax (CGT) exemption, loss relief and CGT deferral relief, and an ‘expensive’ angel investment begins to look a lot more attractive.
‘It’s only for the experts.’
To become an angel investor, self-certification as a sophisticated investor or high net worth individual is required by law – a barrier to entry that implies a certain level of financial nous. However, a benefit of group investing is the supportive environment of mentoring, education and collaboration. In a well-run syndicate, experienced angels rigorously pre-screen all investment opportunities and members are offered investor workshops on starting out, taking advantage of tax breaks and navigating the legal landscape. As one new Angel Academe member concluded: “The workshop made me realise nobody is an amazing expert, just brave enough to ask questions.”