Anthony donned the role of an angel investor in 1995 and is now the co-founder and CEO of Angel Capital Group and leads the London Business Angels as the Managing Director.

Having been a part of the angel investment scene since its early days, Anthony has closely observed the industry survive its ups and downs; and while he takes us through his journey we can see how angel investment has evolved over the years.

As one of the longstanding angel investors of London, how would you describe your journey so far?

By way of background I have been an angel investor since 1995, and perhaps I can show you an impression of how things were in 1995 and you can see how things have changed dramatically over the past twenty years. For example, if you see the tax break claims alone, it will show the market growth. In 1995, they amounted to £53m under EIS across the whole of UK and last year the comparable figure for SEIS/EIS was £1.65billion. Back then there were only 7- 8 angel groups in the whole country. We used to communicate through the printed newsletter, there were no visible structures for angel syndication or angel co-investment funds and there was no UK trade body for the angel movement.

Since then, the sector has seen some really positive structural changes and I would say that over the years angels have become more sophisticated; they are doing more diligence, they are syndicating and operating almost like VC’s. Going back 20 years ago, you wouldn’t have seen many angel syndicates of more than 2-3 people but, in LBA alone we closed twenty syndicated angel deals last year. Today’s angel investors are more driven towards getting good results and are working very closely with the entrepreneurs and to me, in London that has been the fundamental change. Policymakers have also recognized the important role angel investing plays in accelerating entrepreneurial activity and hence we have initiatives like EIS/SEIS and angel co-investment funds too.

According to you, which factors contributed the most to help create a fertile ground for the early-stage companies and investors in London?

De-regulation of angel investing 10 years ago – Prior to the deregulation, it was not as easy to invest in start-ups. In fact, it was not even possible for start-ups to share their business plans as openly as it is now.

EIS/SEIS & Loss Relief – helps to minimize the risk in angel investment and this has significantly encouraged more angel capital to enter the market.

Establishment of more angel groups and syndicates – gave more buying power to investors and more certainty of closure to the start-ups.

Angel Co-investment Funds – enabled angels to invest alongside funds resulting from co-investment models such as the Government’s £100m Angel Co Fund and the London Co-investment Fund.

Incubator/Accelerator programmes – have also been extremely instrumental in guiding/educating the early-stage companies and helping them overcome business hurdles. Tech City, for example, has also been a fantastic initiative.

Changing perceptions towards equity capital – Advice and mentoring support from incubator/accelerator programmes has helped to demystify equity capital and its advantages for the early stage funding of tech businesses.

What are visible benefits of Angel Syndication & Angel co-investment funds?

There is often a deal heat in this market and a need to close rounds in a relatively tight time period. Having ready-made syndicates, accelerators with capital, super angels with their own partner investors, has really geared up the investment activity. LBA has already completed 11 angel syndicated deals with the LCIF and many of these deals would not have not closed without the additional capital.

Angel investors have wised up to syndication in the last say five years leading to the emergence of the lead angel, a person who helps catalyse the syndicate before the deal and then sits on the board of the company post completion with a view to helping mould its future.

This has further led to the increase in passive investors bringing in fresh capital alongside lead angels which have catalysed syndicates in the market. We at LBA often have to search for a potential sector specific lead angel for a syndicate of anything between 5-30 angel investors as there are more often than not, passive angels circling to invest but holding back without a suitable lead angel.

Are you seeing a more sector-specific investment approach?

Yes…This is the start of a growing trend with angel investors. We’ll see a lot more sector specific lead angel driven angel syndicated investing in the next 5 yrs. Individuals who have worked in certain areas, having intimate knowledge of the subject, understand where the business can go and thus can add value to it. It also instils investor confidence in the company as eventually it is de-risking the business. Likewise, accelerators are also working in specific areas of say mobile, fintech, life science and other specialist sectors.

What was the most interesting trend that you noticed in 2015?

Secondary Exits –At LBA we started to see angel exits in 2015 where the whole company was not sold, but later stage investors particularly private equity investors came on board with new investment and were also buying out the early/seed stage angel investors.

For example, as an entrepreneur you’ve got you an angel syndicate backing for let’s say 6 years and you now want to raise £10m at a valuation of £50m+. Your current angels may not want to invest further at this valuation, so the fresh investor will put in the £10m plus tabling another say £2m to buy out the existing shareholders.

As angels we need exits, it is difficult for us to continue to participate at very high valuations, as often when the company successfully scales, early-stage investors lose touch with what’s going on at the company. Secondary exits are great, as it provides the early/seed stage investors with an exit and a potentially tax-free return under EIS where proceeds can be reinvested as fresh capital into the market.

Are angel investors keen to participate in larger/later rounds?

Investors are likely to adopt a more stringent approach towards investing in early stage capital intensive companies given the need to follow on with further rounds of investment or face significant dilution. A clear understanding of the likely future capital needs of the business is a pre-requisite.

As the number of start-ups continue to grow, what are the key factors that entrepreneurs should focus on to survive through the critical period?

Try to delay your first seed equity rounds – Use personal loans, debt etc. to gather capital while you are refining the proof of concept and try to obtain some early customer wins. The more refined is the offering, the better is the valuation.

Seek out investors who have in-depth knowledge of your business/technology and can help you grow it.

Raise enough money in your first round to deliver some value inflection milestones. Plan you cash flow requirements for an initial cash runway post seed round of at least 12- 18 months.

Try to minimize the future technology risk for investors by establishing some proof points pre-investment

Attend networking events to meet potential new investors, understand latest industry trends and also current deal structures and likely future funding sources for your business.

Don’t overvalue your first round and risk losing the interest of any potential new capital.

What would be your investment advice for the individual investors, especially who are new to the game?

Invest with patience and adopt a long-term approach. It is important to understand that most of the capital you invest could be locked in for say 5 -7 years before any material gains are realised.

Decide whether you want to be a passive investor or an active angel investor.

Invest in projects that you understand and are aligned with your area of expertise. Angels can add a lot of value to the businesses with their experience and guidance.

If you are a passive investor, it’s best to invest within well-structured angel syndicates

What are the gaps in the current angel investment sector?

I think there are an enormous number of people who could become angel investors, who are currently not engaging. This is due to lack of knowledge, lack of opportunity, how to find projects, co-investment partners and a general lack of awareness of this asset class.

LBA has been running angel workshops for the past five years in order to improve the skill sets of new angel investors with many successfully going on to build successful portfolios of angel deals. Alternatively, some choose to be less hands on and join our EIS Funds which track our syndicated angel deals.

The ability to syndicate and co-invest is still quite challenging, which perhaps has led some retail investors to invest on crowd funding where they can find a project and buy a piece of it. It’s less complicated that way, but that’s not what fundamentally what an ‘angel’ investor is.

What is your view of the current funding gap?

Compared to the rest of Europe, I think there is a reasonable supply of seed and early stage equity capital in the UK, but it is still insufficient to meet the demand from SMEs. But that’s probably not a bad thing as it could mean that money is not going into projects that perhaps it shouldn’t go into.

Original Source: http://thrive.london/interviews/view-from-the-top/

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