Angel News Australia

Read here the most recent articles from Angel News Australia, the newsletter for Australian Angel Investors and other members of the AAAI. There is an archive of past newsletters.

Volume 4, Issue 4, July, 2011

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From the CEO ... Time has flown since our Newcastle conference. I can remember a conversation around Christmas last year that said, “We’ll have the conference and before we know it, it will be end of June.” Where has this year gone? AAAI activities in the last six months have been heavily focussed on policy and research, awareness raising, development of content and redesign of our web site to enable greater functionality and profile for members, particularly those in accredited groups around Australia. Our new design incorporates a fresher, more modern brand for AAAI and the updated site will provide greater transparency to members on activities in addition to greater functionality.
The new brand, launched at the AGM, is being applied across our web site and communications materials. The winning design, by TAFE graduate, Erin Falconer, was selected from a number presented by Hunter TAFE design students. The AAAI pursues the Angel ethic of engagement with our community and was pleased to offer this opportunity to the final year design students in collaboration around the 2011 Annual Angel Conference in Newcastle.

I like to tell the theme behind the logo as it resonates with the philosophies of AAAI and our community. It is undeniably Australian, utilising the traditional indigenous boomerang representing returning profits from investment; the circular arrangement represents everyone coming together in a unified community, collaborating at all levels; the colours, natural to our environment and the “i” at the top representing the investment activity that brings success for all our members.

New web site functionality will include a blog and integration with social media platforms. We encourage everyone to join the LinkedIn Discussion forum and other social media we add to engage in debate around activities and policy discussions. The wide diversity of your views will guide our community to constructive outcomes.

Current LinkedIn discussion topics include tax incentives being offered to Angel Investors in the United Kingdom – “Tax breaks for riskier ventures”. Join today to comment and express your views on whether we continue to lobby for such incentives in Australia.

This coming month will see the launch of the 2012 National Angel Conference to be held in Victoria on February 29^th – 1^st March with the support of host group Melbourne Angels. After the overwhelmingly positive feedback received from the 2011 conference, the program theme for 2012 is “Angel Capital – Ensuring a Sustainable Future”. This reflects the challenges our members face with sustainability at a number of levels.

The AAAI Board and I continue to work for the growth of the Association, to support new membership in affiliated groups, to keep building awareness, to grow collaborative opportunities and to improve information flow to support our members’ aspirations.

I invite you to contact me any time to get more involved, or to share any comments or suggestions for activities.

Ruth Drinkwater

CEO

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Policy Update

On the policy front, the AAAI made a submission to the Future of Financial Advice reforms in response to the Wholesale and Retail Clients Options Paper and was active in the public consultations sessions. The AAAI recommends recognising Angel Investors as experienced investors who potentially sit outside the existing definition of Wholesale, Sophisticated, Professional and Retail Investors in the Legislation. Overly strict definitions and the imposition of financial license constraints have the potential to discourage Angel Investment activity in the Australian economy. Members’ comments and participation in this policy initiative are welcome.

We have continued our dialogue with Treasury staff about the barriers to very early stage high-risk investment. The institutional venture capital community continues to enjoy strong Government support and funding but, is losing favour with the decision-makers who are eager to learn more about the little known Angel Investment community. It is broadly acknowledged the early stage funding gap continues to grow wider and deeper. The AAAI is the only voice for investors actively engaged in early-stage investment.

There are many misconceptions in government, the business community and the entrepreneurial ecosystem about Angel Investors. We need to improve the data and raise the volume of our voice to correct these misconceptions and to seek incentives that will stimulate Angel Capital activity.

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Initiatives & Achievements

The AAAI continues to build its collaboration with corporations and associations on a range of activities to support Angel Capital. These efforts enable information exchange, international relationships and benchmarking with our overseas counterparts and their policy environments.

