Beer and Partners CEO Mike Weaver has a strong belief in business angels’ ability to help stimulate economic recovery. However, Mike also believes there are no guarantees of success in angel funding and business angels should be prepared for a significant number of their investments to go “pear shaped” before they find a “star”.
What’s different about Beer and Partners’ approach compared to other business angel networks?
First of all we work for the entrepreneur seeking funding, although we have a very clear duty of care to the investors.
We are very focused upon quality, and vet every company that we take on thoroughly, so that any prospective investment opportunities that we present to investors are in our view, investable. In any one year we look at over 3,000 business plans, take on around 100 of these as clients and succeed in raising funding for around 50% of those companies. Whilst that is only one in two, it should be recognised that the industry average is closer to one in five.
Why are we operating at this level of success? It has always been the case with us that only the better propositions get funded, and in a tough economic environment it is even more about quality. Putting unqualified investment opportunities in front of our investors would just result in them dismissing the better ones, buried within the mass.
So quality of opportunity is most important. Secondly, we have the heavier hitters amongst the business angel community. Average investment through our network is £100k (range £25k-£1m) compared with the industry norm of £20k.
We have 1,700 HNW investors registered with us, looking to make direct investments into companies. Around 10% invest at arm’s length, 10% become involved at an operational or board level, but most wish to leverage their investment with their knowledge, knowhow, and contacts, and look for news flow or the opportunity to advise and mentor new entrepreneurs.
There is a trend away from investing through poorly performing VCTs and SIPP funds towards direct investment, where an investor can see feel and touch their investment and relate to the entrepreneur directly.
Many entrepreneurs dislike having to pay a fee for introductions, can you explain the value of submitting a business plan to an angel investor network?
Raising funding is not for the faint hearted. It’s a tough process requiring resilience, changes to business plans, meetings, and often a reality check on the valuation of the business.
We find that an upfront fee ensures that we get committed serious clients who want to raise money and take their company forward. We believe that this is a major factor in enabling our level of success raising funds to be more than double the industry average. Those not prepared to invest in this process are, more often than not, those who do not take the process seriously, decline professional advice and fail to attract funding…and a 50% chance of raising the funding is also a 50% failure rate, where we work even harder – but fail.
Is it better for a business angel to join a network rather than go it alone?
For choice of investment opportunities yes, but the invisible market is probably as large. It is however a regulated sector, and there are FSA regulations and money laundering legalisation about what you can and can’t do, which we cover for both our investors and clients. Strangely, under current regulation it’s the fund seeker who can be breaking the law and exposing themselves to serious financial penalties by making a direct, unauthorised approach to an investor.
Why would I choose to become a business angel rather than invest my money in other assets?
It’s not either or. Business angel investing can be high risk/high return and should form part of an investment portfolio, say 5-10%. It’s also important to have a spread of risk.
How long on average do your members take to exit their investments?
Every client starts off planning an exit within 3 years via an IPO, but most experienced investors expect exit through a trade sale in 4-6 years. We did recently however, have an investor who injected £1m into a company in November 2008 and exited in March 2010 for £2.1m.
Not all investors exit. If they make 10 investments they should budget for 5 or 6 to go pear shaped, 3 or 4 to be living dead and just one to be the star returning sufficient to make a large profit on the 10 investments overall.
What is the success rate of businesses who receive funding through Beer and Partners?
An analysis of the companies funded by Beer since 2005 reveals that only 25% have failed to date and only 3% have been stars so far. However we believe that the rest are still maturing and will exit rather than too many becoming living dead where the investor doesn’t lose his money but cannot cash in easily.
Pitching has become prevalent through web based matching services and speed investing seminars. These are good insofar as entrepreneurs get valuable feedback from investors and advisors, but don’t (we believe) have a great level of success in actually raising funds. The audience often tends to include service providers networking their own services rather than investing which is why they sometimes get bad press.
We provide a more focused and tailored matchmaking service. The pitch is to us, to see if we can get comfortable with the likelihood of raising funding for the entrepreneur. We don’t charge for this or for the initial review of the business plan and only charge from the moment that we are convinced that it should attract funds and the entrepreneur is happy to go forward. Having said that we don’t always get it right and I can never decide if my worst nightmare is taking on an inappropriate client or turning away the next Cobra beer!
With bank lending continuing to be restricted, are you seeing a rise in the number of businesses seeking help from business angels and networks like yours?
Yes, but still very hard to find the good ones. We are however surprised that companies who have seen their bank facilities removed or severely reduced over the last two years have preferred to contract rather than consider angel funding as a substitute.
It is still sinking in that the days of cheap bank debt are long gone and we are lobbying for HMRC to amend and update EIS to allow relief on convertible loans or long term debt to companies rather than just for equity investments.
What options can your network offer start-ups seeking funding?
In addition to our full service to start ups we run an investment Fair 3 times a year in London – the next one being held on 9 November at Mark Mason Hall in St James’s London.
This is NOT speed funding- the strap line is Face to Face Finance. We typically have 30 entrepreneurs presenting on the day and over 130 investors coming along. The format is quite simple and effective with investors spending as much or as little time with the entrepreneur as they wish and establishing an initial interest in investing. Very little investment is committed on the day but the November 2009 fair generated funding for £2.1m to 9 of the companies presenting on the day.
What does the future hold for Beer and Partners?
Luke Johnson’s investment earlier this year in Beer & Partners has not only raised our profile but that of the industry as a whole and the increased profile is enabling us to attract the better companies seeking funding and additional investors.
The expected demise of the Regional Development Agencies (who have been our largest competitors in the industry) and resulting lack of availability for new companies should result in additional new businesses coming our way.
The economic climate will remain difficult for some time to come, but every recession proves to be the launch pad for a whole new wave of businesses starting up and needing funding, enabling them to become the powerhouses of the future. We hope to remain an important part of that, taking pride and pleasure through securing funding for promising companies to develop.
In 1999 there were 48 Business Angel Networks- now BBAA have only 22 registered, and removing group entities means that there are 16 real players in this market. We are fortunately thriving –and we believe it is because of our ethos of concentrating only on the best.
Tags: angel funding, BBAA, Beer and Partners, Business Angel, business angel investing, business angel networks, business angels, business plan, CEO Mike Weaver, entrepreneurs, Face to Face Finance, HNW investors, investment portfolio, Luke Johnson, Regional Development Agencies, SIPP funds, speed funding