Country of Angels [As featured in Money Magazine March 2015]

What is a business angel and how do you become one, asks Simon Azzopardi. 

Highly ambitious start up companies with a global perspective, are naturally interesting. Irrespective of background, we all feel and understand what they are trying to achieve. Hopes, dreams, aspirations, innovations, and a lot of sweat seems to come together in order to build an aspiring game-changing product.

Start ups need great people to make them work, but also money in varying amounts. Some need a few tens of thousands of Euro, while others may need seven figures. Where do start ups go for such investments? Angels are internationally a popular choice.

What is a business angel and what do you need to become one? MONEY Magazine catches up with Simon Azzopardi to discuss Angel Investing.

What is a business angel?

A business angel is typically a successful entrepreneur that is willing to invest his or her own money into a new venture due to a belief in a product’s potential and a team’s ability to execute. An angel is typically not a one-time investor but plays an active role with both existing investments and seeking future investments. Therefore, an Angel investor is typically an individual with a certain volume of liquid assets and a high risk appetite.

So, people who have say € 100,000 that they would like to invest, should consider being an angel investor?

Let’s be clear, angel investing is very risky. Typically, 50% of the start ups you invest in will shut down in under two years, 30% will survive, delivering little to no returns, and 20% will thrive, covering the returns for your entire portfolio. Now, keeping this into consideration, it is clear that the number of investments or deals you make need to be sufficient to cover or spread the above risks. With a typical investment of between € 20,000 and € 50,000, in isolation a € 100,000 budget is difficult to justify in order to make a decent return.

So what is that number when angel investing makes sense?

Truth is, there isn’t. You could argue that mathematically, you need in excess of € X per annum of ready to invest cash for it to be worthwhile. However, there are other factors that may influence an angel investor. What motivates an angel investor varies from making substantial returns to social or status reasons. Maybe, it’s simply to remain active in an industry that the individual understands.  What is clear is that Angel investing is not necessarily only about return on investment.

So should someone be interested in angel investments, what would you recommend? How would they go about meeting start ups?

Firstly, let us look at how entrepreneurs in the start up world operate. Start ups, particularly early stage entities, tend to form communities. Start ups tend to be active within start up events, such as Start up Weekend, as well as other meet ups. They do this because they want to be around like minded individuals. They understand that by being around energetic individuals with varying experiences, they would learn from each other, benefitting tremendously.

Angel investors, similar to entrepreneurs also have a propensity to form groups or communities, albeit with a different scope.

Such groups or communities give Angel investors the opportunity to discuss different opportunities as well as compare different start up models. They may also want to group investments between them in order to distribute risk or simply reduce the overheads of managing their investments.

Therefore, my advice for individuals or entities interested in similar investments would be to participate or register an interest at a start up event. This will first and foremost give you an idea as to what start ups are around, as well as a taste of the start up culture in Malta.

Moreover, such events are ideal to start meeting or getting closer to start ups.

What stands out in Malta? Why should I invest in start ups in Malta?

Malta is ideal for start ups. It is a great place to live with access to quality talent and a lower burn rates of capital. Most importantly, there are decent young entrepreneurs.

To give a few examples, there is currently a group of first year University student having, between them, already published several mobile apps, with a few cofounding software and design companies seeing very early success. There are teams of start ups looking to challenge recruitment processes, education, supply chain management and customer support experiences, at a global level. There are start ups based here that are looking to blend industries such as igaming with ecommerce or gamification of class room education.

True, Malta is still very new to this game, however both the quality and momentum at which the space is developing should certainly attract interest from Angels and corporate investments.

Lastly, what about culture? Anything that needs to change here?

One can make excellent returns through Angel investing. However for long term presence in the start up world, a good angel investor needs to be a good person. Angel investing is not a business model where you make money at someone else’s expense. Start ups create wealth, and not in a zero sum game. The beauty of it is that no one has to lose for you to win. If you mistreat the founders you invest in, the company will do worse. Plus your referrals and deal flow will dry up.

This doing good, and giving back without keeping score, is an important mind set for angel investors and to induce such, a community of like-minded active individuals needs to be formed.

[Full magazine can be seen here]

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