What is an Angel Investor?

An angel is a high net-worth individual who invests his or her own money in start-up companies in exchange for an equity share of the businesses. Important things to know about angels include:

• Many angels are former entrepreneurs themselves
• They make investments in order to gain a return on their money, to participate in the entrepreneurial process, and often to give back to their communities by catalysing economic growth.
• Angels make a return on their investment when the entrepreneur successfully grows the business and exits it, generally through a sale, later stage investment or merger
• Angel investment is a key driver of economic growth, and an essential part of creating new businesses.
• Angels tend to invest in companies that are located near them regionally (or to co-invest in a wider geography if a local investor they know and trust is involved)

What are angel groups?

In an angel group, individual angels join with other angels to invest collectively in entrepreneurial firms. Angel organizations come in many forms, but all have certain characteristics:

• They meet regularly to review business proposals
• Selected entrepreneurs make presentations to the membership of the group
• Member angels decide whether to invest in the presenting business
• Angels work together to conduct due diligence to validate the plans, statements and history of the entrepreneurial team

Other points of interest about angel groups are:

• The size of angel group investments in entrepreneurial firms varies widely.
• Groups invest in innovative firms in a range of industries. The most common areas are software, medical devices, telecommunications, and manufacturing.
• While some groups focus on a specific industry area, the majority are open to a variety of areas and select those markets with which some of their members have expertise

What is AngelHub?

AngelHub is a manager-led business angel investment group that pools funding, expertise, and networks from a diverse range of Angel Investors, for investments ranging between R1m and R10m, into high-growth South African ventures, to accelerate growth and create value. It manages the risk of early-stage investment by:

• accessing high-quality deal opportunities through trusted networks
• creating an expert community of investors and entrepreneurs to validate and support deals
• using a co-investment and diversified portfolio approach to investment
• providing an experienced management team who assist the deal process and investment management
• providing a portal for educating, informing, and sharing experiences among investors

Through aggregating knowledge and resources via a broad network of angels, AngelHub will increase the probability of success for entrepreneurial ventures. AngelHub aims to unlock new funding resources for start-ups, support South African entrepreneurship innovation, and generate both economic value and jobs.

Why would an Angel join AngelHub?

AngelHub offers investors the potential for high returns with a managed approach to risk. Members receive:

• access to high-quality deal opportunities with less effort
• networking and collaboration with a community of investors, entrepreneurs and advisors
• resources for due diligence, deal negotiation, post-investment support, and exit
• opportunity to engage with the ongoing management of portfolio companies, if desired
• the benefit of efforts spearheaded by AngelHub in favour of potential tax incentives for Angel Investors as well as additional investment grants and support where available

Who would qualify as an Angel Investor?

Individual investors who seek to actively participate in activities and are able to invest R300k+ per annum as well as institutional investors able to invest R1m+ per annum are invited to join AngelHub.

What will I be investing in?

Investment Size: R1m-R10m
Investment Length: 3-7 years
Geography: Johannesburg and Cape Town (initially)
Investment Stage: Early-stage or expansion phases

Industry
• All industries with a focus on tech
• No franchises, infrastructure or capital intensive businesses

Investment Type
• Equity or quasi-equity (convertible debt)
• Amount of equity stake will be case-dependent but minority protections will always be built in

Investment Criteria
• Strength of the management team
• Readiness of the proposed product or service for market
• Differentiation and scalability of the market offering
• Opportunities for growth for the relevant industry
• Availability of exit options
• High expected Return on Investment (ROI)

What is expected of Angel Investors?

AngelHub seeks to create a community of Angel Investors who can share knowledge and experiences in early-stage investments and collectively contribute to mentorship and support of entrepreneurs and portfolio companies. To this end, all investors are expected to actively participate in the investment process, including:

• encouraging promising businesses to apply for funding
• regularly reviewing deals and update interest levels on Gust, a comprehensive, web-based deal-flow management software
• participating in discussions and feedback on potential deals and management issues of portfolio companies via Gust and at occasional meetings
• investing in at least 2 deals every year and meeting the minimum investment threshold of R300,000 per annum
• participating on a due diligence team every year (process will be managed by AngelHub)
• serving as board member or advisor for a company when a good fit exists
• using your network and experience to identify and support optimal exits

As Angel Investors are instrumental to developing the AngelHub community, investors are asked to recruit potential new angels every year. There are opportunities for those with more angel investment experience to mentor new Angel Investors.

What is the difference between angels and venture capitalists?

