Business angels
Going to a business angel is one option if you are looking at
equity finance. This guide should give you a better understanding
of who business angels are and what they offer.
Who business angels are
- Business angels are usually wealthy entrepreneurs looking to
invest in growth businesses in return for equity
- Angels will consider the characteristics and growth
potential of the market you are in
- They will look at the expertise and track record
of your management team
- They might visit your business and carry out their own due
diligence before investing and look to make an exit after a
set period - usually between three to five years.
- They will look for growth in their capital of at least
25% a year.
- You can find the most extensive database of angel networks plus
more information on the British Business Angels Association
website
What they offer
- Business angels bring in finance to help your growth
- They are looking for a good return and will take a high risk if
necessary
- They make a quick decision on whether to invest or not
- They will wish to become closely involved with your business
and play a part in the direction
- They will have local knowledge and know how small businesses
work
- They can help with
- contract negotiations and management advice
- financial advice
- strategic guidance
- recruitment management
- business contacts
- market information
- They cost less than other forms of equity finance such as
venture capitalists
- Get to know the angel: the personal relationship is just as
important as the business relationship
What you could be giving up
- Over 90% of approaches to business angels for investment are
rejected at the initial stage of seeing a company's business
plan
- Angels do not make regular investments and as such it can be
difficult to find one willing to invest
- The months-long process is time taken out of your business
- Business angels will want to be closely involved with your
business strategy and will expect to see regular financial reports
and accounts
- They may look for certain requirements such as stronger voting
rights and preferential dividends.
- Funds will come in a lump or your business will have to meet
certain targets such as revenue levels
Checklist
- Determine how much money you need; then assess whether you are
willing to give up a stake in your business and some of the future
profits
- Make sure the plans you have for your business are
realistic
- Determine how a business angel would work with your company and
what decisions they would have a say on
- Ensure the skills of the angel meet your business needs
- Prepare your business plans and pitch with the interests of the
angel in mind
- If you are going forward for equity investment, it is a good
idea to seek advice from a business adviser and a lawyer
FAQ
Where can I find investors?
Networking is a good way to find potential investors: attend
events sponsored by your local Business Link and chamber of
commerce. Speak to friends and business associates about your
venture, too - word of mouth can spark investors' interest and
create a buzz around your company. Associations such as the British
Business Angels Association can help connect you with interested
parties.
Jargon buster
Risk capital: another term for equity
investment
Resources
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