The Investment Process
The document below is intended to aid Southern Angel Investors Club (SAIC) members and companies seeking investment to understand how we operate when looking at investments.
1 Filtering investment opportunities
We find new investments via a lot of routes, FSE Group, Enterprise Hubs, SetSquared and our own contacts. Any investment that comes in needs an SIC member to act as proposer.
The proposer’s job is to do the first level of filtering, i.e. does the investment make sense and does it fit the type of investments that a SAIC investment profile, which is:
a) Typically we are looking to invest both time and expertise into a company. If we don’t think we can add value to the company then we normally don’t want to invest.
i) Typical money investments are in the region of £50k to £250k raised across multiple members. Since 2009 the amount the club invests has tended to get smaller, reflecting the general state of the economy and a lack of exits.
ii) Typical expertise investments are Non-Exec Director, part-time FD, consultant etc. Often unpaid if small amount of time or paid in sweat equity or delayed payment if larger.
b) We have stated that our preference is to invest in a company where one or more of the SIC members are actively involved with the company going forward. However, this is not mandatory. The most important factor is for the SIC to be represented at board level by some means.
c) It is preferred that the company is EIS eligible, but it is not mandatory.
The proposer is the main person who does the filtering but we do ask that before any investment is taken to the whole group the proposer should find a seconder. A seconder is another SAIC member, ideally one that has been in SIC for some while, who gives the company a quick look over and agrees with the proposer that the company is worth putting to the club. The seconder can be the Chairman of the next meeting.
2 Taking an investment to SAIC
The main way investments get in front of the group is at a SIC meeting. We limit this to three or four per meeting and we normally have too many companies wanting to present. In the end the designated Chairman of the meeting (we rotate chairmanship for each meeting) has the final say as to which companies present.
For the sake of clarity the process of presenting at the group is as follows:
1. Before the SAIC meeting
a. The proposer, or sometimes the Chairman, liaises with the company and gives them the date of the next meeting and a time slot for their presentation.
b. The proposer will most likely talk to the company before the meeting about what the SAIC members would be interested in hearing at the presentation.
c. It is very useful if an executive summary of the investment opportunity is sent round the SAIC members prior to the meeting. The proposer will normally arrange this.
d. Presenting companies must be told they will pay a fee (this covers the cost of room hire for the club). The current fee rate is £100.
On selection the chairman will provide a Guide to Presenting Companies which will detail all of the logistics for the meeting.
2. At the SIC meeting
a. The company waits outside until their slot arrives. The proposer goes and gets them when the meeting is ready for them.
b. The company comes in and makes a presentation (projector and screen provided). The PowerPoint presentation should be no longer than 15 minutes. This is followed by time for questions, normally 15 minutes (the question time is really important). We have many very well informed members with wide experience and this discussion is a valuable feature of the meeting for all parties. Please see the Guide to Presenting Companies for up-to-date guidance on meeting format.
c. The company is then asked to leave the room and wait outside whilst the SIC members discuss the investment opportunity in private for a further 15 minutes.
d. If there is an interest in the investment then the proposer gathers the names of those members who are interested and agrees the next action. We normally ask one of those interests to take a co-coordinating role for follow up activity.
3. After the SAIC meeting
The proposer goes back to the company and tells them whether SAIC would like to progress to the next stage. If the answer is ‘no’ then it would be good for the proposer to give some feedback to let the company know why.
3 Due diligence and investment stage
If the investment is seen as likely to be good investment then one of the potential investors, normally the proposer, becomes the lead investor. The lead investor’s role is to act as the main contact point for the company and coordinate the due diligence stage and investment stages. This is a lot of work for both parties so people need to be clear that they really are interested in investing before undertaking this stage. Normally the process goes something like this:
1. Due diligence stage
a. The investors will want more information from the company, e.g. full business plan, detailed financial information, market research etc.
b. A longer meeting between the potential investors and the company will need to be arranged. This can be quite difficult as SAIC members are really busy people. However, it is important to balance the need for speed with getting the maximum number of investors at the meeting. There is no reason why two dates cannot be made for the same purpose.
c. There may be other stages in here to gather extra due diligence information and discuss it with the investors.
d. Investment is a two-way street and the lead investor should talk to SIC members about what experience they can bring to the company.
2. Investment stage
a. The lead investor will then canvas the investors on what they want to invest both in money and experience, and on what terms.
b. There may be some negotiation here!
c. Once the terms are clear then the lead investor confirms who wants to invest and how much. He then feeds this back to the company.
d. Because we are a club each investor invests in his/her own right. Therefore, the company will get the investment as multiple smaller investments from each member (or for tax reasons a nominee). We do not invest through a nominee company or as a syndicate.
e. An election of the SAIC nominated NED/Observer must take place. This is not necessarily the lead investor! A member not proposing to take on this role needs to oversee this election process. Relevant CVs are circulated and votes are counted based on size of shareholdings.
4 After a successful investment
SAIC do not want to lose touch with an investment and ideally one or more of the SAIC investors has some ongoing input to the company. As a minimum we would expect:
1. Monthly or quarterly financial management reports and a brief summary or what is happening sent round by email. We don’t want a company spending much time on this, but we do expect something.
2. Our nominated NED/Observer should attend regular board meetings to provide input from our extensive experience. They should feedback to the shareholders at least quarterly.
3. There may be a case for specific input on certain topics that investors have some experience on. We are obviously keen to see the company succeed and therefore should be willing to call on the skills and experience of any SAIC member.
4. On exit the normal rules investment rules apply, and if successful we all celebrate!
5. Investors should note that if an investment fails EIS allows you to reclaim tax on the investment amount.