Not true  – the Angel CoFund has made and continues to make follow-on investments and will consider proposals alongside angel syndicates where there is a strong commercial case to continue supporting a portfolio company. In general the Angel CoFund will follow-on to the extent the angel syndicate chooses to and in proportion to its existing investment.

However the Angel CoFund is not a matching fund and therefore will not simply follow-on in relation to additional funds being raised in a new investment round. All investment decisions remain subject to Investment Committee approval.

Not true – see above – the Angel CoFund tends to move at the pace of the syndicate and the round, which can vary significantly. There are a number of reasons why this can take longer than intended, but the most common sources of delay are:

• That the investor syndicate is not ready to commit or there is no lead investor;
• That insufficient capital is committed to meet a minimum level of investment;
• That due diligence has not been completed;
• That commercial or legal terms have not been agreed in detail with the company or other investors are disputing those terms; and
• That legal documentation is not suitable and requires changes.

The above said, it should be noted that the Angel CoFund does require a level of formality and rigour in making investments and therefore does not fit with those angels who wish to take a very light touch approach. It does also require comfort that a minimum level of funding will be reached, and therefore does not support staggered closes, unless investing once the minimum has been exceeded.

The Angel CoFund aims to boost the quality and quantity of business angel investing in the UK, expanding the size and skills of the market to increase the capital available to high potential SMEs. The fund aims to make commercial investments in sustainable businesses, directly supporting the creation of long-term, high quality, jobs in high growth companies.

It is expected that at the point of investment due consideration will have been given to an exit for investors, forming part of the rationale for making the investment.

The Angel CoFund will only consider investments that are new to the syndicate and as such it is anticipated that in most instances the Angel CoFund and other syndicate members will be anticipating exit within the same time horizon and will see a return at the same exit price. Any investment decision will be subject to a commercial decision at the time.

The Angel CoFund will consider follow-on investments alongside the syndicate where there is a strong commercial case to continue supporting a given portfolio company further. In general the Angel CoFund will follow-on to the extent the partner syndicate chooses to and in proportion to its existing investment.

However the Angel CoFund is not a matching fund and therefore will not simply follow-on in relation to additional funds being raised in a new investment round. All investment decisions remain subject to Investment Committee approval.

Business angels often have valuable skills and experience that can add significant value to investee companies and active participation is encouraged. However, this is not a precondition of Angel CoFund investment.

The Angel CoFund aims to ensure that all investors receive an adequate level of reporting on the investee company’s trading, whilst trying to ensure no duplication of effort or superfluous activity.

The investee company will be required to provide, as a minimum:

• Management information – describing the trading of the business in the period, usually in the form of monthly Board papers;
• Management accounts – showing cash positions, P&L and balance sheet as well as performance against budget; and
• Statutory accounts – to be produced annually.

The Angel CoFund expects to engage with lead investors and the syndicate on a quarterly basis, or more frequently if circumstances require, in order to discuss the performance of the portfolio company. This meeting will commonly take place over the telephone, but may also be in person when convenient.

The Angel CoFund will expect its legal costs to be met by the investee company unless other investors are meeting their own legal costs, in which case the Angel CoFund will do the same.
The Angel CoFund will pay a fee of 2.5% on its investment to the syndicate, but will not accept any other fee being paid either directly or indirectly (by the company or otherwise) contingent on its investment.

Co-investors should feel free to negotiate any deal arrangement or advisors fees in relation to their own investment that they feel comfortable with, but these should be fully disclosed.

For the benefit and protection of all parties the Angel CoFund expects all investee companies to have appropriate legal documentation in place at completion of the investment. It will normally adhere to existing documentation, amended if required, and look to have a range of standard minority investor protections incorporated to protect shareholders interests (a schedule of these is available on request).

Other key things the CoFund will need to see incorporated in documentation are:

• Appropriate disclosure and warranties from the Company for the benefit of all investors; and

• The right for the CoFund to appoint a Board Observer (although it is not anticipated this will be exercised in normal circumstance).

Documentation will always be tailored to the specific investment; therefore other items may be covered where appropriate.