While both invest in entrepreneurial firms and take equity (ownership) in those businesses, there are some important differences:

• Funding source- Angels invest their own funds directly in a business, while venture capitalists invest funds from other sources (e.g. pension funds, insurance companies, foundations).
• Stage of entrepreneur - In general, angels invest in seed, start-up and early-stage businesses, while venture capitalists invest in later-stage businesses (although there are exceptions).
• Size of investment – In SA, Angel investment can range from only R100k to R5m, while Venture capitalists generally invest a minimum of R10m and up in a financing round, Angel groups can make investments in the mid-range, between most individual angels and VCs.

How do I know my business is right for an angel group investment?

Angel investment is the right source of funding for only a small proportion of entrepreneurial businesses. When considering yourself for investment by an individual angel or angel group, ask yourself these key questions:

• Am I willing to give up some amount of ownership and control of my company?
• Can I demonstrate that my company is likely to realize significant revenues and earnings in the next 3-7 years?
• Can I demonstrate that my company will produce a significant return for investors?
• Am I willing take the advice from investors and accept board of director decisions I may not always agree with?
• Do I have an exit plan for the company that may mean I'm not involved in 3 - 7 years?

When should I approach an angel group?

In general, the best time to seek angel funding is when:

• Your product is developed or near completion.
• You have existing customers or potential customers who will confirm they will buy from you.
• You've invested your own money and exhausted other alternatives, including friends and family.
• You can demonstrate that the business is likely to grow rapidly and reach at least R100 million-R200 million in revenues in the next 3-7 years.
• Your business plan is in top shape.

What criteria do angel groups use to select entrepreneurs?

Generally groups expect to at least see the following:

• A strong management team with experience and proven skills.
• Unique product or service distinguished by an identified competitive advantage and large market
• Your personal financial investment in the company and investments from your friends and/or family
• A clear picture of the market for your product or service and realistic plan for market penetration
• An exit strategy for the investor that is reachable within 5 to 7 years
• The potential for a strong return on investment

What process can I expect if I apply to AngelHub for funding?

AngelHub follows several stages of review in order to make funding decisions. Below is a listing of these steps. It is important to recognize that groups may conduct these steps in a different order than is presented here.

Application
Follow the link on the website which will take you to the application portal on Gust.com, our deal-flow management software. This will guide you through the documents required and allow you to save you application as you, with the option of coming back later to complete it before submitting.

Pre-Screening
When the angel group receives a completed application, staff or a committee of members reviews it quickly to determine if it meets the group’s general requirements. The pre-screening will eliminate applications that are incomplete, don't meet the organization's minimum requirements, or does not comply with the investing preferences of the organization. Expect one or two weeks for the pre-screening process.

Screening
Once an application has been accepted for review, a group of staff and angels review and further define the opportunity. If the entrepreneur passes muster at this stage, the organization may select a "champion" for the opportunity and create a due diligence committee. This is also where you may be asked to meet with AngelHub management to prepare you for pitching. We may ask for your full business plan in this stage. In general, about 10 to 25 % of all entrepreneurs who apply reach this stage. Screening is usually completed within another one to three weeks.

Investment Meeting
The entrepreneur is invited to make his or her pitch at a meeting of all members of AngelHub. A question-and-answer session follows the founder's presentation. Members discuss key issues about the company and determine initial interest in making individual or group investments after the entrepreneur leaves the meeting. Such investment meetings are usually held every month or two.

Due Diligence
A team of members interested in investing and specialists with knowledge of the industry under consideration conduct a thorough check on you and your business. The objective is to validate the business plan, including the management team, market opportunity and amount of funding required, and to negotiate a term sheet, thus placing a value on the investment. A further cut is made: 25 to 50 % of the companies that reach this stage are actually funded, and the process can continue for two weeks to several months.

Term Sheet
If the group chooses to invest in your company, they will negotiate with you a term sheet, a document that guides lawyers in preparing investment agreements and which determines the relationship between the company and investors.

Will angel groups sign non-disclosure agreements? If they don't, how do entrepreneurs protect confidentiality?

During the initial portions of the evaluation process, we do not sign non-disclosure agreements. Angel groups just see too many deals, often in a similar space. When submitting executive summaries and even business plans, the entrepreneur needs to explain the business so that the potential investors can understand the company's opportunity for success, but don't learn about any confidential issues.
If you have intellectual property that has not been patented, it is best not to disclose it to the angel group when you are first submitting your company for investment. Remember that angel groups are most interested in the business behind the technology or idea they don't invest in the inventions but in the business models and management teams that will grow the companies. If your company makes it through to final due diligence, the angel group may need to research intellectual property issues and then would sign non-disclosure agreements at that time.

Will I be charged a fee for submission of my application for funding?

AngelHub charges a nominal submission fee of R500. Without this, the load of random, repeat, fraudulent or inappropriate applications is simply too high. We’re going to spend time on your application, we trust you have taken the time to ensure it is suitable for AngelHub and our criteria. Where possible, we’ll give you feedback on reasons for it not making it further.