Funding Knight reveals Investors' attitude to crowd lending

 

Last month I covered the results of Funding Knight's research into entrepreneurs' attitudes to crowd funding and this month I am delighted to be able to reveal the details of investors' attitudes to crowd lending in particular.  The information is fascinating!

Here are some key things the research showed.

• NO investors would reject crowd lending out of hand.
• 53% strongly agreed or slightly agree that they take risks when investing because they like the thrill and the prospect of higher returns.
• The same percentage feel confident or very confident about their personal economic situation in the future, though only 48% feel the same about the future economy in the UK
• Only 27% allow their investment manager to handle everything for them.
• Investors think about more than making money - 45% would invest as crowd lenders to help other British companies to succeed
• Women are significantly more cautious than men about crowd lending and are less exploratory about finding new ways to invest. BUT they are much more confident than men about the future of the economy and their own personal prospects
• 24% of investors use the returns they make to fund day to day living expenses; 45% use them to save for a pension and 36% for their children's education
• 54% have a social conscience in business with 13% liking to put something back into the community via their business activities and 42% wanting to do business fairly. 62% want to invest in businesses that "operate in a socially responsible way"
• 48% are prompted to invest by the desire to make the most of what they have accrued to date and to make their money work harder.
• Experience counts when it comes to winning an investor for your business.  Only 29% look for a good idea, but 47% look for previous profitability and 41% back people they trust.
• Interestingly, investors are swayed as much by peer group recommendation, as by official reviews and adverts.  So the obvious conclusion is that you cannot afford just to rely on social media to influence investors.
• 75% of investors are, have done or would love to run their own business
• The idea of a normal investor is no longer a retired bloke in a grey suit - only 19% of investors declared themselves to be retired!
• Only 35% of investors want more stringent regulation in the crowd, but they are keen on cooling off periods for investments - just under 50% believe there should always be a cooling off period vs 28% who think that once you have committed you have committed.
• But investors don't want anyone to be able to invest - only 14% think anybody should be able to do it 45% think only High Net Worths should get involved in crowd funding, and 11% think it should only be on offer to sophisticated investors. 
• Transparency is king - only 9% are not bothered about transparency in loan decision making.

So what are the conclusions from this research?  I think they are rather interesting. Most of all we now have some statistical proof that investors are not blindly following the crowd or indeed their  advisers, but are taking charge of their own investment decisions.  Crowd lending is now a core consideration when building an investment portfolio.  Investors have a conscience but want to make money.  Women are different to men and we need to work harder on addressing the differing attitudes to investment between the two sexes.  I firmly believe we both can learn from one another.  And we still need to have a much deeper and wider debate about the issues of how transparency in the crowd, availability of this asset class to all and regulation, intersect.

If you would like to invest or raise a loan on Funding Knight, please go to Funding Knight where you can register for free as an investor or apply for a business loan. 

 

 

9 Budget Boosters

With the budget before the budget before the next Election looming, here are some things that Mr Osborne could announce now to ensure his party is in pole position to win in 2015.

Fundamentally the message needs to be that the UK is going to become the lowest tax nation in the world and the most frictionless economy too - the easiest way to do this is to get on with significantly reducing our national tax bills.There are small things that can be done around the various Venture Capital tax break schemes which will have a big impact quickly.  These include:

1. Increase the amount individuals can invest in VCTs to £1m a year per head.  Look what the impact the same measure has had on EIS investment to catch my drift! Possibly giving VCT investors IHT relief on their shares would be helpful too.
2. Take the amount that can be invested under SEIS to £250,000 per company and £200,000 per investor.  Any business worth its salt needs at least a runway of £10k a month for 2 years to have a chance of getting off the ground!
3. Introduce Social EIS as soon as possible.  The effect would be to galvanise responsible investment and this would wash into the for profit world.
4. Reintroduce a better version of the Corporate Venturing Scheme to release cash from corporate balance sheets into growth companies.
5. Allow EIS companies that sell assets for cash to pass that cash onto shareholders without incurring additional tax liabilities.

And the big things that really would change the UK forever.

