The investor interview: James Badgett, UK Angel Investment Network (AIN)
Co-founder of the UK Angel Investment Network (AIN) James Badgett tells us about AIN, reveals where the clever money’s going, and the fatal errors that will kill a deal
James Badgett is co-founder of the UK Angel Investment Network (AIN), having set up the venture upon leaving university in 2004. AIN handles deals of all sizes, from less than £2,000 to more than £1m, and is active in 12 countries outside the UK.
We talked to Badgett about the evolution of AIN, the latest trends within the investment community and the most common mistakes entrepreneurs make when pitching for investment.
What persuaded you to start AIN straight after graduating?
I was persuaded to go into this simply because it was a niche; no other angel network was online-only, and it presented a real opportunity.
Can you talk us through the development of your venture?
We began as a purely online network, and soon began launching into other countries (Badgett's co-founder, Brian Perry, set up AIN in Canada shortly after Badgett started up in the UK).
From there it seemed logical to generate more of an off-line presence, through pitching events in places like Sydney and Mumbai, and we actively sought to build a relationship with our investors. We've now got 25,000 angels around the world. In the UK, it's about 5,000.
How does AIN differ from other angel umbrella ventures?
The main difference between us and the others is that we try to give a platform to everybody. We've learned that every investor is looking for something slightly different, and it's important to give them the opportunity.
Although many investors are looking for traction, some are skilled businessman who may want to go into business with a crazy inventor. Those kind of scenarios aren't picked up by some of the angel networks, so we allow access to all deal types.
Which sectors and price brackets are you most active in?
We look at everything – a wide range of products and services. Tech and internet are particularly popular with our angel users, but that's not everything. If you look at our hot projects, we've got everything from cartoons to medical companies at the moment.
In terms of deal size, we're mainly low to mid-market. Our average investment is around £300-500,000. The largest is £2m.
Can you talk us through your latest investment projects?
A lot of it is confidential, but I can tell you we're looking at an interesting dotcom project to do with pop-up shops. It's a notification service, telling people where pop-up shops are going to come.
We held an event where we had a new porridge company, a new property fund, a recruitment website, and a medical device company pitching. That shows you what's around. There's also quite an interesting venture regarding a social media platform for sport. It's getting good traction, and has Harvard MBAs on board.
What sort of success rate are you seeing?
The success rate is hard to judge. In terms of the companies we work with personally, we are seeing success rate of 80%. The pitching events we run have something like a 30-40% success rate.
There is definitely money available. Most of the deals we're working on are getting funding.
What types of businesses are proving most popular at the moment?
Internet companies are always popular, and technology is always popular – something with a really strong USP will always do well. Surprisingly property is still popular too. A lot of investors have quite a bit of experience in this area, and they like the security the deal provides.
How has the investors' approach changed?
Investors have a greater pick of deal flow now, so they're putting more of a squeeze on deals. Most investors these days are looking for some sort of traction; It's much rarer to simply invest in an idea these days, and it's become harder to get investment if you're a start-up with nothing behind you.
In terms of value, an average investor will be looking to put £50,000 into a deal, this has remained roughly the same for quite a while now.
What sort of effect has Dragons' Den had on the investment community?
Sometimes Dragons' Den gives investors quite an unrealistic expectation. Sometimes you see entrepreneurs turning up and giving a pitch like you see in the Den, a verbal pitch without a formalised business plan. Companies need to understand they need to prepare everything, from a short elevator pitch to a full memorandum.
What other mistakes do you see investees making?
A lot of entrepreneurs value their ideas way too much. Some people won't even tell you what they're doing; you have to be able to discuss your idea. You also need to know that there's no real value in an idea – the only value lies in the implementation.
Even if you don't have money, there's so much you can do before pitching to an investor – going out and speaking to a customer, getting ideas about potential costings, researching your competitors, all these things will help you.
What about valuations? Do investees make mistakes in this area?
We see wild numbers every day! Sometimes we see people valuing their business at £5bn! Unfortunately a lot of people are just sticking their finger in the air.
What are the main snippets of advice you offer your investees?
We always encourage entrepreneurs to look for a problem. Is the business solving a problem that actually exists? A lot of times we see people come up with a clever idea which doesn't actually solve a problem.
We also advise investees to put a strong management team together. Often the people aren't experienced, presentable or affable enough. Investors are looking for traction and revenue generation, so the quality of management needs to be more sophisticated.