Last week I attended the National Angel Investors conference in Melbourne.
All the key players in the start-up ecosystem were there: angel investor groups in Australia, international angels, entrepreneurs, accelerators and incubators, advisors and government officials.
For me the key takeaways from the conference were:
A contribution to make
Angel investors, or business angels, have a real desire to make a contribution
Not only do they bring cash to start-ups, but also strategic and operational expertise developed over years in business as former entrepreneurs themselves.
Those years in business also mean a wealth of contacts and networks that provide non-financial benefits to start-ups as well.
It’s well documented in the OECD publication Financing High-Growth Firms: The Role of Angel Investors that the reason many business angels become involved in investing is because they have achieved success in their own entrepreneurial endeavors.
They want to give something back and gain some return on their investment in the process. However, given many businesses fail, their return comes with a high level of risk.
Business angels are a catalyst for growth and success
Without a vibrant angel investor market, the next generation of wealth and job creating businesses will struggle to start and survive.
Data collected shows that only a small percentage of start-ups get funded. This is partly due the quality of the deals, but it’s mainly because there are too few angel investors.
When you factor in the time and effort business angels spend identifying and evaluating business investment opportunities, performing due diligence, negotiating investment terms and legal agreements and then coaching and supporting their investments, there are only so many investments they can make and manage.
Which leads me to my next point…
Is the government doing enough to support early stage, high-risk investment in this country?
When you consider the benefits angel investors bring to the table, we have to ask whether we are supporting this valuable resource sufficiently.
While we have generous incentive and grant programs for small business, those with money need to be encouraged to invest in smaller, high-risk ventures.
A forum on SMEs issues conducted by CPA Australia uncovered several interesting findings during their post-GFC consultation with their members, business leaders and government. These findings included:
- Entrepreneurs need more support,
- There is scope to assist SMEs with managing their business and encouraging the develop of management capability would be beneficial to them,
- Tighter lending and investment conditions will prevail post GFC,
- There’s a need for policy and tax incentives directed towards providing support to start-up businesses with good growth prospects, and
- Government should put more effort into increasing awareness of finance options for SMEs and how to access finance.
Business angels provide the funds and support entrepreneurs need, however, they carry a high degree of risk in doing so.
To address this imbalance, some countries – such as the UK – now have policies and incentives to support and develop the growth of angel investors.
The UK Enterprise Investment Scheme (EIS) is designed to help smaller, higher-risk trading companies raise finance by offering a range of tax relief to investors who purchase new shares in those companies.