What did the Business Angel Network do for us?

How do Business Angel Networks such as Xenos, London Business Angels, ABA, AngelsDen and Envestors filter the investment opportunities that they present to you, the Business Angel? Are they using the right filters? Are the filters right for you? Or is there another agenda that might mean the opportunities that are presented are skewed?

When looking at an investment with a team of people, I make sure that all the people are “aligned”. That is, if you take the long term goals of all the people individually does it make a coherent picture and is that somewhere I want to be?

For my investments, the five year goal is to be well on the way to an exit and returning my capital (along with a good return) or a good dividend. If there’s little chance of either of these, it is not an investment that I’m interested in. When looking at companies, one filter is the future return and exit potential of the investment. If I use a Business Angel Network to do filtering for me, I need to be sure that they are using the same filters. If not, they will throw away potential good investments and highlight investments that are not for me. Are they?

One way of answering this question is to look at the material networks use to demonstrate their success. What goals do we find?

  • Number/Value of investments. I’ve also seen “number of jobs created in year after investment” and “Gross Value Add”. For me, the problem with all of these is that they do not include my goal: to exit with a good return on investment. The consequence of this type of network is that they will focus on increasing the number of deals without concern for the future exit potential. One could argue that to achieve their goal of maximising deals, they need to get as many inexperienced investors as possible to make as many investments as possible before they realise they don’t know what they are doing and lose their money.
  • To have exits. I would expect any network that has been around over five years to start having successful exits (as well as failures) amongst the companies that have been invested in. If the network is promoting all their exits it implies that their goal is long term; that they are helping their companies and keeping in touch with them after the investment has taken place. In fact, this is almost like a Venture Capitalist Fund which is all about potential for exit. In addition, this type of network needs good quality investors who are experienced and know what they are doing (perhaps these are good people to learn the trade from).

Which networks in the UK have the same goals as investors? And what evidence do you have that their interests are aligned with yours? Are you a member of Beer & Partners, EIN, OEI, TVIN, LINC or OION? Have you asked them? And if not, what answer did you get when you did ask?

This Post Has 2 Comments

  1. I think beyond filters. There is a gap of skills and expertise, where most of the skilled professional tend to have gained their experiences in the blue chip sector and feel by scaling down their solutions/ services they add value to the SME sector. This is a common experience and tends not deliver the results as intended.

    In context, I think its not just the alignment in the filters that are needed, but professionals who understand the tacit concerns of the SME sector. They can provide a link between the sector and the investor, ensure the filters desired are the appropriate ones and provides a more holistic service that ensures the friction in the process is minimised.

  2. You also need to understand the difference between an angel network that provides services that are regulated by the FSA and those that are not. If a network is regulated by the FSA then it can act more like a Venture Capitalist Fund or a corporate finance broker. If it is not, then it may be limited in what it can and cannot do.
    It’s worth looking at different networks to see what else they offer to their investor members. Do they run workshops and seminars of topics that keep their members informed about the latest developments? And do the subject areas cover the life of an investment rather than just the making of an investment?

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