These include:

• Development of a Syndication Treaty establishing the ground rules for the syndication of investments among member Angel Groups in Australia and New Zealand.
• Signing a Memorandum of Understanding with LINC Scotland to facilitate further collaboration. This complements similar agreements with the national Angel associations in the USA, New Zealand, Canada and Europe.
• Transforming creativity into commercial sustainability – a partnership with Creative Enterprise Australia, ATP Innovations and Creative Innovation supported by Enterprise Connect and InnovateSA. A series of workshops around Australia during July and August. All members are invited to attend. Let us know of your interest via
• A partnership with Business Acumen, a new national magazine focussing on innovation. All AAAI members are entitled to receive a complimentary copy, so please update your postal details in our database via the link at the top of this newsletter.
• Further expansion of research into the behaviour of Angel Investors in Australia. Short quarterly (and anonymous) surveys will be circulated to collect data on deal flow in the pipeline, deals done, etc. These quarterly surveys are to be published in Business Acumen and are being supported by Bentleys, one of our national sponsors.
• We continue to provide support to various regional areas to establish and build new Angel Groups.
• Active engagement in leadership roles and sharing experience with Angel peers in Asia, South America, North America and Europe to create and foster relationships for the benefits of our members and their portfolio companies.

In coming months, accredited Angel instructors will deliver a number of AAAI professional development workshops in cooperation with Angel groups around the country.

To date almost all activity in the Australian Angel community is 100% volunteer effort. We can be proud of our collective achievements and I congratulate the many active members who work tirelessly for the community as a whole. I am proud and delighted to be a member of this community and to work with all members to create the cultural change we all believe should occur to underpin entrepreneurial activity in this country.

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The Angel Community Expands

The AAAI has created a formal Angel investor community in Australia and is driving the awareness and recognition of the Angel Capital asset class.

As the affiliated Angel groups hit their stride, we are seeing an increasing number of related activities develop. There are networking dinners for early-stage investors like Innovation Bay in Sydney and Aurelius Digital in Melbourne; there are seed funds like Pollenizer and StartMate in Sydney and AngelCube in Melbourne; there are shared workspaces and incubators like The Hub and Anthill Incubator in Melbourne, ATP Innovations in Sydney and iLab in Brisbane; there are innovation services like Lighthouse in Canberra, Innovic in Melbourne and InnovateSA in Adelaide.

Each of these is a valuable addition to the early-stage ecosystem and increases the support and opportunity for success of our entrepreneurs. Indeed, the growth of the profile of Angel investing here and overseas is causing many people to jump on the bandwagon which makes it that much harder for investors and entrepreneurs to know if they are dealing with genuine Angel investors.

Here are a few pointers to help you understand who you are dealing with:

1. Genuine investors will not ask entrepreneurs for large fees – those people are service providers
2. Angel investors believe in being proactively engaged with their investments. Passive private investors are not Angels.
3. A five minute pitch to a roomful of people who have turned up for the networking, food and drink is unlikely to lead to investment. It might get you some valuable contacts, it might not. Again, if they are really investors you shouldn’t be paying.
4. High net worth individuals with backgrounds in the property industry, or listed share market rarely have the intellectual capital to assist a start-up. Remember to interview the investors and do due diligence on them just as you expect they will do on you.
5. Angel investors have a proactive commitment to building a portfolio of early-stage investments and they will be able to tell you their investment criteria, their process and their value-add.
6. Successful entrepreneurs are often the best Angel investors but, being an investor is very different to being an entrepreneur. An experienced investor is a lot more than a cashed up entrepreneur.
7. Astute investors know they are probably not the target market for your product/service. If the investor is testing your proposition by their own needs/behavior they are probably not going to understand your vision and the path to success.
8. Sharing the risk is a key tenet of Angel investing. Complex, preferential investment structures are usually a clear sign of a financial engineer rather than an Angel investor.
9. Sharing the risk is a key tenet of Angel investing. If the investor can’t explain to you why the proposed valuation is good for you and your business then he/she probably can’t help you grow. If you can’t accept a reasonable explanation for a rational valuation, you probably shouldn’t seek investment from competent investors.
10. Experienced and successful early-stage investors rarely make snap decisions to invest. Astute and effective entrepreneurs rarely accept investment propositions from unknown investors. The back-of-the-napkin commitment to invest over coffee at the first meeting is largely a myth. Good investments are usually acquired/made by building a relationship. That may take weeks, or months not minutes, or hours.