1. Call for a major review of the relationship between the Civil Service, Quangos, Special Advisers and Government - the Northcote Trevelyan report of the 21^st Century.   Realigning the relationships will enable strategic changes to the tax system to be implemented quickly and easily as well as untold other benefits.
2. No taxation without representation - either end corporate taxes particularly Employers' National Insurance and Corporation Tax - or give businesses the vote!
3. Set out a vision and 5 year plan to get the country to become a flat tax nation - implement the first steps on this plan during 2014.  As the Government, stop trying to be a business, but be business-like in how you manage your assets and deal with your costs.  This means being ruthless about undertaking privatisations and shutting down extraneous expenditure throughout government to reduce spending and the National Debt not by a bit, but by great chunks.  Nothing is forever, if you get it right you can then re-launch all those schemes ministers so love!
4. And finally, now that almost 11 million people have to file Self Assessment tax returns (https://www.gov.uk/government/news/hmrc-sees-record-breaking-year-for-tax-returns) which makes up around 1/3^rd of income tax payers, most of whom file online, the time has finally come for the government to start the move towards disintermediating businesses from the tax affairs of their employees. 

Employees are responsible adults and should pay their own taxes from their gross salaries on a monthly basis.  After all they pay their mortgages, utility bills, credit cards and holidays.  The government could start with all those people who file Self Assessment Returns - instead of sending them a letter with a tax code each year, send them a letter with a statement of how much they have to pay over the next 12 months and a direct debit form to complete - even better just set up an online tax account for each one which is connected to their tax return filing. The wonks in your Gobernment Digital Service could set this up in a flash by renting a decent billing platform to manage it all for HMRC.

Having arranged for all people who file Self Assessment Returns to pay their taxes direct, you can start to move into bringing other people on PAYE into the system in a measured way.

The government that introduces this will have the whip hand when it comes to the biggest debate of all - not whether higher rate tax payers should pay 45% or 50% of income, but why a company employing someone in their late 20s on a salary of £30,000 and with a student loan of £30,000 ends up paying over to HMRC just under 37% of their salary in taxes various!

Plan this one right George, because it matters.  In fact, if you and David take the lead on democratising tax in this way - justifying to each and every one of us what you are charging, you should win the next election.  And the risk you face, if you do not, is that the Opposition will and you will be left with nowhere to hide about how you spend the nation's taxes.

 

The emergence of the contemporary investor

Super angels, serial investors, tech angels, "job buyers", property angels, syndicate investors and more. The trouble is that humans don't fit into boxes, even if we want them to.  So for every variety in the angelic species I thought I could name, another popped up.  When my PowerPoint slide became too full, I just gave up! It's just as well because nowadays even MPs and Lords and Ladies are now also angels!

More recently and especially as we have expanded Pitching for Management and introduced our Great British Workforce Revolution Conference, I have had the great good fortune to be exposed to many more types of business person interested in the enterprise space.  These events are also an environment when you see people from another perspective.  All sorts of people come along to Pitching for Management. They include angels and super angels looking for deals where the team have actually "got it" that they cannot do it all alone and if they are going to scale they will do so quicker if they can build a team of people who are more interested in the equity growth than a big remuneration package paid for out of an equity fundraising.

Others include directors of large and global corporates - those with C level positions looking to build a portfolio career, interims and even the odd aspirational younger manager working full time in a large business who sees that their future wealth may be created by leaving the security of a corporate job and acting as wing man to an amazing entrepreneur.   

These are exceptional people in a more normal business environment.  The chatter is just as much about sales tactics to grow a business as it is about innovation and by banning conversations about investment, the conversations focus on offering constructive solutions to challenges, not mitigating risks that affect valuation.  We laugh a lot - in league with the entrepreneur, not in spite of him or her.

What fascinates me is that, in the angel world, we tend only speak to individuals with their "angel" hat on.   Matters angelic - valuation, tech innovation, legals, investment scandals and successes are the order of the day.  It is rare that we talk about how the stock market is performing, what the gold price is doing or about their charitable activities.  And yet, as soon as the angels leave the room, they return to their "normal lives" of which angel investing is just a small part.

