Is angel investing the right opportunity for you?

Envestors CEO Oliver Woolley draws parallels between those willing to forge a new path since the pandemic and an uptick in interest in angel investing. The post Is angel investing the right opportunity for you? appeared first on Silicon Republic.

Is angel investing the right opportunity for you?

‘The great resignation’, ‘the great reshuffle’, ‘the great realisation’ – whatever name it takes, what it represents is clear. 2022 is seeing a tidal wave of resignations, with large swathes of Europeans considering changing jobs within the year.

Notably, alongside the great resignation there has also been an increased interest in angel investment, with an uptick in people looking to invest in start-ups. Luigi Amati, chair of Business Angels Europe, writes that “angel investing is stronger than ever – but expect a lot more in the years to come”.

Whilst these two phenomena may seem unconnected, when you consider what drives the people behind the statistics, much more becomes clear. There is a notable overlap between why someone may consider leaving their current role, and why they may be interested in becoming an angel investor.

While angel investing is riskier than other asset classes, it does have the potential to offer greater returns’

An angel investor is an individual that invests in early-stage companies, and is typically a high-net-worth individual with an annual salary of at least £100,000, or net assets (excluding property and pensions) worth £250,000.

After the pandemic, more people are looking to feel empowered by their work. By becoming an angel investor, you can spend your time and money helping to grow businesses that inspire you. Moreover, you have the chance to enrich yourself. While angel investing is riskier than other asset classes, and is less liquid, it does have the potential to offer greater returns.

Data collected in the US for a 2017 Willamette University study on angel investment returns calculated that the average return for angel investors is 2.5 times the investment which, alongside an average investment time span of 4.5 years, indicates a gross internal rate of return  (IRR) of 22pc.

Research conducted by Envestors in February of 2022, which analysed the portfolios of nearly 50 experienced angel investors, found a weighted average IRR of 14.7pc.

Participants were required to have invested a minimum of £250,000 in at least five companies over a 10-year period, and the study found that:

  • 89pc of respondents showed a net gain
  • 11pc of respondents showed a net loss
  • 173 of the businesses had exited while 368 had failed and 1,119 were still in play

As an active angel myself I find the results of the report enlightening. Angel investing is known for being high risk, but what the study clearly shows is that it can be very lucrative.

Furthermore, the majority of European governments recognise that incentives are necessary if investment into early-stage start-ups is to be encouraged. These incentives can include capital gains tax exemption, reduction or deferral; loss relief; income or wealth tax relief; or even a combination of these measures.

Overall, angel investment can provide individuals with the ability to empower and enrich both themselves and others.

Providing non-financial support to investments differentiates the role of a business angel from other early-stage investors’

As an angel investor, you know you are making a real difference to a start-up.

Rather than feeling like a small cog in a big machine, you can make a huge impact, not only in terms of cash but by providing the knowledge you have gained from your experience and your connections.

Angels are typically evangelists for the businesses they support, and can provide advice and strategic direction by sitting as a non-executive director or adviser, or just acting as a champion.

A study prepared for the European Commission by Business Angels Europe, in which they interviewed angels from 33 European companies, found that 34pc of the business angels were board or advisory members in the companies they invested in.

Moreover, for a large majority of the angels they interviewed, the fact that they could provide non-financial support to their investments was key, and they felt that this differentiated the role of a business angel from other early-stage investors.

Many investors join angel networks, not only to find their next great opportunity, but also to meet like-minded people. If leaving work has meant meeting less new people, angel investing can fill the gap.

In addition to the social aspects, joining a network can make it easier for you to find good investment opportunities. As well as this, investors that join a network benefit from deal flow, support in due diligence and opportunities to participate in larger deals through syndication.

On the flip side, working closely with a start-up also means increasing your network of enthusiastic entrepreneurs with whom you can share a sense of purpose.

After the pandemic, many people have opened their eyes to the possibility of flexible working. With the increased prevalence of digital angel networks, platforms and marketplaces, you can easily be a nomadic angel from anywhere in the world.

Ultimately, if you’re one of the 5.4m people in Europe that qualifies as a high-net-worth individual, and are looking for more empowerment, impact, community and flexibility, now is the time to consider becoming an angel investor.

Not only will you benefit from potential governmental investment incentives and any profits, helping a business grow from an idea through to exit can generate a real sense of meaning and purpose.

Start a new journey, and join the new wave of angel investors.

By Oliver Woolley

Oliver Woolley is CEO of Envestors, a digital investment platform that brings together entrepreneurs and investors across geographies, communities and sectors, creating a marketplace for early-stage investment in the UK. Founded in 2004, it has helped more than 200 high-growth businesses raise more than £100m through its own private investment club.

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