It’s not as visible as EIS and SEIS but the Angel CoFund should also be recognised as a significant creation of this government.
The idea is simple: take a pot of government cash and to co-invest alongside business angels in a private sector-led fund.
Here’s how it works.
An angel decides to invest £50,000 in a company. He (sorry, ladies, at present it is almost invariably a man) gets a syndicate of angels together to invest another £250,000. But the company needs more. (Under-funding companies on a first angel round has been a problem over the years).
As the lead investor, the angel applies to the Angel CoFund to become a co-investor. The investment is scrutinised by Capital for Enterprise, the government body that holds the cash. CfEL checks that it meets the qualifying criteria (such as the company’s location) and who work with the lead investor to put together draft legal documentation and an investment paper for the CoFund’s investment committee to review.
A conference call between the investment committee and the lead investor discusses the deal.
Crucially, the Angel CoFund does not perform any due diligence of its own. Investment committee members (and they comprise an impressively grizzled set of investors and entrepreneurs) don’t visit a prospective investee company to kick the tyres and personally quiz the management. That’s all down to the angels.
After the teleconference, the investment proposal will either get the nod, a request for further review, or a polite refusal. To date, 80 per cent of the proposals that have come to the investment committee have been approved.
So a lot depends upon the lead angel investor. Taxpayers’ money is being invested in companies on the basis of an investment paper and a one-hour teleconference.
The Angel CoFund is just 12 months old. Its investment committee has already invested in 22 angel-backed companies – and seven more are in the pipeline, amounting to a further £1.8m. Some £8m has been invested alongside £24m from angels and other investors.
The current rate and level of the Angel CoFund’s investment activity is on track. The average CoFund investment is £330,000 out of an average total investment round of £1.3m. (The average amount put in by the lead angel investor is £80,000.)
“It’s exactly where we wanted to end up,” says George Whitehead, a venture partner manager at Octopus Ventures who is also the chairman of the CoFund. “One-third is a really useful amount to give companies extra runway. It can really make a difference, whether it’s to get them to their next round of funding, or hit break-even, or hire better people.”
What is really interesting about the CoFund is that it’s a fund that follows the market. It is not a strategic fund designed to pick winners, or to build a balanced portfolio. Rather, it reflects the investment preferences of the angel community.
Of the deals that have been completed and/or approved by the Angel CoFund:
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