Meanwhile in the world of wealth management and indeed many more established parts of financial services the angel world is seen as highly dangerous from both a compliance and reputational point of view.  It is sadly still the norm that clients are sent off to do their "alternative investing" ELSEWHERE.  The situation is improving; a number of highly regarded wealthy managers - UBS and Kleinwort Benson, to name just a couple who have crossed my radar recently, are now showcasing a panel of VCT and EIS fund managers to their private clients.  Some wealth managers are getting around the rules by inviting their clients to "meet the entrepreneur events", even though, despite their billing, they are thinly disguised fundraising events.  But the general mood persists that the Establishment should not be encouraging their clients to do this sort of thing.

The arrival of www.nutmeg.com is causing waves in the world of wealth management- you can see why from this screenshot of their home page that I took on Friday 14^th February.  They are using the internet to challenge the status quo in terms of wealth management and are doing a beautiful job!. Could this become the iTunes of wealth management, we are all asking?  

What is most significant I think was the fact that it was through an angel investor that I first found out about the site.

The truth is if we continue trying to put investors into boxes we are doing them a disservice.  With the rise of portfolio or plural lives as a permanent trend and with people living longer and longer lives, everyone from, recruiters to wealth managers, needs to become plural in their approach too.  We will see a world where an angel is also an interim from time to time, a sales director will learn to become an angel and may end up as an NED on an SME board whilst holding down a nearly full time job in a corporate; angels will continue to put money onto peer to peer lending platforms whilst disapproving of crowd equity.  And everyone will be showing their charitable credentials - acting as a trustee or volunteer for some sort of social enterprise. 

You will no longer be defined by your job status or title, but by the plurality of your life - who wants to be CEO of BP if they can be Sherry Coutu, Luke Johnson or Jon Moulton?

The vast majority of people can, must and will desire to keep working in some capacity far longer than the normal retirement age - their activities will get mixed up accordingly, although the common theme will be that they will keep earning and no longer hit a point when they just retire to live off a pension.  Actually will there be any pensions worth having in 30 years time when I would otherwise have been looking for one?!

This is why, now, I no longer think of the people I meet as angels or non angels or potential angels. Instead I think of people as contemporary investors - applying their two major assets - time and money - throughout adult life, in a variety of ways, to create a balanced portfolio life. 

So the truth is that the successful contemporary wealth managers will be experts in discussing in the relative risks of crowd investing vs a FTSE tracker fund (and their compliance departments are going to have to find a way of letting them do it).  And comtemporary employers and recruiters will offer ways to allow working people to become angels and work part time for sweat equity in a young start up that builds upon and not detracts from the work they are dong for their main employer.  Contemporary banks will not ban their staff from investing on a P2P debt platform because it is seen as their staff backing "the competition" but will encourage them to use their experience as P2P investors to offer the bank's customers superlative service.  Even schools will have to rethink their contemporary pupils - helping to educate teenagers whilst those pupils are running some mega app or gaming start up in their evenings and weekends.

When you come to think about it, this is majorly disruptive. We will see tsunamis of innovation in how people and companies organise and differentiate themselves over the next decade.

And although this disruption is already underway, it will become mainstream as we all come to accept that every person is now a contemporary investor in both themselves and others.

 

 

He backed me, now it's my turn to back him!

There are not enough capilliaries in my body to count the number of people who over the years have helped AngelNews to get to where it is. Whether or not you are reading this article, I promise you, I thank you all time and again.  I feel, however, that sometimes one person needs to be singled out and, if it should be anyone today, it should be the person who became my very first customer. 

That's a gentleman called Stuart Nicol.  Way back in 2003, he heard that I was determined to build a business around news, information, content and connections in the early stage market place. He offered me the opportunity to win a contract from the organisation that is now YFM Equity Partners (his then employer) to create an index of venture capital and angel investment activity.  We spent a lot of time getting the project up and running, stomping the streets of London together building interest in the project. I got to know, like and respect him.

In early 2004, our Venture Index launched and then ran for several years in the early noughties.  Of course, AngelNews has grown massively since then and spun off into Plans B, C, D, E and more!

