Angel investors picky in tight conditions

Written on the 9 September 2009

ANGEL investors are re-assessing where to spend their money with the venture capital space diversifying.

Chairman of the Founders Forum Rick McElhinney, says investors are becoming more target specific with the eco-tech sector gaining momentum.

“Some of the angels have dropped out, but the bottom line is that if you have a really good deal you can generally raise the funds,” he says.

“Bit by bit people are realising that it’s (eco) a proven sector and there is enough momentum to keep it going. Some of the start-ups are getting runs on the board even although it’s still early days. It’s a very immature industry, but every month there is something new happening.

McElhinney is involved in Eco-Kinetics, the renewable energy company that secured the EPA contract for QLD Solar Homes last year. The business has shown 700 per cent growth last year ($7.9m last fiscal). The technology has been developed with COMET funds which uses a new low cost technology that tracks the sun without any electronic complexities.

According to the chair of the Gold Coast Angels Group Andrew Loch, the quality of investors is now shifting as debt and invoice financing is more difficult to attain.

“The quality of investors we are seeing is better. In this market, we don’t get people thinking that money is falling off trees,” says Loch, who is also the CEO of the Gold Coast Innovation Centre.

“Entrepreneurs are becoming more cautious, which is a good sign from an investor point of view, but entrepreneurs also need to be realistic in their evaluations.”

Loch says that traditionally, angels are patient, with an average term for holding an investment of eight years. For the risk and added value they provide, angels seek returns of at least 10 times their investment.

“A number of investors in our group are willing to take a long-term view and weigh up the risk with potential return,” says Loch.

Angels typically invest between $25,000 and $100,000 per transaction individually, and from $250,000 to $750,000 as a group. They traditionally invest in one to four transactions per year.

 

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