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SMSF Investing - the Angel Way By Tim Bridges, Associate Director, Bentleys Self-managed super funds (SMSFs) are a popular structure to make your super contributions and other assets work harder, more tax effectively and more flexibly for you. There are currently more than 450,000 SMSFs in Australia controlling around 25% or $250 billion of the total superannuation funds under management. Angel investing in SMSFs can be an appealing option for fund trustees. An SMSF commonly has a long term investment horizon and access to capital primed for investment. SMSFs also offer a sheltered tax rate on both income and capital gains, so you gain the additional advantage of tax benefits.

However, as with all investments, there are some key issues to consider before making any Angel investment in your SMSF. Tim Bridges from Bentleys Chartered Accountants offers some key tips for those investors considering using their SMSF for Angel investing.

1. Keep a cap on the “in-house” assets

If your SMSF owns an ‘in-house asset’, ensure the value of that investment is not more than 5% of the total assets of the SMSF.

In-house assets are those that trustees or their associates are deemed to control – that is, they have ownership of 50% or more of the asset. As an example in the Angel investing space, an in-house asset may include the acquisition of more than 50% of the units in a unit trust which has then invested into an Angel company.

Other in-house assets may include:

• A loan to, or an investment in, a related party of the fund
• An investment in a related trust. A related trust is a trust that a member of the fund controls, or an asset of the fund that is subject to a lease or lease arrangement between the trustee of the fund and a related party.

A “related party” of an SMSF is a member of the fund OR a standard employer-sponsor of the fund, OR a “Part 8 associate” of a member or standard employer-sponsor of the fund. A “Part 8 associate”, is an individual, company or partnership that has a familiar or business connection with the member.

The litmus test: Is your investment in the Unit Trust greater than 50% of the issued units? And if so, does this investment account for more than 5% of member funds?

2. Measure up the value

Trustees are required to value their investments at market value in their financial statements.

Angel investments are commonly made in unlisted unit trust structures which then invest into the portfolio company. As neither the unit trust nor the company are listed, there is commonly no active market to establish a market value of units / shares.

To determine the market value, you should first consider if there have been any recent sales of shares in the portfolio company, or of units in the unit trust. This will provide an indication of the market value of your investment.

Alternatively, you may be able to justify market value by providing evidence to your SMSF’s auditor. This market value could be the original cost of the investment. Evidence may include, but is not limited to:

• A balance sheet of the Angel company
• Applying profits/EBIT’s reported (if any) to EBIT multiples of listed companies within the same industry. Make sure these listed multiples are discounted heavily for the fact that your investment is in an unlisted private company!
• Future cash flows of the business and analysis of its ongoing viability (in our opinion the true determinant of value).

3. Strategising the Angel way

The trustee of a self-managed superannuation fund is required to prepare and implement an investment strategy for the fund. The strategy must reflect the purpose and circumstances of the fund, and take account of:

• The risks involved in making the investments and the likely returns
• The diversification of investments across different asset classes (e.g. shares, property and fixed deposits) as part of its long-term investment strategy
• The liquidity of the investments and the ability of the fund to meet its existing and prospective liabilities (e.g. paying members their benefits as they reach retirement age).

Setting your SMSF investment strategy to allow investment in unlisted companies and/or unit trusts needs to be something that ALL trustees/members of the SMSF are comfortable with. Angel investments are inherently risky. If all are in agreement, ensure your investment strategy remains flexible and will allow for Angel investments.

4. Remember to keep “gas in the tank”

Angel investments are generally held for long periods of time, usually greater than three years. Exit opportunities can be infrequent and in some cases non-existent. We’ve all heard the horror stories!

If your SMSF is in ‘pension’ mode, trustees are required to make pension payments to members in accordance with members instructions (within established limits where applicable). Therefore you need to hold sufficient liquid assets at all times to support pension payments. Make sure that your Angel investment doesn’t limit your SMSF’s access to liquid funds to pay pensions.

Plan ahead. Sensitise your SMSF’s forecast cash outflows and inflows and ensure you are adequately prepared for ‘worst case’ scenarios.

5. Keep your eye on the end goal

SMSFs must comply with the sole purpose test. The sole purpose test prohibits trustees maintaining a SMSF for any purpose other than a ‘core purpose’ or an ‘ancillary purpose’.

A core purpose is providing retirement or death benefits for or in relation to fund members. An ancillary purpose is providing benefits on the termination of a fund member's employment and other death benefits.

