Ralph Hulbert, a long-time member of our angel investment network, has invested in over 90 companies and manages a portfolio worth over £2m. We sat down with him to find out what advice he has for those new to angel investing:
1 Assess the CEO and management team
The most important characteristics in a CEO are humility and perseverance. An overly intelligent CEO can be a handicap as they can lose interest in their business; the successful entrepreneur will put in the necessary hours to ensure his company will succeed. No less important is humility: a humble man will listen to advice and this is crucial in a start-up business.
Private investors can really benefit from these schemes and EIS is particularly generous. It allows you to deduct 30% (50% for SEIS) of your investment off your income tax bill. After three years there is no Capital Gains Tax on any gains. Should it fail you can write the loss against Income or capital.
3 Beware the legals
Having agreed a deal, the convention is that it is necessary to agree a Shareholders’ Agreement (SA), a clause designed to protect the investors. I come at this from the side of cynicism and I have concluded that there have been no examples in my experience where a SA has been of any help to me whatever. I am of the firm belief that a company will generally succeed or not succeed, and once you start haggling over an SA you are doomed anyway.
4 Spread your investments
People often ask me, ‘surely you get more right than wrong?’ This is a common misunderstanding. For the very early stage companies I have backed, most do not work. The key is that for every ten that go nowhere, you need to back one that does really well.
5 Talk and listen to your fellow investors
One of the pleasures of being an angel, particularly if you become active in building your investments, is meeting and working with fellow angels. Almost by definition they are an interesting bunch. Firstly, they have to have made money. Probably this is because if you have been successful you think you are good at it and perhaps because you want to put back into society something you have taken out. It is useful to have chums in this game, to swap ideas, periodically take counsel, share risks and be sounding boards.