Why I owe such a debt of gratitude to Stuart is not that he enabled me to issue my first invoices to the likes of YFM and NESTA to sponsor the Index, but because in doing so, he gave me the confidence to become an entrepreneur.  And anyone who has set up a business will know that you ALWAYS owe a debt of eternal gratitude to that person.

I have stayed in touch with Stuart as his career has progressed through the UK venture capital scene.  Highlights (other than, of course, the launch of the Venture Index!) include his early backing of Avanti Communications - thanks to Stuart there are now 2 British satellites orbiting the Earth with 2 more being prepared for launch) - and the role he played at Octopus Investments helping to establish, with the likes of Alex MacPherson, this amazing financial services company's strategy around its tax efficient offer to private investors, with a special focus on VCTs. 

Like me he is a bit of a geek when it comes to using information about the VC market to spot an opportunity in it and at heart he is an entrepreneur so one knew that one day he would try to do something on his own.  Maybe that is why I was not surprised to hear that he had left Octopus some months back to set up his own VC fund and a charity called Heropreneurs to support e- military personnel to build businesses.

Stuart is following a well trodden path in this respect.  Perhaps more than any other industry in the UK, financial services and especially Venture Capital, has grown and matured because it is normal for bright people to learn their craft with established players and then, when ready, step out on their own with an innovative adaptation of the model.  What's particularly noticeable is that Stuart's leap has been accompanied by shouts and cheers of encouragement from colleagues past and present and even industry competitors.

Why is that?  I think it's because (apart from the fact that he is a thoroughly good bloke) he is doing something no-one else has thought of - not backing a sector or a stage but backing a certain type of entrepreneurial person -listen to the round of applause from aficionados of Pitching for Management! - namely these ex-military entrepreneurs.

He's doing it not just because he feels passionate about the ex-military in business.  Stuart himself was in the Argyll and Sutherland Highlanders in his previous life. The truth is there is an extraordinary correlation between success as an entrepreneur and having had a military career prior to starting a business.  The likes of FedEx and Walmart were built by ex-military entrepreneurs and in this country so too have successful companies been built - ones like Tristan Mayhew's GO APE which now employs 700+ people.  Maybe it's the tactics, risk management and team building skills military people learn when they are in the forces that makes them good business builders. Or maybe it's that military people only become entrepreneurs in a market (battlefield?) where they know they can beat the competition (win the war?). Partly it will be because they self-select to be entrepreneurs when they could rush off in the professions, the City and other lucrative second careers. Whatever the reason, they are a bunch worth looking at and, through military networks that Stuart and his team can access, they are extraordinarily easy to reference!

Stuart has set up the TIME:REBOOT VCT as the vehicle to back the next generation of proven ex-military entrepreneurs who want to scale their businesses.  I catch up with him on the phone from time to time as he rushes through his roadshow meetings across the country and in our latest call he told me that the first commitments are now in from investors.  These investors are taking advantage of the typical VCT structure - 30% upfront income tax relief, tax free capital gains and tax-free dividends, the planned stream of which can help supplement pension or other income, especially with the ever reducing pension lifetime limit. But they are taking advantage of something more: of the rigorous selection and detailed training process the target entrepreneurs have undertaken whilst in the services - at least a quarter of their time and often tens of thousands of pounds will have been spent training  and preparing for operations, giving them a high degree of resilience and excellent leadership qualities.

And Stuart knows one soldier doesn't make a patrol - he has teamed up with TIME Investments, who have over £500m under management, long experience in managing and administering tax efficient products and more than 30 staff - and his team at the VCT includes Helen Reynolds, who he worked with closely at YFM and who previously worked on the Oxford Technology VCTs; Bill Anthony, an ex-3i portfolio veteran and Tris Mayhew, who spent six years in the Royal Dragoon Guards before founding Go Ape which now turns over more than £10m encouraging people to jump off forest platforms onto zipwires.

So he has won the first battle in his own personal war.  I will be backing the VCT, but more symbolically than just money, I have written this article.  Perhaps in these small ways I can start to repay the debt I owe him.

When does an ethical investment cease to be ethical?

