Finding the perfect match

Investment fairs bring together entrepreneurs with a bright idea and potential backers with time and money to spare. The atmosphere is as electric as an episode of Dragons' Den, with life-changing sums of money available for the lucky few.

by Jeremy Hazlehurst
Last Updated: 09 Oct 2013

It's 11 in the morning, I'm sitting in a Masonic hall and a man is telling me about salmon. Apparently, the reason they can swim up waterfalls is because their flesh is packed with an antioxidant called astaxanthin. I too might become lithe, sprightly and as muscular as an Alaskan sockeye, he suggests, if I ingested a load of it. My new friend rattles a pill-pot filled with little black capsules. Each of these, he says, contains an algae so rich in astaxanthin that it is equivalent to eight ounces of salmon. He then shows me pictures of the lab in New Zealand where he grows this wonder plant, a scarily futuristic room where people in white overalls amble past row after row of bags filled with neon-bright green goo. It looks like the sort of place where aliens would hatch in a sci-fi film, and you half expect a claw to burst out of a bag and savage a passing employee. It's all pretty impressive, and if only I had £100,000 sitting about doing nothing, I might be tempted to invest in it.

On the other hand, if I had £150,000 I might well sink it into 'James Bond's original tailor', the Mayfair company that made the suits that transformed Sean Connery from a body-builder into a credible superspy, and which a chap in a smart three-piece and a pair of funky specs is now trying to turn into a global brand.

Then again, a quarter of a million would get me a share in an automated trading platform that promises to predict the foreign exchange markets, a revolutionary new gizmo for cleaning the hulls of boats, or the Philippines' first premium rum. A bit more and I could be a proud shareholder in a company developing a new diagnostic test for Alzheimer's or a manhole cover with a revolutionary electronic bolting system. Decisions, decisions.

These sometimes weird and possibly wonderful firms were among the 50 or so that were touting for money at the most recent investment fair held by Beer & Partners, a matchmaker that introduces businesses looking for money to wealthy investors. If your views of angel investing are formed by Dragons' Den, then a B&P day is a good corrective. There was absolutely no sign of Duncan Bannatyne or Theo Paphitis doodling in pads and smirking. Nobody was crumpling their nose and scowling a la Deborah Meaden. And, rather than being in a warehouse with exposed brick walls, this took place in a rather more old-fashioned place, a big, soft-carpeted room with Formica tables, where photographs of Worshipful Masters in ermine-trimmed regalia peered down from the walls, and there were stained glass windows representing the counties of England. (A huge, golden image of Stonehenge glowed fluorescently every time the sun came out, symbolising either rock-solid longevity or utter uselessness.)

If the fair was anything to go by, the reality of angel investing is certainly more sober than Bannatyne et al would have you believe. I didn't see a single person thump his fist on a table, leap to his feet and bellow: 'I'm in, dammit!' The way it works is that, instead of entrepreneurs standing up and pitching their ideas, they sit behind desks with a pile of business cards, laptops and gadgets, hoping that potential investors will swing by for a chat and then offer them oodles of cash. Oddly, this is not boring. You soon realise that this event, for all its lack of extroverted moguls, also has the magic ingredient that makes Dragons' Den compelling: there's hundreds of millions of quid sloshing around the room and a life-changing moment is just a 'yes' away.

Apparently, this format works. Beer & Partners started in 1991 and since then the company has helped funnel £120m from investors to clients. It holds three fairs a year, in which about 50 businesses are present - it sees around 3,000 business plans a year and takes about 100 of those onto its books. The ones that make it, says company chief executive Michael Weaver, are those with 'sex appeal'. This is defined rather broadly. Broadly enough to include bacterial water-filtration devices and acne treatments, but you see what he means - inventions that are easy to explain and have the potential to be massive. Between 100 and 200 investors attend a fair, and a typical entrepreneur will meet nine of them.

Each fair raises on average £3.6m, and 20% to 25% of clients get the money they were looking for. Recent deals include £260,000 for a chain of indoor treadmill ski-slopes, £50,000 for a folding boat, and a healthy fast food chain that is hoping to expand, and just got an extra £1.5m to take the total funds raised through B&P to £2.5m. The June 2011 fair yielded the biggest ever single deal, a $9m investment for a cloud computing firm.

You can see why this appeals to investors, who are, judging by the recent fair, a mixture of oldish blokes in rumpled pinstripes and tanned fellows in open-necked shirts who clearly enjoy life, with a few cufflinked private equity types thrown in. Rather than being harangued by desperate, sweating pitchers, they get to sit about eating Bourbons and reading brochures, chat to their mates and from time to time amble over and ask a few questions, a bit like lions in the Serengeti lounging in the sunshine and occasionally wandering off for a spot of hunting. The poor entrepreneurs are more like those three-eyed aliens in Toy Story who gaze up longingly at the claw and chirrup: 'Pick me! Pick me!'

