Business Angels Look to Cleantech

Australian business angels continue to show strong interest in clean technology companies with cleantech now the second leading industry sector of interest, behind only the information and communications technology (ICT) sector.

A new survey by the Australian Association of Angel Investors (AAAI) shows that nearly 40 per cent of angel investors expressed interest in unlisted cleantech companies. 55 per cent are interested in ICT, while in third place about 25 per cent said they would look at any sector. Manufacturing and medical devices are of interest to just over 20 per cent, and biotechnology to just under 20 per cent.

When it came to actual investments, cleantech was equal third with agribusiness at 10 per cent. Biotech had nearly 20 per cent of investments and ICT about 32 per cent.

Jordan Green, deputy chairman of the AAAI and a founder of the Melbourne Angels group, said the data was collated from three sources: an online survey, angel groups, and data from a software program used for dealflow management. Around 550 people were approached for the survey and the results reflect data from several hundred business angels.

Extrapolations and scaling from the results indicate there are over 16,000 business angels in Australia, and that $1.7 billion has been invested in over 5,000 companies. The contribution to employment is estimated at 35,000 jobs. With a coinvestment ratio of 5 to 1, the estimated leveraged capital from other investors is over $5 billion.

Among respondents, business angels made on average 1.45 investments per year. Individual angels had an average of $1.08 million invested in 6.4 companies. The average was $93,521 per company and the median was $455,000. The average investment for angel groups was higher at $231,000 but the median was lower at $200,000.

Most business angels are early stage investors at the seed and start-up stage.

Some business angels operate alone or informally with similar minded high net worth investors, but the spread around Australia of more formal local business angel groups is progressing well. There are now 11 groups: Brisbane Angels, Darling Downs Angels, Founders Forum and Gold Coast Angels in Queensland; Sydney Angels and Hunter Founders Forum in NSW, Melbourne Angels and Tech Australia Angels in Victoria; Capital Angels in the ACT; BioAngels and SA Angels in South Australia; and WA Angels in Western Australia.

If the pattern follows that in the US and other Western countries, there is room for about 20 to 30 local angel groups around Australia, said Mr Green.

The sector’s national body, the AAAI, was formed in 2007 and coordinates conferences, education and research. Mr Green said AAAI is also lobbying government and one initiative it would like to see is a government backed angel co-investment fund along the lines of those in Scotland and New Zealand.

As capital becomes harder to find, and venture capital firms move to less risky investments, it is business angels who are most likely to provide initial high risk seed and start-up capital for innovative companies, he said.

Speaking at the recent Introduction to Angel Investing in NSW seminar organized by Sydney Angels, US angel investor Melissa Widner said business angels should have a clear strategy, rather than invest in an ad hoc manner. This includes both the company and the angel having a clear expectation about the angel’s level of investment and a clear understanding of the company’s follow-on investment strategy.

Ms Widner is also a US venture capitalist who has now relocated to Sydney. As an angel investor she has made 12 investments since 1995. Nine of these are classic angel deals totaling US$383,000. Her average initial investments are between US$25-50,000, and she has made follow-on investments in three companies.

Of the nine companies, two are dead, one is living dead, two are developing well, two are too early to tell, and two are big winners. The US$383,000 now has a value of US$640,000.

Ms Widner said US research shows that most business angels are also or have been successful business people. Ms Widner was herself a successful IT entrepreneur, and encourages business people to look at becoming business angels.

Victor Bivell is editor of Eco Investor Magazine. www.ecoinvestor.com.au