In some countries, angel investing is the engine of innovation, having helped to launch successful companies like Amazon, Facebook, Google, PayPal, and Starbucks.
It is the financing of new business ventures by private, so called “angels,” usually at very early stage, aiming to seed a company and later resell their shareholding with a high profit — a multiple of the investment, notwithstanding the huge probability of failure.
As explained by David Drake in the Huffington Post, 756,000 American angels have invested $24.8 billion in 2013, 8.3 percent more than in 2012 when their investment was $22.9 billion.
With these funds, American angels financed the start-up of no less than 70,730 companies in 2013, 5 percent more than in 2012, when 67,000 companies were financed. The average investment size was roughly $339,000 per deal.
The employment impact has been outstanding: in 2013, angel investing led to the creation of 209,000 new jobs in the U.S., averaging 4.1 jobs per start up.
On the other side of the ocean, there are several different scenarios playing out. In line with current economic situation, Italian angel investing shows a recessive trend: according to the Italian Business Angels Network, investments declined from $46 million in 2011, to 44.8 million invested in 2012, to 42.1 million in 2013 (figures in dollars, for comparison purposes).
Although the data do not reflect yet the expected effects of the Italian government’s policy aiming to support start-ups and provide incentives to innovation, angel investing does also work in Italy: more than half of the deals offered a profitable exit. That’s despite the fact that the average Italian angel has an available budget of up to $265,000, about a quarter of the American one; and that the average deal size is smaller: two thirds of the investments are lower than $132,000.
Nevertheless, at a European level, aggregated data mostly driven by U.K., show a solid raising trend.
“I am on the impact investment committee of the European Business Angel Network (EBAN),” Drake said. “We saw in the last 4 years a doubling in European angel investments from $4 billion to $8 billion per year. My U.S. Commerce Department representation in Brussels and Rome 2012 bear fruit in that several best practices between the U.S. (320 million inhabitants) and E.U. (500 million inhabitants) have been efficient. EBAN’s ambitious Manifesto 2013 is to seek to double E.U. business angel investments to $17 billion by 2017”.
In the current landscape of large growth in some countries and slowdown in others, angel investing is starting to work with equity crowdfunding, which is one of the most recent financial instruments that can help to significantly revolutionize business, giving a strong boost to the use of private capital to support innovation and entrepreneurship. In the upcoming several months, it will dramatically affect the way in which angels are selecting investments.
Provided that angels have the capital and the expertise to analyze projects, there are three main production factors:
A lot of time to analyze projects, to attend incubators, to watch the pitch, to study alternatives, markets and opportunities;
A solid and broad network of professionals that grants access to a large number of projects from which to choose the right investment;
Access to professionally managed funds with high costs.
Equity crowdfunding provides effective and cheap tools to address these needs through the web.
Angels can access a wide range of projects just browsing specialized platforms on the web. In most countries, they are (or will soon be) authorized and supervised by the local financial authorities, like SEC in America and CONSOB in Italy (currently nine platforms have been authorized by CONSOB in Italy, and are about to debut with projects from this fall). Many are striving to examine large-scale projects, supporting the relevant costs of scouting. Some platforms specialize vertically in specific business sectors (energy, real estate, IT, etc.), thus facilitating the selection of projects of interest and providing a more specialist support to start-ups and investors.
Though venture capital follows the high-risk/high-return model and concentrate on technology-based investments, angels tend to invest in a wider range of sectors and geographies, covering businesses that venture capital wouldn’t look at. Likewise, equity crowdfunding platforms provide a wide range of opportunities and choices in several different segments.
The investments promoted by many crowdfunding platforms are often screened, evaluated, and validated. Most angels will chose deals according to their aptitude and tastes, regardless of the opinion of the platforms. However, the preliminary assessment allows investors to focus solely on filtered projects.
Crowdfunding projects come with a set of documents (legal and financial reports and business plans), which improves due diligence: angels may download the package without incurring any cost or delay.
Should angels need to join on a single deal, there is no mediation or negotiation effort to consider, as the joint investment comes automatically with crowd investing.
Indeed, angels from both sides of the ocean have clearly found out how equity crowdfunding can open opportunities, reset scouting time and drastically reduce most costs, contributing to the development of their business.
Paulownia Social Project has been recently funded in Italy through ASSITECA CROWD: €520,000 equity was collected from only 12 investors, averaging more than €40,000 each; the minimum share offered was €5,000, but nobody invested less than €15,000, while the largest investment was €140,000. This is the biggest Italian crowd-investment to date, and it demonstrates angel investing sizes.
The Pono Music equity crowdfunding campaign in the USA through crowdfunder also shows how angel investing and crowdfunding can work together: the start-up launched by Neil Young to enhance the experience of listening to music has exceeded $7,328,000 to date, offering $5,000 minimum equity shares. PONO MUSIC collected about 525 shareholders, averaging more than $12,000 investment each. This is a typical scenario of angel investing.
According to a survey published by SEEDRS, a leading UK equity platform, the top three motivations for crowd investors are: to help new business get off the ground; to exploit tax reliefs; and to achieve meaningful financial returns. These are very similar to the interests of angel investors, showing that equity crowdfunding and angel investing can work well in unison.
Alessandro M. Lerro is an Italian lawyer, dealing with new technologies, venture capital, M&A and crowdfunding. He is a regular author, blogger and speaker in workshops and seminars. Twitter profile: @alessandrolerro. Web site: www.lerro.it.
Note: This article originally appeared on Crowdsourcing.org with this link http://www.crowdsourcing.org/editorial/from-us-to-italy-equity-crowdfunding-is-driving-an-angel-investing-revolution/33512 on September 2, 2014.
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