Angel Investing......

[fizz47]

I posted this in the Business forum too but it didnt illicit a great response.



What are peoples thoughts on investing small amounts in start up companies.. I have a little money to play about with and was wanting to see the potential to invest in small new start up companies... There is always the chance you may end up investing in the next facebook etc.

I dont have any experience in this but what is the best way to go about this?

Are there specific companies people could reccomend to be introduced to start ups.


BTW the investments amounts im talking about are very small...

[onedsla]

Take a look at some of the funds on this list:
http://www.iii.co.uk/isas/fundfilter/?task=show_fu...FSM__id=&FS__FSS__id=9&FSfn=

My own view is that it's better to pay the 1% for the 'experts' to decide what has most potential rather than take the gamble yourself... for every 'facebook' there's a lot of 'failures'.

I've spread some savings between UK small companies and a similar fund for US small companies - looking at long term (5 year +) returns. IMO this isn't a short term investment strategy - even if your selected fund does back the next facebook, it's not going to be an overnight success - more likely to build in popularity / success over a few years.

[ringram]

Try here http://www.angelsden.co.uk/

Some interesting stuff comes up from time to time and the organisers seem pretty proactive. Might be worth poking around to see if its of use to you.

Otherwise perhaps do some research on AIM companies, or look at a venture capital fund (30% tax rebate too!)

[Mr POD]

fizz47 said:

I posted this in the Business forum too but it didnt illicit a great response.



What are peoples thoughts on investing small amounts in start up companies.. I have a little money to play about with and was wanting to see the potential to invest in small new start up companies... There is always the chance you may end up investing in the next facebook etc.

I dont have any experience in this but what is the best way to go about this?

Are there specific companies people could reccomend to be introduced to start ups.


BTW the investments amounts im talking about are very small...

Define small.

[seaninog]

ringram said:

Try here http://www.angelsden.co.uk/

My first recommendation would be to advice these guys. I've been angel investing for about 8 years and these were among the least suitable that I came across. They had poor deal research, poor screening of deals and seemed to me to adopt a quantity over quality approach (throw as much s**t at a wall and see what sticks?). A much more professional outfit in London, Manchester, Jersey and a few other locations are www.envestors.co.uk

The second thing I would say is invest in people, not the product. The reality is that if you buy 5-10% of some company you will still be a Minority shareholder and though the Founders will be nice as pie to you before you have written the cheque, once you have written the cheque the dynamic changes and you depend on them for updates, financial information, management information etc. Though you may think you have a legal right to it as enshrined in either your Investor Agreement or in the Companies' Act, when push comes to shove to enforce these rights will cost money. There is nothing to stop the Founders turning around and saying "No" when you ask for more transparent information - trust me, I've seen it happen! If you want to enforce your rights, get your cheque book out and call a solicitor. Hence, know the calibre of the people you invest in above all else.

The last thing is be familiar with the stats here. Most start-ups fail. If they do survive 3 years and even grow a little, how are you going to get your money out? For many investors it becomes a 'Zombie investment': it's alive but worth nothing to you because you can't realise it. The Founders pay themselves a nice wage each year and have no incentive to sell. You're just a minority shareholder and can't influence anything. What do you do then? Nothing you can do.

In reality even with the good tax breaks from EIS it's a tough game to make money in. Go in with your eyes open and forget your dreams of investing in the next Google. In all likelihood that ain't gonna happen.

Edited by seaninog on Saturday 4th June 22:08

Edited by seaninog on Saturday 4th June 22:10

[Beardy10]

seaninog said:

ringram said:

Try here http://www.angelsden.co.uk/

My first recommendation would be to advice these guys. I've been angel investing for about 8 years and these were among the least suitable that I came across. They had poor deal research, poor screening of deals and seemed to me to adopt a quantity over quality approach (throw as much s**t at a wall and see what sticks?). A much more professional outfit in London, Manchester, Jersey and a few other locations are www.enverstors.co.uk

The second thing I would say is invest in people, not the product. The reality is that if you buy 5-10% of some company you will still be a Minority shareholder and though the Founders will be nice as pie to you before you have written the cheque, once you have the dynamic changes and you depend on them for updates, financial information, management information etc. Though you may think you have a legal right to it as enshrined in either your Investor Agreement or in the Companies' Act, when push comes to shove to enforce these rights will cost money. There is nothing to stop the Founders turning around and saying "No" when you ask for more transparent information - trust me, I've seen it happen! If you want to enforce your rights, get your cheque book out and call a solicitor. Hence, know the caliber of the people you invest in above all else.

The last thing is be familiar with the stats here. Most start-ups fail. If they do survive 3 years and even grow a little, how are you going to get your money out? For many investors it becomes a 'Zombie investment': it's alive but worth nothing to you because you can't realise it. The Founders pay themselves a nice wage each year and have no incentive to sell. You're just a minority shareholder and can't influence anything. What do you do then? Nothing you can do.

In reality even with the good tax breaks from EIS it's a tough game to make money in. Go in with your eyes open and forget your dreams of investing in the next Google. I all likelihood that ain't gonna happen.

This is good solid advice. I've invested in a few companies over the last ten years with different levels of success. It is possible to get yourself leverage as a minority shareholder but you need to get yourself on the board and make sure votes have to be unanimous for things like remuneration, major capex etc. In one company I invested alongside two friends....we now have 30% of the company I am a director to represent us on the board. We only got the board representation when there was a second cash call and we made it a condition of investing.....we also set the investment at a very low market cap to dilute anyone else that didn't want to step up.

Regardless of the business model you invest in you have to remember you are investing in a management team....it is ALL about execution. I invested in a recycling business about ten years ago which looked like it was going to be a huge success with both Lafarge and British Gas looking to sign JV's...unfortunately management got too excited about the JV's and took the eye off the ball and it all went wrong very quickly. That was a very expensive lesson.

[ringram]

Indeed very good info.