It was recently reported that a US arms' manufacturer, Lockheed Martin, has invested $206 million into the world's largest wave energy project, to be built off the coast of Victoria, Australia.

This poses an ethical dilemma for those of us in camp "let's all plough everything into clean energy infrastructure".  Because typically, green projects are lumped into the wider "ethical investment" category thanks to their environmental, and knock-on social benefits.

Consequently, most renewable energy investors, at the retail level at least, are also ethically-minded. So the news that an arms' manufacturer has invested in a green project provokes a kind of regurgitation: "Hooray, that's great, $200 million for renewables wahoo!" Then a: "But oh. Guns. Wait a minute. Hands off our ethical investments, evil good for nothings!"

But there are no ethics in corporate investment. Only returns.  The biggest investors in renewables are investment banks, large institutional funds such as pension funds and the very utilities that seek to discredit renewables, but are forced to invest in them because of policy commitments. So companies that are as happy to screw over their customers with huge fees and charges as they are to launder money for Mexican drug dealers; those with a strict mandate on risk and returns and those that would, given the choice, much rather be sucking gas out of the ground than buying wind farms.

The question is, does what they do in their day jobs change the colour of their money? If you are in need of that money, it probably does not. I might loathe investment banks and their bonus cultures, but if I am a renewable energy developer in need of £200 million and personally doing something good with the money I receive, I am likely to turn a blind eye to its origins. Realistically, in the absence of options, I don't have much choice. So it's all smiles to characters you would not choose to go for a beer with, as long as they've got the goods.

And while returns from renewable energy remain attractive enough to appeal to those who couldn't give two hoots about carbon dioxide emissions, grinning and bearing it is the right response from more environmentally motivated individuals. Clean energy will continue to make green look good, not in the moral sense, but because it measures up well on the only barometer that makes sense to investors: how much money it makes. Hence, projects attract investors from all walks of life: not just the holier than thou, but arms makers too.

Does it make the investment itself less ethical if it is paid for effectively with blood money? Not in my opinion. How the arms manufacturer makes its money should be viewed separately to how it spends it. Its business is unethical, what it chooses to invest in is not tainted by default.

The problem is if you start to become prescriptive over the ethical credentials of the investors as well as what they are investing in, you are on a philosophical tightrope, setting the impossible task of ethically cleansing an entire free market. 

If you go far enough back down the chain with any investment, sooner or later you will come up against an ill-gotten gain, which by accident or design, caused suffering to another living thing. This is unfortunately the nature of capitalism and a free market. So you have to draw the line of responsibility somewhere and in the absence of black and white morality, in a world where all money flows through banks that are governed by greed not conscience, the line can only realistically stop with yourself.

So judging the morality of other investors is very difficult and ultimately, pointless. It is the investment that matters.

But for what it's worth, I don't think that downright unethical companies can claim do-gooder status just because they've chucked the odd few million the way of clean energy. Partially offsetting wrongdoing might make you look better and it might genuinely do some good, but if your core business is still damaging to someone or something somewhere, the halo will have to come out another day. 

 

Rebecca O'Connor

[email protected]

 

How to protect your invention

"Do you own the intellectual property?" is perhaps one of the most important questions an investor can ask, and is one which will be heard more frequently from the likes of Deborah Meaden now that Dragons' Den has returned to our screens. But what exactly are the different types of intellectual property (commonly referred to as 'IP'), and what do they protect?

• A patent will protect a new product or process that encompasses an invention, for up to 20 years
• A registered trade mark is most commonly associated with a brand or a logo, and can be renewed on a 10 year rolling basis
• Registered designs can protect aesthetic appearance for up to 25 years when renewed on a 5 year rolling basis
• Copyright applies to original works such as literary and artistic works including software; this typically lasts for 70 years after the author's death.

Although some may question the value of protecting IP as the timescale and fees associated with doing so can seem daunting, the value of protecting your share in the market from copycats is significant. Patents in particular can also help to generate secondary revenue through cross-licensing and with the UK Government's Patent Box tax relief initiative, they can now start to pay for themselves.

