Recently I had the pleasure of attending the 4th Australian Association of Angel Investors (AAAI) conference in Newcastle, NSW. It was my first real contact with the angel investor community and it was a great experience.
The conference covered a number of topics of interest to angel investors, their clients and their advisors. I estimate there would have been at least 200 people in attendance, most from Australia but also many for the USA, the UK, New Zealand and Asia. In fact there appears to be a growing community of angel investors in India. It appears that the trend, in the US at least, is for angel investors to be getting younger and increasingly female.
So, what is an ‘angel investor’? There is a pretty reasonable description here:
In a nutshell they are people who are independently wealthy, usually following divestment from one or more companies that they have founded, and who are not ready for a life of banana chairs and cocktails. The typical angel investor wants to invest in companies that, aside from having very high growth potential, can benefit from the angel investor’s own business experience. They also look to have a defined ‘exit’ point from the investment – they typically want to take their investment through a particular phase and then cash out, usually at a point when ‘bigger money’ is required (and available). They tend not to want to ‘hang around’ as the investment can quickly become diluted by the influx of bigger money from venture capitalists, banks etc. They may typically be looking to invest anywhere from $50,000 to $5,000,000.
These angels are a tough sell, make no mistake. They are investing their OWN money, not someone else’s funds. The clear-headed realism that characterises their analysis of investment opportunities is usually hard-won; most have had their share of investment successes and failures. They tend to have a portfolio of investments, in the knowledge that many of the early stage and start-up businesses they fund will fail, but that the successes will be very significant. They often take a position on the board of their investees, but not usually in direct operational management. This does translate to them wanting to be involved in big decisions concerning the business.
I was also struck by the angels’ quite sophisticated understanding of intellectual property (IP) creation, protection and management. Angels have a very strong interest in conducting full due diligence on businesses, and IP is a big part of the due diligence process. It is well understood by angels that patents may (or may not) be crucial to the delivery of the business AND that non-patented technical knowledge must be protected in any case. They also fully realise that the value of IP in the business may have been tainted or even destroyed by errors, or simply ‘skimping on cost’ at the start of the protection process:
inventors incorrectly identified; ownership imperfectly recorded or indicated; too few examples or too little real information included in the patent specification; patents simply not protecting the real commercial advantage of
the company’s products. Many angels have been burned by this – they tend to learn these lessons very well!
So where can you find an angel investor? A good first point to look in Australia would be: www.aaai.net.au.
– the AAAI is the peak body for individual angel investor groups in Australia. Angel investment groups are typically based around particular geographic regions, e.g. capital cities or economic regions such as the Hunter Valley, or around particular business or technology sectors.
by Adam Hyland