If you are thinking about starting or growing a business, one of the toughest challenges you will face is securing funding for the project.
If you are thinking about starting or growing a business, one of the toughest challenges you will face is securing funding for the project. Various sources of funding are available, from government grants to Business Angels (BAs). BAs are individuals who invest in high-growth business in return for equity, typically 20 to 49 per cent of the business depending on the investment. Don’t be fooled into thinking that will mean giving up control of your business. Angels are generally not looking to run the firm, they want you to do it and they can offer support in return for a minority stake.
Some BAs invest on their own, whereas others do so as part of a network, syndicate or investment club. In addition to money, they often make their skills, experience and contacts available to the company.
What they want
You need to make your proposal as attractive as possible to the BAs, if you want them to invest. They will look for a certain amount of expertise from the manager or owner of the business and might also look for a good track record in the field.
The business needs to have a competitive edge and the potential to grow in its intended market. 'Business Angels look for companies with a unique selling point, niche businesses that are scaleable,’ says Anthony Clarke, chairman of the British Business Angels Association (BBAA). Compatibility between the management and the Business Angel's skills is also a bonus, and often, BAs will look for a certain amount of financial investment from the entrepreneur to show commitment.
The typical investment from an Angel is between £10,000 and £750,000 and the potential for a high return is top of their agenda. However, they are generally not averse to risk and ‘can invest as low as £1000 in ‘seed’ or start-up companies,’ confirms Clarke, but you might find that strict conditions are imposed at this level.
What to look for
You will want to ensure that the investor is right for you and your business. Don’t sign an agreement without making sure that you or your management team and the BA are compatible and will be able to work together effectively. ‘We always advise entrepreneurs to interview the Angels to make sure their skill set matches,’ says Clarke.
It is beneficial to try to find a BA who will benefit the running of your company – perhaps a background in the field would be useful, for example. They may want to join the board of your company and offer some assistance.
One advantage of using a BA is that they tend to make investment decisions quickly, without assessments being too complex. First impressions are vital, so you will want to draw up a professional business plan, tailored to your audience and make sure that you are confident when putting your proposal forward. ‘We get around 800 enquiries per year, around 45 of which will pitch their idea to investors and only about 15 will end up securing funds, so it can be very competitive. You can’t wing this one!’ warns Clarke.
When pitching your idea, he recommends breaking your business plan into 10 presentation slides that will sum up the proposal and keep the attention of the potential investor.
Many Business Angels bring valuable first-hand experience of either working in a small business or running their own business venture. They're also likely to have local knowledge, as they tend to focus their investments within a small geographical area - for London-based investors, Clarke estimated that around 60 miles from the centre would be as far as an Angel would invest.
One disadvantage of Business Angels is that they can be difficult to find. Tracking down the right investor may take longer than expected, but there are organisations that are designed to help with this.
The BBAA will direct you to local and appropriate Business Angel networks and provide guidance with preparing and presenting your business proposal. As a not for profit trade organisation, the BBAA does not specifically provide contact to BAs but their members do. They recommend taking a look through their member directory and choosing the Business Angel intermediary that is the most suitable for you, based on geographic location or the intermediary’s particular specialisation.
Click here for the BBAA members’ directory.
If you have any queries you can contact the BBAA at email@example.com
To visit the British business Angels Association website, click here.
To use the business link online tool, designed to help you choose the right type of finance for your business, click here.