To help ensure you can get a patent for your invention, you should:

• Avoid disclosures - keeping your idea confidential will help ensure it remains a 'new' product or process, an essential factor for obtaining patent approval; ensure you have confidentiality and IP agreements in place with any third parties, before disclosure
• Keep records - in the event of any potential disputes, records of conversations and correspondence could be useful as evidence
• Pursue patent protection as early as possible - this will help increase commercial value and longevity, a key consideration for future development or expansion
• Review your patent application at key milestones - it is imperative to remember that a patent application and a patent are not the same
• Seek professional advice - a patent application needs to be drafted and prosecuted by a qualified attorney with the appropriate technical experience

Research and development takes time, effort and money. A robust patent that fits with your commercial strategy will help you make the most of your work.

If you would like any further information please contact Duncan White or say hello at the Oxford Pitching 4 Management event on 27^th February. 
In our next article we will look at How to protect your brand.

 

 

Thoughts of a Wannabe Angel 

As this was to be my first written assignment for AngelNews, I was invited to give my thoughts on the UKBAA Winter Investment Forum and the changing Angel Market. Easy you might say, with such a range of speakers and with so many experts in different fields sharing their experiences of exits and investments. Leading economists, Angels, entrepreneurs and senior financial advisors, how many more insights could you possibly need? Somewhat more challenging however when you are told of your assignment on your way back from the event. There was no hiding place. "On my desk by Monday morning please". (I exaggerate a little) nb. Less canapés, more notes in future.

Angel-backed Businesses, the Bigger Picture

With an estimated £300BN of equity locked up in UK private companies, the value of supporting a liquid market to encourage growth and stimulate reinvestment in small businesses can not be overstated. With large private firms sitting on vast cash piles, the need for them to release capital into the open market is vital given the current rate of bank lending.

 

The importance of providing greater opportunities for Mergers and Acquisitions for UK businesses is another reason that government incentives for businesses should be modeled on lowering corporation and income tax as opposed to increasing the flow of money into government backed growth schemes. The vast majority of SMEs are crying out for freedom from red tape and lower taxes rather than 'support' in the form of government packages.

The Shadow Chancellor's recent proposal to re-introduce the 50p tax rate would surely spell the end for this burgeoning liquid market and damage a fledgling recovery. As Simon Walker, Director General of the IOD duly pointed out, the 50p rate of tax rate would draw parallels with the current sin taxes. There is a high tax on tobacco to discourage smoking; there are high taxes on alcohol to discourage us drinking as much. The idea behind Air Passenger duty is that we fly less. So putting up income tax will, by its nature, discourage entrepreneurs from trying to create successful companies. He was right to question, if entrepreneurs have to work more for the government than for themselves then why would they bother?    

Policy aside, the ability to realize and negotiate the right deal at the right time gives companies and investors the best possible chance of successful exit. Talking about his personal experiences in negotiating the exits of some of Britain's best known companies, Sir Nigel Rudd expressed an underlying message that to achieve the best outcome for owners and shareholders, an awareness of successful exit opportunities must be maintained, even in the worst of a recession.

Described by the Daily Mail as the 'Man Who Sold Britain', Sir Nigel speaks as someone who has most certainly 'been there and done it' when it comes to successful company exits. Importantly, his advice to investors was that in light of increasing corporate acquisitions and with very positive forecasts for economic growth in 2014 the time should be right for successful exits in angel backed businesses.

Despite the pessimistic outlook trotted out by so many of our major business newspapers, Andrew Sentence, Senior Economic Advisor at PwC echoed Sir Nigel's buoyant stance. Highlighting the rise of emerging economies, Andrew advises that investors should prepare for the next growth wave by tapping into the rapidly expanding markets in Asia and the Pacific. His research made for some interesting reading and was reason to feel genuinely positive.

On a global scale, the world economy is still expanding, with World GDP due to reach $92Trillion by 2017. Interestingly, that is up from $32 Trillion in 2000 and despite a crippling recession, an increase of $13 Trillion from 2008 through 2013. However, post crash, markets have altered significantly as the factors supporting sustained growth have disappeared.