A trustee who maintains an SMSF for other purposes contravenes the law. The consequences of breaching this test can be crippling. Your fund could lose its 15% concessional tax treatment and be taxed at 45%.

As an SMSF holder, you must ensure that your investment in an Angel entity is consistent with the ‘sole purpose’ of your fund, which is to provide benefits for your retirement.

Providing evidence of this to your auditor can assist. Examples of evidence can include your due diligence on the investment, details of how the investment fits with your investment strategy and any expected exit strategies.

There are many synergies between SMSFs and Angel investing and when approached in the right way – combining the two can bring significant returns. Ensuring that you understand and comply with the requirements of SMSF regulation is the first step to getting the best out of your investments.

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RealTime Speaking Presentation & Pitch Tip #7 A series by Robert Rabbin One of the most challenging tasks for any of us is presenting our ideas to a roomful of strangers. For Angels, the failure of the entrepreneur's pitch is a missed opportunity to invest. After all, we do not want to spend our lives listening to an endless series of inadequate investment opportunities - we want to invest!!

For entrepreneurs, the failure of their pitch to investors is a missed opportunity for support and to move the realisation of their dream forward.

The AAAI is pleased to present a series of articles on public speaking - of particular interest to all entrepreneurs. These articles will help anyone with public speaking and Angels should encourage deal flow and portfolio entrepreneurs to register for this newsletter and read these articles by internationally recognised speaker, coach and communicator Robert Rabbin.

5 Principles for Being Present

It is not uncommon for the stress of a high stakes pitch to cause people to blank out, to go unconscious, even as they hit "auto pilot." That isn't good enough. You've got to remain fully present and conscious of what you are saying and how you are saying while you are speaking. These principles will definitely help you do just that.

1. Breathe

I do not know of a better, faster, or more powerful means of becoming present than to be aware that you are breathing. Before you start speaking, take a few slow, deep breaths. Return to awareness of your breathing throughout your speaking because it helps you to stay connected with yourself and your audience. It settles your mind. It calms your nerves. Conscious breathing helps you relax and remain comfortable.

2. Ground

Grounding helps you establish a firm physical presence and posture. Standing or seated, feel your feet on the ground: get on the ground, connect to the ground. Now, get grounded in your body: quickly scan your body, touching it with your awareness. This will help you stay connected to your body, the audience, and the environment. Grounding doesn’t prevent you from moving around; it will enable you to move with energy and awareness. This grounding of and in your body will help you speak with your whole being, not just your mouth.

3. Center

Center means to become fully present and aware before you begin speaking: take as much time as you need to become fully present in front of your audience. Connect to yourself and to the audience, letting them truly see you as you become completely comfortable being seen. Become centered within yourself, balanced and poised. Gather your focus, your thoughts, your energy. Speak when, not before, you are ready.

4. Connect

If there is no connection between speaker and audience, there is no communication; there is only broadcasting. We don’t want to stand in front of people and broadcast some words in their general direction. That is not public speaking. Connection is intentional, physical, and energetic. It is the essence of “intimacy with self and vulnerability with others.” Take some time to really see your audience, feel them. Let them do the same. Let them really see you. Your speaking should go from inside you to inside them, and you’ve got to create that connection through which your words and feelings and meanings can flow. Before speaking, and throughout your speaking, feel this connection. See and be seen! Enchant the audience with who YOU are and with your story.

5. Listen

Maintain an awareness of what you are saying and how you are saying it — while you are saying it. As you speak, listen to yourself and listen to the audience. Remain aware of the effect you are creating. Listening enables you to modify your speaking in the moment, so you can make the impact you want. Simultaneous speaking and listening creates connection and a reciprocal flow of thought, feeling, and energy. Listening brings life and relevance to your speaking; it keeps you connected to what’s actually happening in the moment.

Remember: YOU are the message!

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Robert Rabbin's motto is Have Mouth, Will Travel. During the past 25 years, Robert has created an international reputation as a skilled and inspirational keynote speaker, leadership adviser, and self-awareness teacher. Robert is also a respected public speaking guru and communication strategist who is the creator and managing director of RealTime Speaking, a dynamic style of public speaking and communicating based on integrity, vulnerability, and authentic connection.

For further information about Robert and his work, please visit his website.

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