The path of the struggling start-up can be beset on all sides by a lack of funding and expertise on the perilous journey to the promised land of commercialisation or dream of becoming a unicorn.
Start-ups that prove themselves worthy can be taken under the wing of an angel investor and provided with funding, introduction to networks as well as mentoring through the many ‘valleys of death’ that are common to the start-up journey.
Angel investors go where banks and venture capitalists fear to tread – high risk, high return territory. Generally wealthy individuals, they provide their own capital for pre-seed funding.
Venture capitalists use managed funds to back less risky investments – generally those that have already proven themselves in the marketplace and have a solid customer base.
However, angel investors are similar to venture capitalists in that they look at the potential for high growth. According to founding member of the Perth Angels, Greg Riebe, angels typically seek returns of at least 10 times their investment in about five years.
Individual angel investors can band together to form angel groups, which offer wider expertise and bigger pots of funding to budding entrepreneurs. Investors can also use groups to share specialised skills among themselves to identify investment opportunities and undertake due diligence.
At the other end of the spectrum are micro-angels, individuals who invest through crowdfunding.
While the angel investor sector in Australia is relatively small compared with other countries, there is very little data about it. In late 2017, the Federal Government reported that an estimated $280 million had been invested by angel investors into early-stage companies in the two years since the National Innovation and Science Agenda’s tax incentive for start-ups was announced.
Shortly after that announcement, Australia’s most prominent group, Sydney Angels, reported that investment by the group into 54 Sydney Angels investees had totalled $193 million.
The largest investment by the group in a start-up was $803,000 as part of a $1 million round. It also reported a sharp increase in start-up applications for funding – 38 in 2009 to 220 in 2017.
So an angel investor could by your saviour if you have a good enough idea, backed up by a business plan.
