Angel investing takes off
“If you invest in a private company you can’t sell shares in that company easily. If you die, it might be difficult for your estate to realise that value,” warns McGowan Smyth, adding that investors should go into an investment with the “objective” of getting out within five-seven years, but being prepared to wait for longer.
In an ideal world, your company will be sold in a trade sale, reaping you a multiple of your original investment. Other alternative exits, which are unlikely to be as attractive, include the existing shareholders buying out your share, or another investor coming in.
To ensure you get some kind of a return on your investment, you could agree a dividend policy with the company, whereby some of the profits are paid out to shareholders. However as McGowan Smyth notes, “angels generally don’t invest for an income; it’s a capital play instead.”
So how can you minimise the risks? Firstly, by picking the right investment. An Intertrade Ireland survey amongst venture capital investors revealed the top three criteria used in assessing the attractiveness of a proposition:
1) management team; 2) exit opportunity; and 3) revenue potential.
Opting to spread the risk by adopting a portfolio approach and investing in several companies through a syndicate might also be wise.
“There is a comfort factor when someone else is investing with you,” says McGowan Smyth.
However, this is not without its own challenges. “There could be conflict with your fellow investors, and having been united with agreed goals and time frames, there is room for fall-out as well,” says McGowan Smyth, adding that a syndicate charter can help mitigate risks in this regard.
A fund is another option. Davy Stockbrokers runs its own EII fund in conjunction with BDO, while cleantech fund manager BVP Investments is currently looking for investments for its sixth “Simple” Green Fund. Minimum investment in the fund is €5,000, and it is targeting a return of 17 per cent a year, including tax relief.
Looking for the right investment can be difficult. Often it can start at home, through a family member who is either in the process, or has already set up their own business. Or it might be your objective to invest in a company with which you have no personal relationship.
Accountants and financial advisers are often sources of investment opportunities, while another route is through HBAN. To register as an investor, there is an annual administration fee of €100. And there are other sources too. Irish start-up Seedups.comis a portal that looks to match investors with start-ups in the tech sector who might be struggling to fill the sub-€50,000 equity gap problem.