smallbusiness.co.uk: Helping your business think big

Business angels are those lucky types with enough cash to consider investing in early-stage businesses. SmallBusiness.co.uk speaks to owner-managers who never would have got their business off the ground without angel finance

If you’re looking for a third party to inject cash into your business, the first question you have to ask is: how much of a stake in your company are you prepared to give up?

Mike Weaver, chief executive of business angel network Beer & Partners, observes: ‘Many businesses look for debt finance in the first instance. But the bottom line is that if you don’t have assets, you’re not going to get any finance.

‘Business angels tend to be seen as the last option because people are reluctant to give away any equity. But you have to be sensible and ask yourself which is better: owning 100 per cent of nothing or 50 per cent of something that’s worth £1 million?’

Speaking to investors

William Berry, founder and managing director of web marketing agency Net121, notes that you have to be crystal clear about what you want from your backers. He says: ‘I managed to get seed funding for my first company but had to part with 20 per cent of the equity in the process. Two years later, we were in a position to buy that stake back.

‘Early-stage funding can be a useful source of investment for a number of reasons. For instance, if you sell a stake in your business, it means that everyone has a vested interest in seeing it perform well.’

Grow your business

Levi Roots relinquished a 40 per cent stake in his business on the BBC’s Dragons’ Den to Peter Jones and Richard Farleigh. Their financial backing and advice along the way has helped Roots get his Reggae Reggae Sauce get into Sainbury’s, Waitrose, Morrison’s and Asda. ‘It’s the fastest selling condiment in Sainsbury’s in its whole history,’ he says.

A home-made sauce that was popular with the locals on Brixton market and regulars at the Notting Hill Carnival has now sold over a million bottles. Reggae Reggae has become a brand in itself and Roots knows he has some big decisions to make.

‘Now it’s about clarity and moving forward. The main thing I have to do is keep my integrity intact because I started off with a good product and I have to continue in that way,’ he says.

Another consideration is to regain full control of the company. ‘Who knows, I may even buy back my shares from the Dragons. That is in my contract – I managed to slip it in there,’ says Roots. ‘But then why should I want to do that? Peter Jones is one of the greatest guys I’ve ever met.’

Who are business angels?

The experience and expertise that an angel may bring to your business can be invaluable, although many prefer to be hands off (otherwise it could interfere with improving their golf swing). According to Weaver, the typical angel is 45 to 65 years old, has taken early retirement and is looking for a bit of excitement.

‘So you may get a better valuation if your company has sex appeal or something the angel can relate to from a short pitch. If you truly understand your business, you should be able to explain it succinctly in two or three minutes,’ he says.

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