The emergence of Europe’s leading ‘Super Angel’ investors revealed
Growing Business reveals the successful European entrepreneurs investing in start-ups and where they think the clever money’s going
In the second of a three-part feature on the Super Angels phenomenon, Growing Business talks to the successful entrepreneurs looking to invest in fast-growth UK start-ups via investment vehicles more akin to venture capital funds – and why they believe they bring something different to the investment community. Part three will list the major players
So-called super angel funds are one of the more exciting new sources of finance for growing businesses. The trend has seen veteran US angel investors such as Ron Conway and successful Silicon Valley entrepreneurs like PayPal's Dave McLure and LinkedIn's Reid Hoffman develop their own investment funds and take on established VCs. It is a trend that has now crossed the Atlantic with entrepreneur-backed funds springing up in Europe.
Inspiration for launching funds is a mixture of a wish to give something back to the ecosystem that spawned entrepreneurs, the realisation that there is an opening for this new type of funding, and a desire to get hands on with growing enterprises.
James Booth, founder of Rockabox Media and an angel investor in his own right, says he considered launching his own fund targeting mobile and media. “I love start-ups and I love going through that phase. It's a great thing to watch.”
His current commitments have put the idea on the backburner for now, but he doesn't rule it out for the future.
Jos White, founder and partner of Notion Capital is focused on cloud computing, an area he knows well having founded anti-spam and virus service MessageLabs. “Cloud is the next mega trend and we have the ability to pick the right deals and add value,” he says. “We have an unfair advantage coming from the cloud world. We understand what it takes, and it's a very different business to hardware and software.”
Other funds, such as PROfounders and Passion Capital have more of a portfolio approach, although they are broadly focused on internet technology-based ideas. Rogan Angelini-Hurll, general partner of PROfounders puts this down to the fact that these businesses have low initial capital requirements, making them ideal early stage investments for super angels.
“Unlike the Nineties, companies need less capital due to technological advances such as viral marketing and cloud computing. However there was a lack of funding between angels and VCs.”
While internet technology plays are the flavour of the month for super angels, there are some with a broader appetite. Maximuscle founder Zef Eisenberg is putting together a £150m fund following the sale of his remaining stake in the sports nutrition business to GSK. Reflecting his own background, leisure, nutrition and gyms are target areas for investment, as is property, which is a longstanding interest of the Guernsey-based entrepreneur.
James Cann's Hamilton Bradshaw funds have a tight focus on recruitment businesses with £40m under management in the past five years. The aim is to scale up businesses with growth potential, says director Tristan Ramus.
As well as sectoral preferences, super angels are investing in businesses at different stages. Par Equity director Paul Munn says that due to the current economic climate, the fund was seeing more mature businesses coming forward for funding.
Businesses that are approaching super angels are looking for more than simple funding. Ning Li, CEO of designer furniture business, Made.com says the black book of an investor can be as important as the cash. He had already launched a similar business in France, Myfab.com which he exited in 2009. When it came to funding his new venture, contacts were a crucial part of the equation.
The company raised £2.5m from three investors, including PROfounders Capital, which is backed by such names as lastminute.com founder Brent Hoberman, Bebo founder Michael Birch, and Toptable founder Karen Hanton.
“I had experience with institutions in the past, and they were interested, but for Series A funding the super angels were right,” says Li. “They provided the right amount of funds, but more importantly the network. I was born in China and brought up in France. I only came to the UK two years ago, so it was important to choose a network of people who could help.”
Another business backed by PROfounders is Citysocialising, a social media play founded by Sanchita Saha. The site aims to link online socialising with offline through a series of events. The company has also recently launched Uberlife.com, a mobile play aimed at bringing people together.
After launching the company in 2007 with a Prince's Trust grant, Saha worked with the London Business Angels Network to raise £260,000 in 2009.
Following a mentoring programme through NESTA, her eyes were opened to the global potential of the business.
She approached Bebo founder Michael Birch, who pointed her to PROfounders who led a round of £1m funding. “VCs have a network, but it's not across the board like with Michael. You can't buy that sort of connection.”
Neither Li nor Saha rule out working with larger VCs in the future, and this is often built into the super angel model. They are focused on providing smaller early stage investments and early stage strategy advice, often with a view to quicker exits than traditional VCs.
Certainly this has been the US experience. Super angel Aydin Senkut reported that his Felicis Venture fund was exiting investments between three months and three years compared with 9.4 years for traditional VCs (VentureSource).
Like any form of investment, entrepreneur-backed funds come with a health warning and investees need to carry out due diligence and be sure that they know what they are letting themselves in for. Every fund is different, and the level of entrepreneur involvement will differ between them.
James Booth says super angel funds may struggle to deliver the entrepreneurial focus they promise, especially as they get bigger. “A fund is a collective of other people's money, so investment decisions have to be more calculated, and perhaps less about passion that pure angel deals. Individual investors, who may have £100,000 invested, are unlikely to follow it that closely.”
The flipside is that some investors take a very close interest in their investments. Hamilton Bradshaw is heavily focused on recruitment businesses and will often inject operational experts into the boardroom. Tristan Ramus says: “Being operators and investors in one space, the problems that companies will see tomorrow, we have probably seen yesterday.”
In part one of this three-part feature we reported on how the US phenomenon of Super Angels has crossed the Atlantic and why it's so important for the entrepreneurial ecosystem. For part three, we'll list the entrepreneur-led funds, their investment criteria, and who they've invested in to date.