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Interview: Angelbourse MD on closing the equity gap

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13th Apr 2005
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Tom Blass discusses raising money in the equity gap with John Blowers, chief executive of the private investor organisation Angelbourse.

John Blowers doesn't have a background in corporate finance. He started his career with the Financial Times as head of sales and marketing for the Investor's Chronicle, and made his way through to Angelbourse via Interactive Investor, becoming the company's MD July 1, 2002.

Angelbourse's mission is to attract funds from private investors wishing to diversify their portfolios, and find money for smaller companies that need committed equity partners. There are other VC operations of course, but, Blowers says, only Angelbourse offers secondary trading in shares in its portfolio of investees.

At present, this "community of angels" has around 2,700 members, (all high net worth individuals or self-certified investors) each of whom is, notionally at least, prepared to invest up to £50,000 per annum. Says Blowers, "Our investors are people who want to see a strong deal flow. What we're really doing is aggregating that flow; we're mirroring what the listed market does in the unquoted space."

For SMEs looking for funding volumes around the high six figure and lower seven figure mark, the key point of interest may well be that an outfit like Angelbourse is able to find the smaller volumes of cash that can be so elusive. Blowers points out that "One of the most difficult spaces to fill is equity funding in the range of £200,000 to £2,000,000, commonly referred to as the 'Equity Gap'."

This, he says, is "typically too much for angel investors and too little for venture capital firms", adding that growing companies usually turn to equity investment from external sources in order to sustain their growth, having exhausted the funding available from family and friends and lenders.

The system works by paying a network of approved and accredited intermediaries (typically accountants) who bring in potential clients. There are two distinct offerings: The first provides primary investment opportunities for those wishing to spice up their portfolios, (and investment for companies prepared to part with equity to achieve it). The second is a "pre-AIM trading platform" for buying and selling shares in investee companies.

Blowers has noticed two distinct streams of investors; some, he says, have a particular interest in very early stage companies. Others like to get involved in the run up to an AIM or OFEX listing. "As a rule, investors seem to want to get on board for a seven year yomp, or for six to 12 months'"

While describing Angelbourse as "sector agnostic", Blowers adds that the investors do like companies that "do stuff" and "have stuff" (i.e., assets): "Technology seems to be coming back having hid its light beneath a bushel for a while. We've also got engineering companies, some doing extraordinary things'" The softer stuff? Recruitment and ad agencies? Service industries? Not really'"

The qualities investors are looking for, he says, are: high growth potential, a profitable, scaleable business model, a strong management team capable of realising the potential, and an exit route for the external investors to realise their investment.

Blowers says, it's a "statement of the obvious" that many companies with excellent potential but need advice and grooming "are short of funds and typically cannot afford the fees charged by competent advisers. The irony is that, if only one could raise the initial equity to get these companies on a growth path, there is substantial scope for further fee-earning work as the company develops."

This, he says, is where the Angelbourse network of approved intermediaries come in. They offer "Valuation, pre and post funding scenarios, due diligence, assistance with completing the AngelBourse documentation, offer transaction support and assistance with completing all other appropriate documentation.

John Blowers predicts that while Angelbourse is thriving, other organisations in the same space may not be, and that sooner or later, a degree of market consolidation may be unavoidable. But he welcomes the day. " We're very much set up as a national market place. If organisations like our own can aggregate capital, or wise up to sharing or pooling, then so much the better. We'd really prefer to view our competitors as potential partners."

There are good opportunities out there, he says, and cites one of his favourite stats, that £1 invested in 1955 would be worth £486 if invested in equities, £1,513 if invested in small caps, and £8,123 if invested in microcaps."

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