The time taken varies from investment to investment, but we suggest around four weeks to prepare an investment paper, once the investment proposal has been approved for Investment Committee, and around four to six weeks to complete the legal documentation. This can all happen more quickly if everything is well prepared and straightforward, it can also take longer if there are complications or there is outstanding due diligence or other work still to be completed.

The Angel CoFund was established with a £50M grant from the Regional Growth Fund, and has subsequently received an additional £50M in capital from the British Business Bank. The fund has a stated objective to invest £140M over the first 10 years of operation. This will require at least £40M of investment being recycled in the period.

The Angel CoFund will only co-invest where the lead investor and other members of the partnering business angel syndicate are completely new investors in the investee company at the time the CoFund invests. This stipulation relates to the need for the CoFund and the syndicate to have an alignment of economic interest in the investee company and to avoid conflicts of interest (relating to, for example, the price of shares and exit time horizons).

The Angel CoFund is focussed on working with active business angels who are committing their own capital following detailed due diligence of a particular proposal. Whilst the Angel CoFund is very happy to invest alongside most types of fund, it cannot partner with or rely on diligence which is solely presented by a paid manager or individuals who are not investing personally.

Syndicates do not need to be formally constituted and may form around a transaction where the members have agreed to invest, however, the syndicate members should be actively engaged with each other during the investment and work together in terms of sharing due diligence and negotiating terms. Syndicates must also agree to work with the CoFund both pre-investment and post-investment, so long as both remain co-investors.

There is no requirement for a syndicate to have a particular legal form, but there must be the capacity (either individually or collectively) to form the counterparty to legal documentation, including a formal Syndicate Agreement, setting parameters for the co-investment relationship between the Angel CoFund and the syndicate.

In order to make an investment the CoFund requires a partner syndicate. To qualify as a partner each syndicate must comprise three, or more, private individual investors working in concert to invest, at their own discretion, a meaningful amount of cash (as a proportion of their investible wealth) into a business.

Angels within the syndicate should be independent of the business at the time of investment, but may take on a non-executive role subsequent to it. They must be investing in the business for the first time and cannot be existing investors (any investment which an angel has already made into a business, regardless of when it occurred, will be sufficient to make them an existing investor). However other investors in the round, outside of the Syndicate, may be made up of a mix of new and existing investors.

The Angel CoFund will consider most investment structures, including ordinary equity, preferred equity, loans, convertible debt or any derivative thereof. However any investment must offer the capacity for an appropriate financial return relative to the risk being undertaken.

In any investment the Angel CoFund will need to see a clear alignment of interest between it and co-investors, however it is envisaged and accepted that many investors will also be able utilise the Enterprise Investment Scheme (EIS).

The Angel CoFund has capital and will make follow-on investments adhering to a similar process to that applied to initial investments. Any follow-on will require the support of co-investors and the approval of the Investment Committee and will be dependent on a strong commercial case being put forward.

The Angel CoFund can make initial investments of between £100K and £1M so long as it is less than 49% of the round and less than 30% of total equity at completion (for an initial investment). This means that the CoFund does not generally participate in investment rounds of less than c.£300K.

In practice the CoFund averages around 20% to 25% of investment rounds.

Following changes made in July 2013, the Angel CoFund can now invest across the UK.

The CoFund may consider investment in businesses based outside the UK if the main benefit of their activity is in the UK, but this can only be determined on an individual basis.

The Investment Committee is tasked with making the final decision on the CoFund’s new and follow-on investments. The Investment Committee is independent of the Board and the British Business Bank and is made up of 14 experienced angel investors, all of whom have either entrepreneurial or institutional investment backgrounds (or both), although only 5 will ever be asked to consider a single investment proposal. The Investment Committee normally meets every two weeks, but at times meets more frequently.

The assets of the Angel CoFund are held in an independent company, limited by guarantee, with oversight and governance provided by an independent Board of Directors (who have been appointed by its Members). The management of investments and operations is provided by NCM Fund Services (an FCA regulated fund manager) with advisory services provided by Akero Capital Partners (a team previously seconded from the British Business Bank).