Permjot Valia (@permjotvalia) is a prolific angel investor and in 2008 co-founded Flight & Partners. Here he talks about his frustrations with the UK Angel investor scene, especially the anti-entrepreneur ‘pay-to-pitch’ culture.
In 2008/09, £44.9m was invested by UK Business Angels registered to Angel Networks in UK based companies. Across the 5,500 registered Angels that is less than £10,000 per Angel. These figures are very poor and do not bode well for future economic growth. So what is a UK based digital company looking for funding to do?
I have invested in 20 companies in the UK over the last six years, and three companies in Canada as a Business Angel. I am by no means an expert but with the experience I have had in Canada with Angel groups and as of recently with Seedcamp, I do find the UK ‘organised’ angel scene very depressing.
In North America, most Angel groups are run by Angels (whom for the most part have been successful entrepreneurs) for Angels. Across Europe most networks are run by administrators for the benefit of the network and not necessarily for the benefit of either the entrepreneur or the angels.
For example, when looking to raise money through a recognized angel network, an entrepreneur will have to part with a sum of money ranging from £500 to £5,000 and in many cases 5% of funds raised and some will ask for amongst other things options in the business and ‘compliance fees’. This is to pay for a member of that group to sit on your board.
This can work out as a very expensive proposition. On top of that, most of the companies, I have seen through networks have been very poor. Not companies that you would want to back. With a fixed fee element, it makes commercial sense for the network to have a large volume of presenters rather than focus on just one or two good companies.
A company that I invested in wanted to raise money so I took the company to Calgary in Canada. There we raised money at a cost of just £1,200 (for everything excluding our own expenses). We also raised money from some really smart investors who can add real value to our business.
In the West Coast, Angels making money from deals is frowned upon; yes you are expected to cover your costs but that should be it.
As an Angel, investing in something where more than 10% of your investment could go towards just paying for the cost of funding is a very bad deal. You need a 12% return just to get your original money back. As a result of this, I have tended to either back deals from my own network or in Canada where there is climate better suited to entrepreneurs.
My experience at Seedcamp, altered this view somewhat. I saw some great European companies that are very investable. And no one was seeking to take a cut or charge any fees! [Note, there are other new incubator style programmes across Europe like HackFwd, The Difference Engine and StartupBootcamp].
So what is my advice to Angels interested in the tech start up space and to entrepreneurs looking for funding?
• Go to organizations like Seedcamp – which are truly run with the best interest of the entrepreneurs in mind.
• Avoid organizations that charge a large up front fee.
• Most funders will only look to back talent. By definition, proven talent would not be seeking to pay something like 10% for funds raised. Talent will be looking to pay nothing!
• Create your own network. Angels do want to back deals. Find them yourself. And if you are an angel, join with other angels who may be slightly higher profile than you and co-invest with them. Very few Angels can and would want to be a sole investor in a deal.
• As a company, only agree to have people on your board if they can really add value to your business.