Need funding for your business but unsure which option to choose from? After all, there are bank loans, grants, venture capital and crowdfunding, but to name a few.
There’s also angel investment.
In this article, we explore what angel investment is and how it works, so you can determine whether it’s a good option for you and your business.
Here’s what we cover:
- What is angel investment?
- What’s the difference between angel investment and venture capital?
- How much funding can you get?
- What type of businesses do angel investors fund?
- Sources of angel investment in Ireland
- What should be in your pitch?
- Climate for investing in Ireland
- Final thoughts on getting funding
What is angel investment?
Angel investors are typically small business owners and entrepreneurs who have already launched successful companies and know how to recognise a startup that has the potential to succeed, both in achieving its goals and financially.
They also often bring guidance and networking to the table, in addition to their capital.
On top of that, an emerging cohort of angel investors in Ireland are young professional people who perhaps have left high-paid technology jobs at the likes of Microsoft, Google or Stripe, have significant capital built up from shares in these companies, and are looking to invest.
Generally, angel investors ask for an equity stake, meaning you have to give up some ownership of your business.
Someone familiar with the angel investing scene in Ireland is Kevin Canning, who manages an investment innovation fund for the capital arm of accounting firm Quintas.
He says: “It is tough trying to get access to angel investors; it is not an easy process. You could probably reach out to 300 people and you’d be lucky if 10 or 20 even talk to you, let alone invest in you.
“Also, if you approach an investment firm or accountancy practice, they are going to be very careful before they introduce you to one of their investors, because if your business idea fails, they could also potentially lose a client.”
But, Kevin emphasises, if you put in the hard work, there are opportunities.
What’s the difference between angel investment and venture capital?
While angel investors and venture capitalists both invest in startups, there are differences.
An angel investor invests at an earlier stage, where the idea is often just an idea, whereas a venture capitalist looks for something more solid.
Also, angel investors are typically private investors that invest their own money, whereas venture capital funds are run by managers who invest other people’s money, as well as their own.
How much funding can you get?
Angel investors are prepared to invest in a fledgling business. Generally, they invest individually but there are also occasions where a group will invest together in a syndicate.
How much money you can get depends largely on the potential of your idea and its future growth prospects.
As far as funding goes, it can start from around €100 if you take the crowdfunding route (more details below), to anything up to €250,000 from an individual investor.
If the angels are in a syndicate, that figure could rise to €1m.
What type of businesses do angel investors fund?
Generally, angel investment is associated with investments in technology and innovation. However, its reach can be much wider.
As long as it’s a business idea with significant growth potential, an angel investor is likely to be interested.
That being said, angel investors are unlikely to provide funds for businesses that aren’t likely to scale quickly, though there are grants and tax reliefs available for opening such businesses, under certain conditions.
A good starting point to get assistance and advice for such ventures is your Local Enterprise Office.
Sources of angel investment in Ireland
While many angel investors are single individuals, there are also syndicates of angel investors.
Below is a list of some of the organisations and set ups that provide angel funding in Ireland, as well as other avenues that can be followed to try to access angel funding.
Halo Business Angel Network
Halo Business Angel Network (HBAN) is a private organisation that receives funding from Enterprise Ireland, InterTradeIreland and Invest Northern Ireland to support the early stage entrepreneurial community across the island of Ireland.
It oversees 10 business angel syndicates, which include members such as the Boole syndicate in Cork, the MedTech syndicate in Galway, Digital Irish Angels in New York and Irrus Investments, which focuses on life sciences.
You can access a guide on its website about how you should go about looking for angel investment.
High Potential Start-Ups and Enterprise Ireland
If your startup business could develop an innovative product or service for sale on international markets and has the potential to create 10 jobs and €1m in export sales within three years of starting up, you may qualify for assistance from Enterprise Ireland as a High Potential Start-up.
Crowdfunding
You can access angel investors through crowdfunding, where each individual investor invests very small amounts.
An example of this is Spark, an equity crowdfunding platform, which helps Irish companies raise new funds from a vast pool of private investors.
UK equivalents are Seedrs and Crowdcube, and a lot of Irish companies also pitch on their sites.
Kevin Canning sees this as a very good option, with unexpected benefits, particularly for consumer-facing products. He says: “Generally, the minimum investment is €250 and so if you raise €100,000, you end up with over 400 investors.
