smallbusiness.co.uk: Helping your business think big

When it comes to trying to raise finance, angel funding could be the blessing you’ve been looking for. Here we give you our top tips on what to avoid in order to get that god-sent investment.

1.No skin in the game

Julian Ranger, founder of angel group iBundle, says:
‘If someone is asking for £200,000 but they want to take out nearly half of that for the partners – essentially what they would be earning if they were not entrepreneurs – then I always say no. I need to see that they’re prepared to put themselves on the line. If the person coming to me is fairly young, then I’d be prepared for them to take more. But if they are in their 30s or 40s, then I’d expect them to take virtually no salary as they should have built something up already.’

2. Lacking team spirit

Don McLaverty, director of Oxford Investment Opportunity Network, says presenting a united front is essential. ‘Make sure that you have a cohesive management team. I’ve actually seen people arguing in front of the investors before and that looks really bad. If you are presenting as a team then it’s important that you come across as united,’ he counsels.

3. Bad sums

‘Being unrealistic about what they are asking for is another bad sign,’ says Ranger.  ‘A lot of investors would say asking for too much is a problem, but for me it’s actually the other way around. They need to be realistic about how much they will need once the product is actually launched, as they’re not going to start bringing in revenue as soon as it is on the market.’

4. Papering over the cracks

Ranger says not admitting your weak spots is a bad sign. ‘It often depresses me that people have a good product, for example, but a really bland marketing strategy. I don’t mind if they’re honest, because we can always bring in people who have that sort of knowledge, it’s when they are blustering that it bothers me.’ For Ranger this suggests they have a real lack of experience. ‘It’s not so much that I wouldn’t trust them, but rather that they are kidding themselves. Of course, there is always an element of kidding yourself in being an entrepreneur, but to kid yourself over the basics is a big problem.’ 

5. Stingy stakes

Michael Weaver, chief executive of angel investors, Beer & Partners says: ‘If the investees are unrealistic about the stake they’re giving away, then that will also set off warning bells. They should be able to appreciate the risks the angel investor is taking. The usual split for us is one-third to the inventor, one-third to the management team and one-third to the investor – which normally leaves the business with a two-thirds controlling stake.’

6. Over confidence

Weaver says arrogance is a serious turn off: ‘Yes, you need to be sure and confident, but telling the investors, who probably know more than you do, that they are wrong is never good as it shows you will be too difficult to work with.’

7. No back-up plan

Adds Weaver: ‘When you ask someone what the risks are and they say there aren’t any, that’s a worrying sign. You shouldn’t be afraid to identify risks in the meeting and talk about how you plan to address them.’

8. Dressing down

‘Although what you wear isn’t so important these days, you can never go wrong wearing a suit as it shows respect. Jeans and a t-shirt might put some people off,’ says Weaver.

9. Informal affairs

McLaverty warns against ‘odd deals’. ‘You should choose your bedfellows wisely. For example, there are investors out there who will say they can’t put the cash in, but they can provide you with an empty building at a special deal. This may seem like a good idea for your business, but you should always think what is it that you really need.’  

10. Pitching problems

‘If an investee doesn’t know every aspect of how the business is going to reach success in two years, then they are not going to be a good investment opportunity,’ says McLaverty.