3RD MARCH, 2022

What is an angel investor?

Angel investors are just one way of securing the funding your business needs to grow. The investment they offer could help your fledging business take off, kick-start a new project or finance your research and development ambitions.

But what exactly is an angel investor and what else do they bring to the table? Let’s take a look.

The definition of an angel investor

An angel investor (sometimes also called a ‘business angel’) is a high net-worth individual who is keen to invest money into start-up companies and those with ambitions to scale up fast. They may be wealthy individuals, sports personalities, celebrities or company executives.

Angel investors also come from a variety of different backgrounds and can bring a huge amount of mentorship and experience that proves invaluable. They are also likely to be entrepreneurs themselves - so we’re not just talking about the financial side of things here.

Such investors will also expect a stake in the company in exchange for their investment, typically between 20% and 50%.

Other than money, how else can an angel investor benefit my business?

Angel investors aren’t like a bank loan; the relationship isn’t purely transactional. Bringing a wealth of experience and skills, they are generally experts in their industry and incredibly well-established. This makes them ideal for networking opportunities, helping small businesses access other high-quality contacts that otherwise may not have been reachable. In fact, angel investors can introduce a business owner or entrepreneur to whole groups of other investors, opening doors to further funding and expertise.

What can businesses do to make themselves attractive to an angel investor?

It’s important to understand here that whilst angel investors may well have an altruistic side to them, they’re essentially out to grow their investment just like anyone else. They want a decent return on their money - but the good news is they’re usually willing to wait for it. This is another reason why this type of investment is so good for start-ups, which frequently operate at a loss at least for the first few years.

Many angel investors simply do it for pleasure too. They will themselves remember how tough starting out in business is and will want to support the next generation of ambitious thinkers. Some will also want to see their communities thrive, helping to bolster job opportunities and prospects. Others are simply personally interested in the industry the business is operating in, or just fancy the rush of a potentially risker investment.

Remember: Angel investors are not wall flowers

Angel investors are extremely unlikely to simply throw cash your way and let you get on with it. They will usually want to play a very active role in the business.

Rather than be a silent partner, angel investors will want to get stuck in, sharing their ideas and pushing the business forward. They may take on a managerial role for instance or occupy a seat on the board of directors. This is a fantastic opportunity, but some entrepreneurs can find it takes them a while to feel comfortable with sharing control.

Essentially, the angel investor will want to be sure that a small business is viable, growing, and steered by extremely competent individuals. They will also expect to establish a strong relationship with those in charge.

My business has been funded by an angel investor. Does that mean I can’t claim R&D Tax Credits?

This depends on several factors - and is why it’s so important to get professional support when making your R&D Tax Credits claim.

R&D Tax Credits represent an extremely lucrative way of financing innovation and growth. One of the most valuable tax reliefs around, there’s no way any Irish company will want to miss out an award that can potentially be worth thousands.

Launched back in 2004, the R&D Tax Credits scheme is offered by Revenue as an incentive for companies to grow and innovate. As long as a company is based in Ireland and has invested money in technological or scientific research, then R&D Tax Credits could well follow.

The scheme is open to all Irish companies regardless of size or sector, but far too many are still missing out. Many simply don’t know the scheme exists, or wrongly believe they won’t qualify. But with up to 30% of your R&D costs claimable as a tax rebate or cash lump sum, even the smallest claims can be huge.

Don’t forget too that a previous R&D Tax Credits claim can also make your company attractive to other investors - angels and otherwise. This is likely to make attracting further funding for growth even easier, propelling your company forward that much more quickly.

So what’s the challenge with R&D Tax Credits?

Claiming R&D Tax Credits isn’t nearly as straight-forward as it sounds. How can you be absolutely sure you’ve included every single eligible cost while avoiding the risk of overclaiming?

The legal potholes are numerous, and the last thing you want is a tax enquiry courtesy of Revenue.

R&D Tax Credits are so niche that even the most competent accountant can struggle. Plus, where an angel investor is involved, you also need to understand the issue of company autonomy.

What does this mean?

When an Irish company with investors makes an application for R&D Tax Credits, it needs to be fully explicit in the fact that it’s autonomous. This means no external party owns more than 25% of its shares.

Private investors including angels that are operating as individuals (rather than using an umbrella company) do not count towards this. The proviso comes if they are somehow linked to the corporate investors.

Again, this can be pretty challenging to get your head around. So if your business has received a financial injection from one or more angel investors, you should take advice from a specialist claims consultancy like Myriad Associates before getting started.

Make a hassle-free R&D tax claim using the Tax Cloud portal

“Tax Cloud was an excellent way for Digital Taxonomy to make its first R&D tax credits claim. The process was straightforward, with a step-by-step approach that ensured that all areas of the claim were covered.” - Pat Molloy, CEO Digital Taxonomy.

The Tax Cloud portal takes you through a step-by-step process to compile and submit a successful, fully optimised claim for R&D Tax Credits. Designed by the R&D tax experts at Myriad Associates, our team members will guide and support you along the way to make sure no eligible costs are missed off, and that your R&D technical report meets strict Revenue standards.

Could your company be due thousands of euros to help cover further R&D investment?

Try the Tax Cloud portal now or call us on +353 1 566 2001. If you’d like to ask any questions, or want to find out more, you’re also welcome to send us a message.
Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
Start your Tax Cloud claim now Discover if you qualify and ensure your R&D tax claim is maximised. Get started
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Myriad Associates helps businesses maximise tax credits and secure R&D grant funds. We specialise in R&D Tax Credits, Enterprise Ireland grants.

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Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
JEan Rollinson Jean Rollinson Senior Technical Analyst/Writer
Rabia Mohammad Rabia Mohammad Corporate Tax Associate