“And they then turn into a hundred cheerleaders for your company who tell people all about how great your product is.”
However, he adds that crowdfunding is not an easy path.
Platforms such as Spark need to protect their reputation and put any potential investee through strict vetting and due diligence.
Angel investment targeted at women
There’s angel funding targeted specifically at women.
Figures differ, but only between 20% to 25% of entrepreneurs in Ireland are women, and the figure is even more stark in terms of the number of female angel investors.
With this backdrop, for instance, AwakenHub was founded in 2020 and is a woman-led investor community for women entrepreneurs.
Accelerator programmes
You can access angel funding by first doing an accelerator programme.
One such programme is the Enterprise Ireland accelerator New Frontiers, which is run in 18 locations across the country. It moves business ideas towards an income-generating and investor-ready startup.
On the programme, you receive mentoring, training, incubation space, access to research and development (R&D) facilities and a financial stipend.
Another well-known accelerator programme is run by Dogpatch Labs on behalf of the National Digital Research Centre and in April 2023, Dogpatch also won the contract to run HBAN.
Pitching events
Angel investors also often go to pitching events, such as the annual Venture Academy, hosted by CorkBIC.
At the Venture Academy, budding entrepreneurs get to pitch their proposition to an audience of investors, having been coached beforehand by CorkBIC tutors about how to present their business idea.
Kevin Canning points out that LinkedIn can be a key resource, in particular if you pay for premium membership.
You can search for angel investors and send them introductions to yourself and even include a slide deck.
What should be in your pitch?
Before approaching any networks or individuals to pitch for angel funding, you first need to be prepared and ensure your business plan will hold up to scrutiny.
Specifically, you need to be clear on the following:
1. The business model
You must have a clear, concise business plan that outlines how the company will generate revenue and be profitable.
The business model should explain your core product or service offering, how it will be marketed and sold, who the target market is, how it will make money and how it will scale.
2. The team
A potential investor will want to know about the management team and whether it will be able to bring the idea forward effectively.
Investors want to know that the team has the skills, drive and experience to ensure success.
3. The market opportunity
What’s the growth potential of the market?
Is it a mature industry with limited growth potential or is it an emerging market with vast growth potential?
4. Potential competitors
Who are your direct competitors?
What advantages do they have over your company and does your business have something different to offer?
What’s your unique selling point?
Are there any barriers to entry that will make it difficult for your company to enter the market?
5. Financials
How much investment do you need and how will it be spent?
What proportion will be spent on the likes of research and marketing, for example, and what’s the expected rate of return?
Investors will also want to see your cash flow projections and examine your financial track record to date.
Climate for investing in Ireland
While accessing funding can be difficult, there’s a lot more money available than there used to be, helped in recent years by the booming technology sector in Ireland.
However, Ireland isn’t top of the list in terms of angel investing.
A report from EBAN, a Brussels-based angel investing association, ranked Ireland 15th in Europe for angel investing activity, based on 2020 data.
This ranking illustrates that more needs to be done.
One way of attracting more investment is through tax breaks and Ireland-based investors are able to avail of up to 40% tax relief through the Employment Investment Incentive (EII) scheme. However, Kevin Canning says the scheme isn’t as generous as the UK scheme.
One of the main differences is that the UK is more favourable from a Capital Gains Tax (CGT) perspective.
For instance, in the UK, an investor can be exempt from CGT if certain conditions are met.
And, perhaps, even more importantly, if an investor makes a loss on disposing of their investment in the UK, then that loss can be used to reduce other capital gains in the same or future years, and therefore also reduce future tax liability.
The same doesn’t hold in Ireland under the EII scheme, though losses can be offset against CGT in other circumstances, and so this could be seen as a disincentive to invest in EII-approved companies.
Interested parties in Ireland are lobbying the government to make tax relief more generous.
Also, within the global context, the recent collapse of Silicon Valley Bank could potentially impact the global investment environment for startups.
The bank was a major part of the financial ecosystem and its demise could lead to a global tightening of credit, particularly in technology.
Final thoughts on getting funding
If you have a business idea, you need to do the groundwork in terms of showing its growth potential. You also need to understand the investment ecosystem.
Get these two things right, and you could secure angel funding to help you build a successful business.
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