Home' Border Enterprise : Enterprise Spring-Summer 2009 Contents 36 enterpris e
meaning they can keep their money invested for
There are thousands of angel investors operating
in Australia. In 2008, 16,100 angels invested $1.69
billion into 5000 early-stage companies, according
to the Australian Association of Angel Investors.
That makes these wealthy individuals the single
largest source of start-up capital.
But finding them is difficult and convincing them
a business is worth investing in is even harder.
"There really is minimal education around on
how to raise capital," says the managing director
and founder of website Wholesale Investor, Steve
"Most deals are either poorly structured or
Many entrepreneurs fall into the "samurai warrior"
mould, according to Torso, which turns investors
away at the first meeting.
"Entrepreneurs that run their business alone
and believe very strongly that no one understands
their business like they do can be very difficult for
investors to deal with," Torso says.
Entrepreneurs can give themselves a leg up by
getting their business ready for investors. Torso
recommends putting together an advisory board.
THE banks are barely lending, venture
capitalists are nowhere to be seen,
private equity firms have been
decimated and IPOs are few and far
Yet there is one source of money in increasing
supply: angel investors.
Angel investors are wealthy individuals who invest
in start-ups with big potential.
A new survey reports they are in an extremely
bullish frame of mind.
The second quarterly Wholesale Investor report
says 26.5 per cent of private investors in Australia
believe now is the "best" time to invest. A further
55 per cent say it is a "very good" time to invest.
Just 1 per cent of the 4200 private investors
surveyed said it was not a good time to invest.
They are also cashed-up. About 35 per cent
have $1 million or more to invest and 29 per cent
are considering at least one business opportunity
Like venture capitalists, angel investors are after
massive returns but there are differences in the
way they operate. Unlike venture capitalists, the
angels' money is their own. There are also few
angels with rigid six- to eight-year exit strategies,
"Think about the knowledge and experience you
can glean from people," Torso says. "Every time
you consider bringing an adviser on board, think
about how his or her network and experience can
create value for your business."
Valuations need to be realistic, particularly
because 2009 is a buyers' market. According to
entrepreneur and angel investor Dominic Carosa,
who has invested in or acquired 14 internet or
mobile communication-based businesses in the
past two years, $1 million in 2009 has the same
buying power as $5 million had in 2006 and 2007.
There are ways to meet halfway on valuations,
though. An early-stage venture capitalist and
adviser, Alan Milwidsky at Business Strategies
International, says convertible notes are the
most popular way of raising money at the
Clauses can also be inserted in contracts that
leave valuations to a later date. This means the
equity stake being bought will be worked out in
one or two years' time when the economy has
"A ratchet clause is where an entrepreneur
accepts an investment of $300,000 now and says
to the investor, 'Let's revalue the business in two
years' time,'" Milwidsky says.
Entrepreneurs should expect to spend money
to raise money. Entrepreneurs who are seeking
$1 million should budget to spend $10,000
to $25,000 on the process. This covers legal,
accounting and advisory fees. Entrepreneurs
looking for $1 million to $5 million should expect to
"Scrap the long lunches. The key is to have as
many coffee meetings and teleconferences as it
takes. When you're sick of coffee, drink sparkling
water," Torso says.
When it comes to
raising working capital,
it pays to have an
angel on your side,
writes KRISTEN LE
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