Anthony Clarke is the CEO of London Business Angels and Co Founder and CEO its parent company Angel Capital Group. He is one of the most experienced professionals in the London and UK scene. A business investor himself, he has also worked as Finance Director and Chief Executive of a number of SMEs. Mr. Clarke was Chairman of the British Business Angels Association (BBAA) from 2004 – July 2012 and is President Emeritus of European Business Angels Network (EBAN).
He answered our questions about London Business Angels, explaining us how it works, how they manage the deal flow, their investment strategy, and new trends.
FinSMEs: Can You tell me a little more about LBA?
Anthony Clarke: “London Business Angels (LBA) which is part of the Angel Capital Group is one of the oldest, most respected and successful business angel investment communities in the UK. Since 1982, LBA has been connecting high growth small and medium sized enterprises with equity finance through its exclusive community of business angel investors. In 2012, the community invested circa £3m alongside circa £9m of co-investment across 17 start up/early stage UK based SMEs”.
FinSMEs: How it works?
Anthony Clarke: “The LBA investor club currently comprises business angels from a diverse range of backgrounds; from cashed-out entrepreneurs to FTSE 250 directors to professional angel investors. In aggregate, these investors have between £75m/£100m to invest in early stage opportunities.
“Each year LBA receives circa 1000 enquiries from seed/ early stage opportunities and of these only 5% being circa 45 are selected to formally present their business to the LBA members. Prior to presenting, each opportunity selected by LBA goes through an intensive 2-3 day investment readiness programme to ensure that they understand the needs of investors and the investment process. Following their presentation, investees hold syndicate meetings with interested LBA investors with a view to drilling down to a term sheet with a syndicate”.
FinSMEs: What is the role of sidecar funds?
Anthony Clarke: “LBA also acts as a facilitator for an in-house HMRC approved EIS fund and an unapproved SEIS fund, both of which are managed by a FSA regulated fund manager with funds held by an FSA regulated Registrar. These funds, raised via the LBA membership, offer tax benefits and simple access to a diversified portfolio of angel deals. These two funds co-invest alongside LBA investors in about 10-12 of the 45 companies presenting at LBA each year, with a particular emphasis on co-investing in deals where a strong, experienced and committed LBA lead angel investor is in place.
“In the past three years, LBA has raised 3 EIS funds which together have invested across 11 early stage opportunities with three further deals closing shortly. As an HMRC approved structure, LBA EIS funds aim to be fully invested within 12 months of closure. The current LBA EIS Fund aims to be fully invested by the end of March 2013 at which point the next LBA EIS Roundtable Syndicate Fund 2013 will be launched giving investors EIS tax breaks in 2012/13.
“LBA closed its first SEIS fund in October 2012 and this fund is now closing its first two deals alongside LBA syndicates.
As a contracted syndicate partner of the Government’s £50m Angel Co-Investment Fund (angel cofund), any deals in which LBA funds invest into automatically have a potential investment partner who typically co invests between £200k- £500k per deal”.
FinSMEs: How do you manage the deal flow?
Anthony Clarke: “Each year LBA receives circa 1000 enquiries from entrepreneurs looking to raise seed capital and early stage equity capital. An intial shortlist of around 20% being 200 projects per year is selected and from these approximately 10% being circa 100 opportunities are interviewed for 1-2 hours with circa 45 being selected to become LBA investees resulting in them presenting to the LBA members”.
FinSMEs: What kind of business do London Business Angels back? What’s your investment strategy?
Anthony Clarke: “As a precondition to moving forward with LBA, companies must be eligible for EIS/SEIS tax relief and be registered in the UK. LBA has a particular focus on technology opportunities with; an innovative and scalable business model; the potential to deliver explosive growth ( say a 10x+ return); a highly committed management team; an large market; a sustainable competitive advantage; can be taken to market without significant development and are seeking an exit in the medium term ( 5years)”.
FinSMEs: How do you try to bring value to companies you invest in?
Anthony Clarke: “London Business Angel syndicates of investors not only bring money to the table, they also bring patient human capital in the form of invaluable experience, mentoring and advice and a well developed network of contacts. These often allow early stage companies to unlock doors that would otherwise have remained closed LBA, alongside the City of London Corporation, is delivering the Angels in the City programme which aims to increase the awareness of individuals to become investors and to bring their financial capacity and business experience to invest in innovative entrepreneurs with high growth potential in the City of London fringes, including the exiting Tech City cluster. To date 150 individuals from a range of backgrounds, including blue chip investment banks to niche insurance brokers have participated with a series of capacity building workshops and investment pitch events with more set to take place in 2013”.
FinSMEs: In your opinion, what will be hot in the near future? What intrigues you in terms of sectors and trends?
Anthony Clarke: “In 2012, the following trends at LBA emerged:
1) The average investment per deal by an LBA investor was circa £40k up 10% vis a vis previous years perhaps due in part to the enhanced tax benefits offered by EIS.
2) There is an increasing importance on the role of a committed and experienced “lead angel” with deals where a non conflicted lead angel with new money for a project has emerged standing a significantly greater chance of closing a large syndicate say £1m+.
3) Angel investor syndicates are now replacing traditional venture capitalists at the lower end (sub £1- £2m) of the market. This has been made possible by the emergence of sidecar fund co investment mechanisms such as the LBA EIS funds and the Angel Cofund.
4) Start up/early stage entrepreneurs are frequently being encouraged by their angel investors to initially grow businesses with a view to making an early £15m- £20m trade sale exit in a 3 year time horizon where the purchaser often a large quoted company is better placed to significantly scale the business”.
FinSMEs: Crowdfunding? A threat or an opportunity?
Anthony Clarke: “In general, innovation in the early stage funding marketplace is welcome and LBA’s parent company, Angel Capital Group is part of the “Next Generation Finance Consortium” which aims to promote alternative forms of early stage finance. Of the circa 1000 opportunities that LBA comes into contact with per annum, only the top 5% are selected to present to the LBA community which demonstrates the competitive and selective nature of the industry. However, the crowdfunding marketplace is still in its infancy in relation to issues such as regulation, investor protection and follow on funding., Crowdfunding platforms also need to consider how they can also bring the human capital benefits from traditional angel investing in the form of experience, mentoring and advice”.
FinSMEs
11/01/2013