Why you should consider business angels to fund growth
When looking for early-stage funding these elusive characters should be your first port of call
Business angels are wealthy men and women – mostly successful business people in their own right – who invest in fast growth companies like yours. If your company needs more cash to fund growth than your bank can provide but has yet to tick the boxes that would attract a fully-fledged venture capital investment, then you should at least consider seeking angel finance. It’s a concept that has been brought to the fore by television programmes such as the BBC’s Dragons’ Den.
Why are angels important?
One of the problems facing young UK businesses is the so-called equity gap – a perceived or real, depending on your view point, dearth of investors prepared to stump up risk capital. If you’re looking for a few thousand pounds to get a business up and running, there are a number of sources of funding available, including grants, bank loans and friends and family investment.
If you need more than a £1m, have a business that can be scaled up (preferably globally) and can show evidence of sales or market interest, then you’ve got a chance of getting on the radar screen of venture capitalists. Somewhere in between lies the equity gap, a potential dead zone for companies needing between £10,000 and £1m. That’s where business angels work, with the average personal investment coming in at around £25,000. In return they will want an equity stake in your company.
What do angels offer?
Most business angels have built and run successful companies themselves and many are serial entrepreneurs. They are investing for primarily for money but they also tend to have a genuine interest in getting involved with businesses. Those who provide business finance as individuals, rather than through a syndicate, will almost certainly want and expect a seat on the board.
That last point is important. A business angel won’t – or shouldn’t – want to micro-manage your company, but in addition to investment finance, they bring to the table a huge amount of experience in the business world. They can provide you with sound advice and useful contacts ranging from suppliers and customers through to managers.
However, don’t expect to monopolise their time. Angels tend to invest in a portfolio of companies, not least because statistically 40% of angel finance investments fail to produce a return.
What are they looking for?
Business angels are interested in business but they are investors not altruists. They are looking for companies with growth potential and the opportunity for a profitable exit, possibly at the next round of funding. They will certainly expect a clear business plan and a strong management team and you should be prepared for any angel investor or syndicate to conduct due diligence on your company. What you will be able to raise will depend on what you’ve got. You might attract investment of a few thousand pounds on a strong, innovative idea, but evidence of sales will get you whole lot more.
What to do next
It’s not easy hooking up with the right business angels. UK companies in search of finance can get advice from the British Business Angel Association, which provides an online directory of individual investors and syndicates. Business links will also provide advice and contacts. Alternatively, you could contact organisations such as Beer & Partners or Hotbed that specialise in matching investors with businesses.