The investment-seekers seem to be a stoical, uncomplaining lot. A formidable lady from Cambridge was trying to raise investment for a business called BacTest, which according to the brochure makes a 'portable respirometer used to detect and manage bacterial contamination'. This is the 15th product she has brought to market and she says that getting money from angels is always hard - 'You have to kiss a lot of frogs' - but on the whole she says she prefers this sit-at-a-desk format to presenting to a room full of potential investors.

'If you are pitching,' she says, 'you have 10 minutes and you can follow somebody who is selling ballet shoes - that happened to me once - and you never know who you are talking to. If you are meeting venture capitalists you can check them out, so you know if they made their money in ice-cream or heavy industry.' This way you can tweak your pitch.

A couple of slightly miserable-looking blokes were trying to get cash for a business that helps people make claims for mis-sold payment protection policies. They say that one of the problems with presenting to a room full of angels is that they tend to have a group mentality. 'Once one person says that the model is flawed, the rest all get very nervous,' they told me. 'One dissenter and you are done for.'

The alarmingly baby-faced CEO of another company, which is involved in the financial markets, said something similar. 'Once somebody says the words "Ponzi scheme", it's all over,' he chuckled. So is this better? Sort of, say the payment protection blokes. This way, you have to grab their interest with a paragraph in a brochure, then have a very good 20-second pitch if they sit down with you. The window is open, but just the tiniest bit.

It must be agony to know that there are hundreds of millions of pounds' worth of investable money sauntering about, when all you need is a hundred thousand. For the entrepreneurs, this is surely a sort of slow-burning masochism.

The investors, on the other hand, seemed to be really rather enjoying it. One was Mahesh Shah, a chap who made his money in the life sciences in the 1990s and then cashed out. He has been coming to B&P events for four years and has invested in 16 businesses. He was at the St James's event both as a potential investor and as an entrepreneur - the antioxidant algae business is one of his. Shah says he likes the bigger, Dragons' Den-style of event where businesses do a more formal pitch, because 'you learn from the Q&A and get the benefit of the other angels' experience, and you get a better feel for the company'.

This has other advantages. 'You have a lot of companies under one roof and you see a diverse range of businesses.' That's good because, just as with other types of investment, angels look for diversification. Also, 'you get to speak to people on a one-to-one basis, size up the individuals and form your judgements about the management team'.

Another angel is Peter Fergusson, a retired corporate lawyer who has investments in '25 or 30' businesses, seven or eight of which came through B&P. He agrees that meeting people face to face is a huge advantage. When choosing to invest, he says, 'personal connection is very important. You need to be able to feel you can call them. You need their mobile number.'

I got the feeling he meant that you should want to have their mobile number. Everybody I spoke to on the investing side said the same thing: that the personal connection is key to this style of investment. It's the people as much as the product, by all accounts, that persuade investors to part with their money. It makes sense. If you are going to spend five or more years of your life working closely with somebody on something, you'd better get on.

Which makes you wonder, why do people go in for angel investing? I mean, clearly there's a business side to it. The sorts of people who do this are canny with their money. They didn't get burned by Icelandic banks or dodgy City get-rich-quick schemes. Investing in small businesses is a way to get a high-risk, high-reward element into their portfolios, to sit alongside the bonds and gilts. This is a tax- efficient way of investing, too - you can get up to 78% of the money written off against tax.

'The taxman really couldn't do more,' said one, 'no complaints at all on that score', said another. But it's a long shot. Shah cites the Pareto principle: 80% of the businesses you invest in will fail or pootle along, but that 'you hope the other 20% will cover your losses'.

It will take time, though; lots of the businesses at the event said that an investment would last three to five years, but the reality is that they can take far longer to make a decent return. 'There are lemons and plums,' says Fergusson, 'and the lemons definitely ripen faster than the plums.'

So, yes, they want to make money. But there's more to it than that. Angels only sink money that they can afford to lose into something as risky as a new business. They are not daft. The truth, I suspect, is that they are in it for the kicks. Typically, says B&P's Weaver, investors are 'early retired and slightly bored. None of their friends are retired, so they've got nobody to play with. They also want the bragging rights of being involved in an interesting business and something to talk about down the pub.'

All the angels have large groups of co-investors and they evidently enjoy putting them in contact with each other, or running ideas past their pals, as well as helping bright, sparky people to become successful. They all sit on a number of boards and are keen to use their expertise as much as possible. Angel investing is, for want of a better phrase, a bit of fun.

That's not to say it's frivolous. Enjoying something doesn't mean you'll do it badly. In fact, it probably means you'll do it far better. We live in a world where the image of somebody who does well in business is all too often that of a joyless drone, who quotes Sun Tzu at every verse end. In reality, though, the people who will provide the money and expertise behind the next wave of British businesses - the ones that if the government is to be believed will ride to the rescue of the economy - are not grim-faced titans of industry. They're clubbable, relaxed, middle-aged blokes whose idea of a good time is not strolling about on the golf course, but helping entrepreneurs. Fergusson said he hopes his businesses 'make the world a slightly better place'.

Some people say capitalism's engine is greed and its brakes are fear. But this part of the economy seems to be driven by optimism and fun. And that's really rather brilliant.

Created with flickr slideshow.

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