Just about a decade ago, one would have hardly heard much about angel investment networks. Since then, the realm of angel investing has without any doubt undergone a remarkable evolution, transforming from an exclusive community into an accessible and vital avenue for funding startups. Angel investors, typically affluent individuals who provide financial backing to startups and evolving businesses in exchange for equity, have been pivotal in fueling innovation and bolstering the growth of startups. Angel investors, once a select few with established networks, have become a burgeoning force within the entrepreneurial ecosystem.
Background
Startups, micro, small and medium sized entities have traditionally depended on the commercial banking sector and family to fund their equity and debt components. In recent years, credit union borrowings for this purpose have also skyrocketed, but the evidence suggests that the requirements of commercial debt and loan financing can be very expensive and highly burdensome, and in many cases therefore prohibitive as the risk attached to many of these SME’s is outside the acceptable limits of commercial banks and to some extent the credit union movement as well.
Commercial banks are private corporations and are expected to manage risk and provide substantial returns to their shareholders annually, in addition to the ever-increasing regulatory oversight and guidelines that make their operations more costly.
For businesses to be born, grow and become viable and sustainable entities that can make meaningful contributions to the economy, the need for alternative sources of finance that are less onerous and bureaucratic while still providing additional advantages such as mentoring and professional skills are required across the business ecosystem.
How it works…..
The traditional banking sector through deposits and loans indirectly match the haves and the have nots – what I tend to refer to as the Robin Hood economics but a fee. In essence an angel network and angel investor bring back the personal dimension and negotiation options to these business arrangements.
Angel investors are usually very wealthy individuals (often entrepreneurs themselves) who have amassed this wealth from one or more business ventures or from a very productive career as an employee in their chosen field. In addition, to the wealth they possess a diverse range of business knowledge and experiences that serve to enhance the eventual business relationship between investor and investee. International experience has demonstrated how the expertise and guidance of angels who have taken an interest in the business they choose to invest in, have seen the entity grow exponentially and often with a worldwide presence in some form.
What networks like Trident Angels (created, sponsored and managed by the Barbados Entrepreneurial Foundation) do, is to provide a mechanism to marry the prospective investors with interested investee companies.
Within the framework, these potential investees submit their business plans for startup, expansion or other business development and these are vetted against the predetermined criteria. Once attaining the minimal requirement, the entrepreneurs seeking an investment are invited to present their investment pitch to the network of angels. At the end of the pitch session, the network will convene a review meeting and then based on expressions of interest from the members of the angel network, potential investors/investees are put together for the deal-making process.
It is important to note that the deals made are on the mutually agreed terms by the angel and the investee company, the terms of the investment are never imposed or dictated by the network, which simply performs the role of facilitator.
This activity in itself is very developmental for these potential investee companies, as very often just completing the application and pitch process provides useful business training in the areas of presentation, communication, business plan development and overall business outlook.
The future…..
Angel networks have to date been a conduit for several new entrepreneurs who have submitted projects, however the need for more players in the space in terms of investors not only in Barbados but across the region is critical. Additionally, our local experience has demonstrated the need for training and sensitization of prospective investees. This training will address pitch preparation and realistic analysis of their project and its prospects.
Similar networks are now active in Jamaica, and Trinidad has also joined with a branch of the Angel Investor Network and the Planting Seeds programme initiative. The angel investment mechanism is yet another critical plank in the development of a sound eco-system that will enable new business and the entrepreneurs that conceptualise them to flourish.
