Many entrepreneurs are keen to use a portion of the money realised through an exit to invest in businesses with high growth potential. One way of finding good prospects is to join an ‘angel’ or ‘investor’ network. Oliver Woolley, Founder Director at Envestors Limited explains the workings of his investment network.
It would be good to start with some background about Envestors itself. What were you setting out to do when you established the company?
I had first-hand experience of just how difficult it can be to find good investment projects. After I left university I set up a food company. When I exited from that business I made three investments and all of them went bust. I began to think that there must be a way better way of investing than the ad hoc process of recommendations of friends or people you meet in the pub. That’s why, together with three other investors, I set up Envestors.
You describe the firm as an Investor Network rather than the perhaps more familiar term of an Angel Network. How would you characterise the difference?
The term ‘angel’ applies to a fairly narrow subset of the private investment market. We are aiming at a broader group of investors. However, as with angel networks, we focus on investment in unquoted companies.
What do you see as the main advantages of working through a network rather than going it alone and seeking out investment prospects independently?
One of the biggest advantages is that the network will do a lot of the very essential work that precedes an investment. In addition to finding suitable companies and introducing them to investors, the network will screen the investment prospects on behalf of members. The network will also handle the packing of the investment in terms of valuations and eligibility for the Enterprise Investment Scheme (EIS).
Networks offer superior deal flow in that members have access to a wide range of pre-screen investment opportunities. Networks also play an educational role - educating the investors about the prospects and vice versa.
How do you find an angel or investor network?
A good place to start is the BBAA – the British Business Angels Association
How much money should an investor be prepared to invest?
This kind of investment represents the high risk portion of one’s portfolio. As a rough guide you should probably be looking at investing between five and ten per cent of available capital. Investments in a single company usually start at £25,000.
And how many businesses should you be prepared to invest in to maximise the chances of getting a good return?
At least five and ideally up to ten. Statistically speaking if you invest in ten companies, five will go bust, four will do OK and one of them will be a star. According to research by Nesta – the National Endowment for Science Technology and the Arts - in 2009 the average rate of return for business angels is 22% over four years. That headline figure has to be seen in the context of a spread of investments. The NESTA research indicates that 56% of investments make a loss while 9% generate more than 10 times the capital invested.
How much money should an angel be thinking of investing in each company?
That will vary but to take an example, we presented a company to our members that was seeking £375,000. We had twenty people interested with the sums on offer ranging from £25,000 to £200,000.
If there is a lot of interest, what happens if the offer is oversubscribed?
There are a number of options. It may be a case of first come, first served. Alternatively the amounts might be reduced pro rata, or the company might take more money?
What are the costs associated with Networks?
There can be upfront joining fees and most networks charge success fees of around 5%.
Envestors – connects businesses seeking investment with Business Angels.
