Sarah Turner busts some angel myths
By Sarah Turner @turnipshire
An angel investor is an individual who provides capital for early stage and start-up businesses usually in exchange for ownership equity. Before I started doing a little investing myself, my perceptions were that angels were super-wealthy older men with lots of time on their hands, an appetite for the very risky, and plenty of corporate board level experience. It turns out that only the men bit is true.
Angel investing is heavily dominated by men. According to the UK Business Angels Association, only about 5% of angel investors in the UK are women. That’s a lower proportion of women than in Parliament, on the boards of our big companies and even studying Computer Science! Why does this matter you might ask? Well, it matters a lot.
Firstly, people tend to invest in people like themselves, so however broad-minded they are, male investors will tend to invest more often and more money in male entrepreneurs. Women-run businesses will be starved of the cash they need to achieve their full potential. Secondly, as per the title of this article, angel investing is good for your wealth, so women are missing out on financial returns that can vastly outperform the stock market and other investment classes, not to mention skills and experience that can help accelerate them to the corporate boardroom.
So I thought I would use this article to share my experience and do a little myth-busting.
Myth 1: it’s high risk
As with most investments, there is risk. Early stage companies often don’t live up to their promise, or even fail completely. The approach most experienced angels take is to spread their risk over a portfolio of investments on the assumption that some won’t perform, some will do modestly well and 1 or 2 will do really well, boosting the value of the whole portfolio.
In addition, our Government is so keen that we invest in young businesses that they are relieving us of much of the risk. The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) mean that, as UK income tax payers, we get 50% or 30% (depending on which scheme the investment is eligible for) of our investment back as a tax credit. Moreover, if we keep our shares for 3 years there’s no Capital Gains Tax on the gain and if the investment fails, or you sell you shares at a loss, there’s loss relief.
So, if you’re a UK tax-payer with some spare cash, I highly recommend angel investing as part of your tax planning and investment portfolio. The tax credits match those I get from investing in my pension fund while, unlike my pension, much of the risk is borne by the government. It’s also far more flexible in that my money isn’t tied up until I retire.
Myth 2: it takes lots of money
It certainly takes some money. The FSA requires that angels investing via formal groups self-certify as experienced investors or high net worth individuals. That is, an annual income of £100,000 or more, or assets (excluding your home, pension and insurance policies) of £250,000 or more. If you’re not at that level yet, but want to get a taste of investing, you could consider crowd funding via sites such as http://www.seedrs.com/.
I would describe myself as comfortable, not wealthy. I have property and a pension and am now complementing those with some angel investments. I invest as part of a syndicate or group, a few thousand pounds at a time. Everyone invests the amount they want. This typically ranges from £10,000-£40,000 per individual in the groups I’ve been part of, but sometimes nearly the whole amount can come from just 1 or 2 very wealthy investors. The point is that entry levels are relatively low and in the range of many professional women.
Myth 3: it takes lots of time
I run my own business and don’t think I have much spare time. I’m writing this at 9pm. I do appreciate that women with children may have even less time (and disposable income), but as Dale Murray, British Angel Investor of the Year in 2011 and mother of 3 boys says, “I can do as little or as much of it as I want, I can take an active role in my businesses or sit back and leave them to it”.
Again, investing via a group means that the due diligence that must be done before making an investment and any on-going involvement can be shared between group members. The lead investor in a group often does much of the work and will usually be the person to take a seat on the company’s board.
Myth 4: it takes special know-how
Yes, there is some know-how involved but if you’re a professional woman who’s worked at a relatively senior level in your organisation, you will have a lot of that knowledge already. It also makes sense to invest in areas you know and understand. Much of the rest can be picked up quite easily and, frankly, no one person knows it all anyway. When looking at a deal, we need to consider the market in which the company operates, the product or service, the team, its financial status, the terms of the offer and several other aspects. Being part of a high quality group means that many of the skills to do this will be available and you can learn through doing and collaborating, taking a more active role as your confidence increases.
I’ve claimed that angel investing is good for your wealth, health and career. The average IRR (or rate of return) from angel investing is 22%*; in terms of health, I’ve never had more fun at work (that’s the point, right?) and, career-wise, my network is bigger and more interesting than ever before while I’ve broadened my skills and experience.
Sarah Turner is the founder of Angel Academe a network for professional women with extensive business experience who want to support tech entrepreneurs – as mentors, non-execs and angel investors.
Image via Zanthia’s Flickr