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Tradewatch
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The Official E-Newsletter of the Caribbean Export Development Agency • Vol.9 No. 1 January - March 2015
ACCESS TO FINANCE
It is no surprise that one of the major difficulties that start-up
companies have is gaining access to finance. Some of the options
available are bank loans, grants, guarantees and investments
from venture capitalists or business angels. And quite often,
many people are confused about the difference between venture
capitalists and business angels. Mr. Nelson Gray, the Project
Director for the Caribbean Business Angel Advisory Program, and
European BA of the year 2008 has been a business angel for over
21 years and recently met with Caribbean Export. He explained
that “venture capitals are institutions that collect other people’s
money and invest it for a fee. Angel investors or business angels
invest their own money, make their own decisions and ideally
invest their time, knowledge and experience mentoring the
company in which they have invested”.
Typically angel investors invest in companies in the infancy
stage and start-ups in the technology industry; however they are
not limited to these criteria and often invest in businesses of any
size, stage of development or industry that appeals to them. In the
United States last year there were 70,000 angel investments into
start-up companies compared to 4,000 investments by venture
capitalists. This is a clear indication of the level of impact business
angels have on companies in the start-up phase.
Angel investment is usually exchanged for a stake in the
equity of the company, but can also be exchanged for a share
of profit, turnover or even as a loan. However, it is important to
note that business angels provide more than financial support for
an entrepreneur, as they also provide various forms of expertise
such as management experience, industry knowledge, or technical
skills. Consequently, many entrepreneurs have indicated that the
Financing from the Angels
support received from a business angel was more important than
the financial injection into the company, making this combination
of financial investment and practical support to be commonly
known as “smart money”.
In fact, Gray describes taking money from the bank as “dumb
money” because “you get the money and nothing else except a
set of controls and restrictions. Where as, if you take money from
an angel investor you get the introduction to their rolodexes, so
you get the introduction to companies that you want to sell your
goods to, companies with the best manufacturing partner and
experience on how and who to hire. All of this comes “free” and
this is how you leverage your business.”
Gray sites a study that was conducted in the United Kingdom
which suggested that only 4% of start-ups will be suitable for
third party investments, the rest are sole trader lifestyle businesses.
Angel investors target that 4%. It is predicted that in 10 years’ time
that the 4% will account for 50% of the employment created
by that set of start-ups. This in itself is the economic driver that
supports angel investing. “It is partly a self-fulfilling prophecy that
if you take external funding to grow your business you will have
higher levels of employment, turnover, exports and profits because
you have the money and the expertise of your angel investors.”
The relationship between an angel and an entrepreneur
can therefore be very close and akin to a true business partner.
Consequently if the business fails, the angel investor would have
not only lost his money, but more importantly he would have
lost the time that he spent with the entrepreneur. Gray states “I
want to be valued more than my money and if the entrepreneurs
doesn’t value my time and effort … then I should not invest in
Mr. Nelson Gray, the Project Director for the Caribbean Business Angel Advisory Program chats with
Mrs. Pamela Coke Hamilton, Executive Director of Caribbean Export