Tech.mt speaks to Tech Entrepreneur and President of Business Angels Malta Angelo Dalli; Johan Zammit from Business Angels Malta and Max Thake Co-Founder and CMO at Peaq about the benefits and opportunities offered by angel investors.
In the Technology Sector, the opportunities that the future presents are immense. One area that is believed critical for Malta’s continued success in the tech and innovation ecosystem is innovation funding. Access to finance and financing are key elements in building innovation ecosystems, including those related to tech and the digital economy.
Traditional sources of financing a new business venture are not deemed suitable for the vast majority of start-ups. This is leading to missed opportunities for entrepreneurs, and also for the economy as a whole, as those start-ups that scale up and make it into established companies eventually contribute positively to the expansion of the country’s economy. On the other hand, an inefficient system to match potential investors with start-ups also leads to missed opportunities for those that want to venture into angel investment, especially taking into consideration the current low interest rates that in some cases do not even overcome the negative effects of inflation, according to Angelo Dalli, President at BAM.
This feeling is also shared by Johan Zammit who forms part of Business Angels Malta. Mr Zammit notes that start-ups invest a lot of time and energy preparing their go-to-market strategy. They create a sound business plan, validate their idea, and build a proof of concept. Yet in the path towards the first few months with real sales one key ingredient is frequently missing – funds. He explains why he believes angel investors play such a crucial role in any start-up ecosystem. “Without angel investors, most early-stage, high growth start-ups wouldn’t blossom. Given their attributes, communities with a lively start-up ecosystem that supports innovation tend to have an active and robust business angel network.”
“Who will fund the next €500,000 to scale things up? At that stage neither grants nor family, friends or their bank can help the start-up. Venture capitalists see such figure – less than a few million – as too low and too risky. Where can they find such funding? The answer is angel investors,” notes Mr Zammit. An angel investor typically invests between €25,000 to €500,000 and usually invests with other angel investors, as part of an angel network. Unlike venture capitalists, angel investors invest their own money. Their amounts fill a very specific gap, that of funding the crucial stage of scaling up and accelerating production.
This is why, Angelo Dalli insists that angel investments are a crucial pillar in a healthy and well-functioning start-up ecosystem. “Without a transparent and efficient way of connecting budding start-up founders with the right investors who believe in them and back them up, a lot of potential is currently being wasted or, worse, not even realized.
I envision that active angel investments in Malta will help create an additional, independent and robust revenue generating pillar of the economy that increases the overall GDP of the country,” he says. Speaking from experience Max Thake, Co-Founder of Peaq, which raised over one million euro in strategic angel investments, shares his advice. “The key is to find the right match. Take some time to figure out who the ideal investor would be. Are they experienced in a certain field? Are they well connected within a certain industry? What kind of strategic guidance or advantages would they bring to the table? What are their motives? Are they taking a long-term view? Are they passionate or excited about your start-up? What’s their track record like with angel investments? If the right opportunity presents itself, take it. Better to own a small piece of a big pie than every piece of a small one – and the right angels can help you grow that pie faster and more effectively than you can alone.”
As part of Business Angels Malta, Johan Zammit meets various angel investors. He tells us that very often an angel investor is not motivated purely by returns. He/she has a personal interest or prior experience in the industry/market, the problem or the product of the start-up they are investing in. “They are attracted by the technology in use. They have a desire to see that product/service grow. And because of this desire angel investors get involved in mentoring the founders – and in guiding them along the way. This input is as crucial as the cash they invest.”
Mr Thake describes the right angel investment, “like switching your start-up’s petrol with rocket fuel.” The guidance of angel investors catapulted Peaq years into the future. “Having the right angels will reduce how often ‘error’ occurs. You get to learn from other peoples’ success and mistakes, and that’s just way more efficient than going alone. This is especially true if you’re new to the start-up world. Strategic investors bridge experience gaps. Advice and experience aside, angel investors are often willing to open up their network to you. This can open doors to all kinds of things – new clients, partners, team – even additional investors who are trusted by your existing angels. Don’t underestimate the power of network effects. In short, raising funds through strategic angel investors is a huge opportunity definitely worth exploring,” says Mr Thake.
Mr Angelo Dalli is of the opinion that awareness on both sides: the entrepreneur and the investors, is very much required to establish a strong local angel investment ecosystem. “I am hoping that further developments take place to kick-start the ecosystem, like the availability of a funds co-matching programme as is available in most other EU countries, where funds raised from angel investors are co-matched by the country supporting that start-up,” said Mr Dalli.
Organisations like Business Angels Malta, which are affiliated with the European Business Angel Network and the World Business Angel Forum, a G20 member for social inclusion, can help identify and match entrepreneurs with the right investors.
For investors, the opportunity to see pitches from both local and European entrepreneurs and have a wide exposure for potentially lucrative opportunities. Angel investors typically are free to make their own investment decisions while conversely, start-ups should be selective in who they take money from in the beginning, as a good investor can be instrumental to the success of a start-up by providing new business opportunities apart from just financial resources.
A successful and thriving ecosystem allows for a positive, and virtuous cycle of economic expansion and improvement, and angel investment is believed to be the keystone to achieving it for Malta. Hence, we are currently looking at the framework that covers angel investment in our local ecosystem and we see room for improvement to establish this area in our economy as a new niche market.
At Tech.mt we have been for the past year striving to entice venture capital and angel investment to our island as an alternative instrument of access to finance for start-ups. We are aware through research that many start-ups go through a dry-up of financial resources after the first or second year of inception. Through feedback we are collating we aim at putting together a proposal that will include fine-tuning legislation based on stakeholder feedback and insight on what other EU member states are doing in this area. Apart from bringing together investment with the local start-up ecosystem, this model will surely bring along new niches for potential consumer investment as well. Tech.mt strongly supports revenue streams such as the model that angel investors bring along because this is a vital source for our start-ups to be born and eventually scale.