The world of Angel investing can be confusing (even for those who are part of it). Here at Quintas, we provide an Angel service that helps connect the best start up companies with the right Angel investors.
Have you considered Angel investing previously and didn’t know where to start? If so, these frequently asked questions may assist you. If you have any further questions, please get in contact at Kevin.canning@quintas.ie
What is Angel investing?
Angel investing is simply investing in start up business. Angel investors are usually the first investors into a company.
What do I invest?
Angel Investing can be done in one of two ways:
- A cash investment; or
- A time investment (get equity in a start up in exchange for your expertise/skills)
How much do I invest?
Angel investing can start from as little as €100 through online platforms such as SEEDRS (UK) and Spark (Ireland). However, if you are looking to invest directly into a company, it would usually start at €10k (for friends and family or syndicate members) or €25k if investing individually. The average Angel investment would be around €25k - €50k but can go much larger.
Is an Angel involved in the Business?
In general, Angels do not get involved in the day to day running of the business. However, they should be available to assist the business by giving strategic advice or introductions to their contacts.
How do Angels benefit Companies?
Besides the obvious cash investment, an Angels contact book can be very beneficial to companies. The more Angels you have, the more contact books you have access to. However, it is also more personalities to manage.
How many Angel investments should I have?
There is no set number and it depends on the type of businesses you are investing in. If you know an industry well and are investing in businesses who are already generating revenue or maybe even profits, you could have 2-5 investments. However, if you are investing in pre-revenue highly scalable tech companies, you should likely have 10+ investments to have a good chance of success. Several of these types of businesses will not make it past 2 years from your investment.
Can I save tax on my investments?
There is a tax scheme in Ireland known as EIIS. This allows for a refund of up to 40% of your investment into a start-up company. For example, if you invest €100k into a start-up, you receive an upfront €40k cash refund from Revenue. This can make start-up investing very attractive in Ireland. However, there are several restrictions to EIIS – always ask the company if you can avail of EIIS.
Can I Angel Invest through a Company?
You can invest through a company, but these types of investments cannot avail of EIIS tax relief.
Who makes the best Angel Investors?
The best Angels generally sit one of the following brackets:
- Entrepreneurs – If you have started and scaled your own successful business, you should be an asset to any start up. If you have sold your business, you will be even more valuable.
- Tech Executives – Did you work in Amazon, Apple or Google throughout the booming 2010-2021 bull market? You may have now retired and looking for something to do. You could make a great Angel investor.
- Financiers – Have you experience working in investment banking in New York, Dublin or London? Your contacts book could make you a great addition to a start up.
Will I be offered board seats?
As start-ups scale, they will likely require a board of directors. Directors can be paid anywhere from €15k - €25k in start-ups and involve around 1 work day per month. However, only the best Angels would be attractive as board members. There are ways to train to be a better board member to make you more attractive.
Are there any restrictions from Angel investing?
We are very lucky in Ireland that anyone can invest in start-ups. For example, in the USA only high net worth individuals (i.e. “accredited” investors) can invest in start ups.
The rationale behind it is that start-up investing is considered too risky for the average person. However, it is perfectly legal to fly to Vegas and put whatever they want on a roulette table.
What are the benefits of Angel Investing?
The main reasons people are drawn to start up investing includes:
- Interact with the smartest entrepreneurs at an early stage
- Potential for high returns (100X or even 1000X)
- Potential tax relief of up to 40%
- Paid Board Positions
- Educate the next generation of entrepreneurs
Is Angel Investing Risky?
There is no riskier type of investing than start up investing. You can and will lose all your capital on certain investments. However, there is also no other type of investing where you can make 100 or even 1000 times your money in 5-10 years. Therefore, you should spread your number of investments.
How Do I avoid bad Founders?
Unfortunately, like all industries, there can be founders who are looking to take advantage of Angel Investors. The best way to avoid this is to invest through a Syndicate or get legal documents reviewed by a professional (only feasible for large investors).
Where Can I Find Angel Investment Opportunities?
There are many ways to find Angel investments, some include:
- Crowd Funding (Spark, Seedrs)
- Angel Networks/Syndicates (HBAN, Boole, Rubicon)
- Accounting Firms (Quintas)
- Your Network – investors share deals often
- LinkedIn – advertise that you are an Angel investor
- Investor Days (Cork BIC, Rubicon, Republic of Work)
What is an Angel Syndicate?
An Angel syndicate is a collection of Angel investors who co-invest in start ups. There are many benefits to this including:
- Less Risk (can invest smaller amounts)
- Lean on other investors expertise in niche areas
- Create a network
- Get offered companies to invest in
- Allow one Angel to lead the round (i.e. interact with the company)
- Give the company access to a large network of contacts
What’s the Difference between Venture Capital and Angel Investing?
Venture Capitalists or VCs collect a pool of funds from investors to invest in high growth companies. They primarily invest in scalable technology companies. VCs generally operate on the 2/20 model (2% mgmt. fee per year for up to 10 years and 20% of the profit on successful investments).
Angels are a lot less sophisticated and go into different types of companies and usually at an earlier stage than VCs.
How do I cash out of my Angel Investment?
It can be difficult to cash out of a successful Angel investment, the most common routes would include:
- Venture Capital (VC) – A VC may look to clear the cap table of other investors
- Initial Public Offering (IPO) – The company lists on a public market
- Company Buyout – A larger company purchases the company you are invested in
What is a Follow-On Investment?
Angels should look to invest more capital in their best performing investments. This is where Angels make their highest returns. To do so, you should request pro-rata rights when making your first investment.
What are Pro-Rata Rights?
As an Angel investor, you should always request pro rata rights. This means that you are entitled to participate in future fund raising rounds. This will protect you against aggressive VCs looking to take full investment rounds and water down your initial investment.
Where to Hear More?
If you would like to learn more about Angel Investing, please get in contact with me Kevin.canning@quintas.ie - I am always happy to discuss.
