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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