20 December 2018
Par Insights

Making excellent whisky requires a blend of expertise and patience. While the whisky sits in oak barrels — year after year – it takes on flavour compounds from the wood that help create that smooth, golden liquor and determine how it tastes. 

Over time, the porous nature of the wood means some whisky evaporates. The amount lost is roughly 2% a year but can be upwards of 5% in drier climates. It is said that centuries ago whisky producers could not understand why their barrels always ended up lighter and so referred to the lost whisky as ‘The Angel’s Share’, a kind of celestial tax affording the divine their dram. 

Investing in young businesses also requires expertise and patience. Start-ups can be erratic and unpredictable, and the markets often seem to work to their own mysterious agenda. Businesses can only grow, and returns can only accumulate, if you give them time. 

For those investing in young businesses, another ‘Angel’s Share’ can also quickly become apparent. Angel investors, high net worth individuals who invest in start-ups, often seem to get much better terms than the average retail investor — the mere mortal — who follows, whether that is through EIS, VCT or crowdfunding.

Angel investors defend their more favourable terms by saying they often take on more risk than their corporeal counterparts. This is true. Prior to being aged, whisky is more akin to moonshine than Macallan; any early-stage investor who has been kicked by a donkey they thought was a unicorn can appreciate which is the smoother ride.

Angel investors might also cite the valuable experience and access to networks they bring. Well-connected, respected angels can provide a wealth of expertise, experience and connections that can help a business succeed.  

We recognise this value. In fact, we set up the Par Syndicate – a network of nearly 200 professional investors – precisely for this reason. The ability to tap into this community has helped many of the companies we invest in (and we are now completing over 30 transactions a year). 

But capital is important too. Without it many promising companies wilt and die. There is a scale to angel investing that tends to run out at around £1million aggregate. At this point placing EIS money becomes a lot easier and more straightforward than finding a chorus of 25 angels to write cheques. Without this money the angels risk seeing their own early contributions fail.

And so the hundreds of retail investors – stepping out in faith, trusting to our experience and the guidance of their adviser – quietly handing over their hard-earned cash, become a vital component in the process of growing great companies.  

We recognise that they are on the side of the angels and think they deserve the same terms. We cannot claim to being alone in believing this – a couple of other EIS providers have the same philosophy. But it is rare. 

Mark Twain once said, “too much of anything is bad, but too much whisky is barely enough.” For “whisky” read “investment return”. We believe investors should get their fair share and that means being on a par with the angels.