Andrew's warning to businesses, policy makers and investors, is that they should develop strategies to manage and survive through the current difficult growth period. The factors that produced such high and unsustainable growth in the past are no longer available. The easy access to money, cheap imports and confidence in policy regime has gone. Instead, the attitude should be one where companies look to build potential opportunities for the future, and in doing so should consider the following:  

• Repositioning to tap Asia/emerging market growth
• Innovating and exploiting new technology
• Identifying opportunities from structural change
• Responding to changing customer requirements
• Increasing business flexibility and adaptability
• Being efficient in use of energy/resources

 

Taking into consideration all of the above will undoubtedly stand investors in good stead for the next wave of growth. However, if results are not immediate then investors need not panic. Speaking from his experience as an entrepreneur, Angel and as a Managing partner of a leading investment banking advisory firm, Adam Coxen pointed out that, in many cases we lose sight of the fact that we have just endured the worst recession in 100 years, if not ever. If exits do not present themselves immediately then don't lose heart but give your business the best possible chance and consider at all times what would make it attractive to potential buyers.

'Exit Strategies' The Key For Angels Looking To Achieve Superior Investment Returns.

In the words of Nelson Gray, there are five things that men will lie about when asked about their performance: sex, fishing, golf and driving, the other is their investment returns. That is not to say that women or female investors are exempt from hyperbole in any of the above, but Modwenna will be the first to admit that her golf swing needs a bit of work.  

An average return of 2.2x on an investment portfolio is a fairly impressive figure. Supposing this is the case, it is safe to say that the majority of investors will only talk about those investments that are making them money, the rest you are unlikely to hear about. However, the average is a dangerous indication of overall success given that returns are so rarely distributed around the mean.

As a general rule for Angel Investments, over half of exits are loss making, and 35pc are generating profit of some kind (but are still looking like a damp fishing weekend). It is only 9pc that are making the sizeable gains of 10x the investment or more that affords an average return of 2.2x. The old adage of one in ten investments making ten times your money is also misleading; a more accurate figure is three in thirty making 30x your investment. Odds are further stacked against would-be Angels because the most successful companies will have been picked up at an early stage by Angels with the biggest pulling power in their relevant sectors.

The conclusion arising from these figures compiled by NESTA is that Angel Investing is inherently risky. The majority of angel investments are a big drain on time and money and in most cases a portfolio of thirty is not the norm. In order to maximize the chance of success, the advice of Dale Murray is not to waste too much time and energy trying to turn the loss makers around, especially when the strategies of the board are not aligned with those of the investor. Being ruthless enough to get rid of those from your portfolio as soon as you can, will save you time and resources allowing you to focus on investments that will provide the best returns. Michael Blakey agreed, suggesting that it is wise to invest in the teams as much as the ideas, so that strategies to exit can be aligned early on. Michael does admit that investors are not always right and companies do sometimes turn around of their own accord, but more often than not if the board's strategies are not aligned with the investor's exit plans then it is time to walk away; better still don't invest in the first place. 

The important point that Nelson was making was that the reason successful exits are not achieved often enough is because exit strategies are not planned or established at an early stage. The mentality of investors should be to invest in companies that have established an exit strategy, have a high quality revenue stream and good market potential. Further to this he suggests that, if returns are to be accrued, the exit should be at the heart of the decision making process before investors decide whether to invest:

Valuation, finding deal flow, initial screening, detailed screening, term sheet, due diligence, legal's, post investment, monitoring & mentoring etc should all be considered with the exit at the forefront of the decision making process.

Wise words it would seem from some very impressive experts. But then what do I know? If I knew any of the answers I certainly wouldn't be here writing about them. 

Jack Peck, Intern at AngelNews 

 

"Master your business challenges and become more effective as a Leader" 

Leading a team or a business is rewarding but it comes with many challenges and it can be lonely.

The world is changing at a fast rate and today's leaders have to constantly refresh, change and evolve to maintain their edge in this dynamic world.

The Leadership Academy feel it is vitally important for Leaders to ensure they are equipped and supported to deal with the complexities they face and engage their people in the process.

For further details on the Leadership Academy please visit www.realisingambition.com.