In this Q&A, DTC Daily speaks to Sam Louis, head of consultancy, Angel Investment Network. Taking the investor’s perspective, he examines what challenger brands should focus on when looking to secure funding, and how they can pick between the numerous funding options available to them.
Can you explain what AIN is and how startups get funding through the platform?
AIN is the world’s largest online angel investing platform, connecting startups with a global network of early stage investors. The majority of those are private individuals known as angel investors, but there are also a lot of family offices, funds, VCs and PE firms. It was originally set up to help great ideas that were not getting off the ground because it was hard to find investors. Now, the network has 40 branches extending to 90 different countries. We have over 1.2 million registered members with more than 200,000 investors and a million entrepreneurs. We’ve already raised £200+ million for some of the most cutting edge startups in the UK and across the world and we have no intention of stopping.
The way the platform works is that entrepreneurs can set up a profile to pitch to our worldwide angels. Although they can set up a profile for free, there are also paid options available to boost the level of exposure they get and so increase the chances for a positive outcome. Investors can then browse through to find opportunities they like and get in touch directly to discuss in more detail with the team. We also operate a hands-on brokerage service for select UK companies, where we work to find the right investors for opportunity and only take a fee on successful investment.
How can a brand create a compelling proposition that angel investors will pay attention to?
Creating a compelling proposition is all about telling your story well. All DTC brands will have spent a lot of time working out exactly what their proposition is for their customers, and the same goes for investors, it’s just a different value proposition. The important thing is to put yourself in their shoes, they are looking to get involved in a business doing well, often something they enjoy or are passionate about, but it is still a financial decision for them.
Brands looking for investment should also consider what sort of return can they expect to give investors. Do you want to sell the company at some point or is this going to be your life’s work? If so, how will you pay them back?
The direct-to-consumer business model in the UK has gained serious traction over the last few years. Are you seeing more DTC brands join your network, and raise successful rounds?
DTC brands have been some of the most transformative businesses in the UK and with their focus on disrupting traditional supply chains and using online methods to reach consumers directly, they are a natural fit with a platform like AIN. In the past year alone we’ve seen huge numbers of exciting new ventures come through. There’s BakedIn Ltd, who deliver a subscription baking kit with recipes approved by Michel Roux. Alongside them is Planks, is a rider-owned clothing company, set up by skiers for skiers, who started as a small British ski brand and are now the official kit supplier for the GB snowsports athletes. From ingenious physical product like WAU Bikes, to innovative digital services like Baanx, a crypto ready challenger bank, the ability to build a relationship directly with your customers has massively changed the shape of the businesses we see coming through the platform.
As there are so many alternatives out there, how do startups decide if angel investment is right for them?
Angel investment certainly isn’t always the way to go. As with any big decision, how you grow your company should be in line with where your business is in its journey and what you want from your company as an owner. Sometimes a loan is suitable, sometimes it’s better to hold out and let your sales build the company’s capital reserves organically. Sometimes though, angel investment (or more appropriately, equity investment) is exactly what you need. Equity investment is great when:
– You want to bring more than just money into the business. Early stage investors often invest in things they are passionate and knowledgeable about. They can bring contacts, valuable introductions and advice to really support the operation.
– You don’t have the revenues or assets to secure a loan.
– You want flexibility. Though you should be clear about what you plan to spend their investment on, equity investors know that this can change as the business evolves.
– You are looking to grow extremely quickly or are reinvesting any profits back into the company. A lot of companies could be profitable but invest any spare capital back into the company to really drive the progression of the venture.
Obviously London is a hub for startups in the UK, but what other areas of the country are you seeing as having a strong start up scene?
We recently did some number crunching on the UK scene over the past year and saw some interesting patterns. Although London is the leading centre for entrepreneurs, we have seen the rest of the country start to close the gap. The North West has undergone the fastest growth in startups looking for funding, with quite an investment in the tech scene in that part of the country. We’ve also seen Scotland leaping up two places in the rankings, now coming number seven for pitch ideas, growing its overall market share.
Fintech has been a big growth area north of the England-Scotland border. Meanwhile from low bases Wales and Northern Ireland are witnessing the fastest increase in new entrepreneurs, with growth up 67% and 70% respectively in comparison to the rest of the UK over the last year.
Is there confidence in the UK angel investment market at the moment, despite the external uncertainty around Brexit?
Our scope is global, so as a platform we don’t see as much fluctuation as if we were just in one territory, but that said, the UK scene has proved remarkably resilient. The strength, depth and embedded entrepreneurial culture we now have has meant that UK start ups have continued to be one of the leaders in both growth and investment. Ultimately, start ups are adaptive and are trying to do something new, and it is the companies and industries that cannot innovate which are hardest hit by economic instability. From software, food, beverage and fintech,to fashion and property, UK ventures are securing investment and expanding. Of course, there is also the fact that the Brexit process has increased the relative attractiveness of the pound, meaning many UK companies have found funding from overseas where they may not have in the past.