The government-backed £50 million Angel CoFund was created with a grant from the Regional Growth Fund and invests alongside business angel syndicates from across England to support high potential small and medium-sized companies.
Last month it announced the completion of its first five investments, with a total of £7.2 million committed to businesses. SmallBusiness.co.uk talks to chairman of the Fund George Whitehead about the impact on small companies.
What is the aim of the fund?
In the short term we want to spread the word so more angel syndicates start thinking of us as an obvious co-investment partner to have. In the longer term I want to continue on the trajectory of investment we’re on; the smallest deal we’ll do is £100,000 and the biggest is £1 million. We’ve got an awful lot of companies to be investing in and it’s about getting deals done. The next phase will be to follow the winners and think about exits but that’s quite a while away yet.
What type of company is best suited to this investment?
There is a lot of diversity in terms of the companies that we are financing. There are different types of businesses in different sectors but they’ve all got pretty significant growth potential. They’re not the types of companies that can go to the bank; they have nothing to put security on and the bank would say no. So who would fund a company like that? It’s not that they haven’t got massive potential, but they are often too early-stage for the likes of venture capital so angels have to step in.
It seems that you could see some competition for deals from such avenues as crowdfunding. What do you think of this industry?
Crowdfunding is in such an early stage in its growth that it’s hard to predict where it’s going to go. It could up the valuation of early-stage businesses if such companies can relatively easily get funding from inexperienced investors. Such investors will often choose the companies with the highest value to invest in because they sound like they’re the most progressed when of course this often isn’t the case.
I think the best deals will go to the investors who can add value and represent more than just cash, and I don’t think this will happen through crowdfunding. But then again it is very new and the next generation of financing could be interesting in a way I haven’t envisaged yet.
What tips would you give to small businesses interested in this fund?
It’s important to remember that the investment is going to come from the angel syndicate, and so start-ups need to be really aware of what attracts angels into investing in them. So what does attract this type of investor? Well, it’s partly the excitement of working with an interesting new company, so even something like being good people to hang around with goes a long way. Personal engagement is worthwhile.
Also, an awareness of things like EIS and the tax breaks available is key so the entrepreneur can talk in a language that investors understand. The whole ethos of this fund is to make it easy and a sensible choice to get involved with angel investors so businesses shouldn’t be afraid of approaching such people.