EXCLUSIVE: Angel CoFund, the £100m fund that invests alongside angel investors, is eyeing raising a private fund to boost its capacity.
To date, the Angel CoFund (ACF) has invested about £50m in start-ups alongside £256m alongside angels and other investors.
George Whitehead, newly appointed partner of ACF, says that the fund’s investments so far have almost tripled their value – at least on paper.
Whitehead said: “I want to start testing the waters now that we’ve had eight exits and we can prove the model works.”
This new private fund would amplify ACF’s model of closing Series A deals in rounds of £1.6m alongside syndicates of angel investors, often led by one investor with deep knowledge of the sector (and deep pockets).
>See also: Angel CoFund: 5 years of investment
ACF works alongside angels and entrepreneurs and co-invests alongside them, usually in tranches of £400,000-£450,000, alongside the angels’ combined £1.2m, in exchange for 15 per cent of a start-up.
Each year, ACF invests in 10 companies.
Each lead angel investor has to put in at least £50,000 of their own cash into a start-up.
Whitehead said: “We’re on track to triple the value of fund. We’re not there yet but that’s the trajectory we’re on from a fund performance point of view.”
How Angel CoFund works
From an entrepreneur’s point of view, rather than go to friends and family for backing, they are connected to an expert in their own field, an angel investor who can add value as well as their own cash.
Whitehead said: “If we work together, we can find an absolutely outstanding person who can lead the deal and help grow your business from there. These people are absolutely world class in their own, often highly specialised, fields and the only way entrepreneurs can get hold of this talent is by converting them to angels.
“There are lots of hidden angels out there. Entrepreneurs are so obsessed with raising money from friends and family, they often overlook there is A-grade talent out there. What I say is, why aren’t you reaching for the stars?”
Start-ups looking for funding should be beyond the absolute beginner SEIS stage but may not yet be profitable.
Investors expect to have their money tied up for at least five years, but many decide to stay on in subsequent funding rounds. Because angel investors put in two thirds of the money for each funding round, ACF takes its lead from them as to whether to carry on co-investing.
Whitehead said: “The ambition of entrepreneurs is changing. They’re now realising that it’s possible for them to become a big company and have a £100m exit, while investors are willing to go another round to help them reach that stage.”
British Business Bank helped set up ACF in 2011 as a public/private partnership.
Whitehead, who at the time was with venture capitalist Octopus Ventures when he co-founded ACF, had previously been with innovation organisation Nesta, whose research showed that angel investors were making a 22 per cent rate of return on their investments – but were unable to keep funding start-ups because they had run out of their own cash.
“So you had these chronically underfunded businesses being drip-fed cash by these angels,” said Whitehead. “They could do so much better if you put more firepower behind them.”
British Business Bank initially invested £50m in ACF before doubling its backing to £100m.
What ACF was bringing to the party was due diligence for private investors as many angels were too busy running their own companies to research start-ups properly.
Whitehead said: “It was a public/private partnership working to raise the game of angel investing and to prove that angels can make decent returns by investing alongside them.
“I’m just feeling really bullish about the whole thing and the simplicity of the model – using really smart angels as a powerful signal that something is going on. A really powerful signal is when busy successful people are willing to put in at least £50,000 of their own cash.”