Interview: John Phelan, HBAN

13 Sep 2017 | 08.17 am

Interview: John Phelan, HBAN

The inside track on business angels

13 Sep 2017 | 08.17 am

Investors in private companies should spread their risk across lots of businesses, says HBAN’s John Phelan

The Halo Business Angel Network (HBAN) invested €13.6m in fifty businesses through 2016, an increase of 25% on the previous year. A joint initiative of InterTradeIreland and Enterprise Ireland, HBAN is a conduit for people with spare cash who can spread their investment risk by teaming up with like-minded individuals. Another comfort factor is that most HBAN investments are buttressed by taxpayers co-investing through Enterprise Ireland.

HBAN has seven angel investor syndicates operating around the country, each targeting different sectors. The coterie of angels is around 700, though fewer than half are active investors, according to John Phelan (pictured), national director of the organisation. Angel investors are predominantly male and middle-aged, and Phelan says that that replenishing the stock of HBAN’s investors is an ongoing challenge.

To drum up interest, the network organised a 48-hour roadshow in 2016 which reeled in 35 new angels. That effort earned HBAN a prize in the European Business Angel Network Awards held in Spain recently. Here’s John Phelan’s overview of the angel investing scene.

What mistakes do businesses make when courting investors?

There’s a fine line between being confident and cocky. There’s also a tendency for entrepreneurs to overvalue their companies, which I suppose is only natural. But if you wildly overestimate what the business is worth, investors will decide that you don’t have your finger on the pulse. Investors want to see validation of the technology or product and that it can be scaled. They also want to see a well-rounded team in place.

How long does it take from pitch to investment?

Usually three months from first pitch, including due diligence, legal and closing. We had a company last year that secured cash in two days, before the legal aspects were completed. But I’ve also seen the process take much longer, which is not good in investing.

What mistakes do investors make?

The mistakes usually concern due diligence. Some new investors think it means knowing what the promoters have eaten for breakfast. The reality is that at the very early stage of investment you have to trust the investees. In my experience, valued investors are people who come from the industry they are investing in. They know how to make the connections and where the cul de sacs are.

What’s the attraction of group investing?

We deal with people who just want to invest by themselves. They have deep knowledge of a particularly industry they have worked in, so they go back into it as an informed investor.
We also have people who recognise that they don’t understand a lot about the sectors they’re investing in, so they prefer to go in with others who do.

That’s where the syndicate model works well. The lead investor in a group of 30 or 40 will be someone who understands the industry. They lead in on that, doing the due diligence and sharing it with the group. In addition, you are statistically more likely to make a return if you put €20,000 into ten businesses instead of €200,000 into one.

What sectors are most of interest to angel investors?

The Medtech sector is doing really well right now. Our Medtech syndicate in Galway has really deep domain knowledge from the angels in the syndicate. They bring confidence and cash to the table that others want to follow.

How does Ireland’s investment landscape compare with other countries?

We’re doing very well. We attended an Angel Capital Association conference in the US recently and they profiled HBAN, which we hadn’t expected. However, seed venture capital activity is not great in Ireland at the moment. We don’t have as much as we had two years ago. Another trend we’re noticing is cross-border investment — everybody wants to do it at the moment.

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