Halo - Entrepreneurs
Business Angel Funding
New companies, especially those based on new technological ideas, usually find it very hard to find funding. Banks are structured to lend to companies with assets and track records and venture capital companies are more often interested in established companies who are already gaining some market traction.
One of the best routes to seed funding for these companies is business angels. These are high net-worth individuals with an interest in investing in companies with the potential for high growth. These angels are aware of the risks involved, however by investing in a portfolio of companies they spread these risks. They also rely on a small number of these companies to do extremely well in order to cover the losses on those that do not. The government Enterprise Investment Scheme provides generous tax relief which can significantly improve the picture for the business angel.
And in addition, business angels often bring commercial experience and a great list of contacts which can otherwise be hard for early-stage companies to access.
Investing is normally done by shares, which are typically held for 3-5 years. Business angels can stay involved in the business, but more often 'exit' by selling their shares especially if the company has done well and is sold to anther company (trade sale).
Most business angels are most interested in companies with high growth potential, many of which will be based on new technology. However the Halo angels have also made it clear that they do not wish to restrict themselves to solely to this type of company. Lower tech, traditional, later stage expansion and even potentially rescue/refinance situations can also be considered.
Halo Funding
The administration of Halo is funded by Invest Northern Ireland and Intertrade Ireland with the purpose of stimulating angel investing in NI-based companies. There are thus a number of restrictions on the types of company who are suitable for the halo process. These are:
- Pitching companies must be NI-based or at least have a significant NI presence
- Property based investments will not be considered
- Straight retail developments will not be suitable unless they involve considerable innovation
In general halo will take a broad approach, however the priority is knowledge-based high-growth-potential start-ups and companies which can demonstrate innovation in the more traditional sectors. Distressed opportunites will also be considered.
In all cases, potential companies should keep in mind that angel investing is aimed at high risk, high reward opportunites. Lower risk, lower reward opportunites should be more suited to normal bank lending.
This sometimes appears odd to companies, however studies have provided some very useful figures which help in understanding this. According to a NESTA/BBAA report, in the UK 56% of angel investments which are made lose money. Looked at another way, if an angel invests in 1 or 2 companies, they are statistically likely to lose their money. So in theory they should spread their investment across perhaps 10 companies. Again statistically, 6 of these will probably collapse, 2-3 may do a bit and perhaps return the original investment. But 1 or 2 will do so well that they will make enough money to cover all of the losses on the other companies and indeed make a good 'profit' for the angel. The trick of course is for the angel to pick the right companies! It is worth saying that companies like Microsoft and Ford started life as angel investments.
So angels need to look at any company in which they are considering investing and ask themselves the question - could this be the magic one in the ten? Translated into numbers, this might mean that they are looking for a potential to return 10 times the money invested. Of course nothing is guaranteed, but this clearly illustrates they have to look for high growth potential companies. If a company wishes to pitch which might say double their money, there is nothing wrong with this as a business of course, but it's just not the right type of company to pitch for angel investing.
The Halo Business Angel EIS Fund
As well as pitching to Halo angels for investment in the normal way, Halo is also associated with a fund. This fund, which is managed by Javelin Ventures, is designed to co-invest alongside Halo angels.
The result for some companies is an increased level of potential funding.
Any company who gets to pitch at Halo will automatically be considered for funding by the Halo EIS Fund.
The Process for Entrepreneurs
The starting point is often to talk with staff from either Halo or NISP Connect. This is a good way to quickly establish if your company is at approximately the right stage for Halo. This means broadly :
- An idea with potential
- A credible market in mind
- Most of the key staff in position or lined up ready to join
- A believable business model
- Projections which show significant potential
- A credible exit strategy eg a trade sale of the business
- Being suited to the EIS tax scheme which is very attractive to angel investors
Sometimes companies approach halo only to be redirected to NISP Connect in order to strengthen some of the above areas.
If you think your company is 'investor ready' as illustrated above, then you should fill in the the Short Application Form below. This is designed to provide only a brief summary of your business and allows halo to make a quick go/no-go decision with your having to spend too much time filling in forms.
Only once Halo has indicated that your business appears to fit the criteria, should you then fill in the full application form below. This is in two parts, further information about your business and also the Halo Terms and Conditions which must be agreed to and signed. This information will help with the assessment of your company and will also form the basis of some of the information given to the Halo angels who may consider investing.
Investment meetings are held 6 times per year and the cut off for applications to be considered for these is usually 1 month before the meeting. The companies who will pitch at a given meeting are selected from those who have applied. This filtering is done by Halo staff, but in the future there will be an increased input from the Halo business angels themselves.
Once selected to pitch there are a number of steps :
- The application form often needs to be updated
- Meet with Halo staff to assist your preparation
- Prepare a presentation firmly based around a set of slides provided by Halo
- Your slides are then checked by Halo staff for consistency
- Do a rehearsal of your presentation to Halo staff at least 1 week before the event
- On the evening of the event present the pitch and meet the angels
- Afterwards follow up with the angels who have expressed interest
- There are often a series of meeting with the angels and their advisers
- All negotiations and agreements are directly between you and the angels involved
At the event itself you will have dinner at tables where angels and companies are mixed. All attendees have colour-coded badges which allows for instant recognition of each type of person. All pitching companies remain present for most of the proceedings and so will get to see the pitches of the other companies. The final session after all of the pitches allows the angels to visit the tables of all of the companies and is when most potential business relationships are started.
Raising private finance takes time with a lot of discussion and negotiation required before an actual cash investment takes place. It also involves a legal process including due diligence undertaken by the investor and the signing of shareholders agreements. However it is often possible to reach agreement in principle relatively quickly, with the details following more slowly.
You need to be prepared to put the time and resources required into the process before you start fundraising. Your own business advisor will be the best person to assist you in preparing for this process.
Application Forms for Entrepreneurs
To submit your company for consideration for Halo, please fill in the Short Application Form.
Only when Halo has indicated, based on the Short Application Form, that you may make a full application should you then download and fill in the Full Application Form and also the Terms and Conditions. Note that both forms must be returned in order for your application to be valid.
Submit your application forms to: richard.ferguson@nisp.co.uk
Note that a signature is required accepting the Halo Terms and Conditions. This may be sent by post or scanned and returned electronically.
Confidentiality
Confidentiality is critical throughout the process to protect the integrity of everyone involved.