Angel investors can be a lifesaver for a small enterprise – not only can they supply capital investment, but they often have years of valuable experience to offer a fledgling business.
As viewers of Dragons’ Den will know, securing angel investment is no easy task. Although much of the BBC show is put on for our entertainment, many of the business owners who appear on the show make the same fundamental mistakes.
Here are five things you must consider if you are seeking investment from a business angel;
1. Inflated valuations
Probably the most common problem business owners have is to attach a realistic value to their businesses. Being so close to the business can remove almost all objectivity in some cases.
Although you can use some standard business valuations to put a value on your venture but there are no firm rules. Valuing a small business is tricky at the best of times, but it is especially difficult to do so if your business is a start-up that has yet to get off the ground.
Try to be realistic, and remember that a business angel could add a lot of value, even if they demand a larger piece of the pie than you had expected.
2. Poor planning
If you are serious about attracting investors, you must have a solid business plan, with financial forecasts in place.
You need to show that you have a realistic plan in place, and be able to explain how you would react in a number of scenarios, such as the advent of an economic downturn, or if there was a steep increase in the price of components.
Don’t get too attached to the plan, but show that you are serious, and that the numbers add up.
Our Guide to writing a business plan to raise money from business angels is a must-read if you are looking to persuade angels, or other similar outside investors, to invest money in your business.
3. What is your USP?
Rather than focusing on the product or service you are offering, investors will want to know what differentiates your business from others in the market. What solution are you offering? What is your Unique Selling Point (USP)?
This ByteStart guide explains how you can develop a strong USP and use it to get more customers and become more profitable.
4. The business angel’s motives
Don’t always assume that an angel investor is in it purely to make money. Most angel investments provide poor returns, but some do exceptionally well. Many investors actually enjoy getting involved in new business ideas, and offering their expertise, as well as looking forward to the prospect of achieving a good Return on Investment (ROI).
Make sure there is a good fit between you and a potential investor, whatever capital they are prepared to invest. Make sure you can also offer a realistic exit strategy for both you and a prospective investor.
5. Who are you?
Both parties need to find out as much about each other as possible before a deal takes place. Some of the key questions to get answered are;
- What can the investor offer in terms of time, money and expertise?
- What experience and qualifications do the managers of the business have?
- Is there chemistry between the two sides?
- Could you actually work together if the incentive of a cash injection were not there?
More information on business angels and funding your business
You can find more help and tips from ByteStart on approaching, using and dealing with angel investors with these guides;
- What are business angels and how they can help your business?
- Business angels or dragons – who do you trust to invest in your company?
- How to prepare and deliver a successful business pitch
And there are, of course other alternatives to funding your business;
- Don’t waste time trying to raise money! Here’s how to get your customers to fund your business start-up
- What exactly are invoice finance and factoring, and what benefits can they bring to my business?
- Crowdfunding – a new alternative for small and start-up businesses looking to raise money
- The secrets of getting a business bank loan
- How to use Research & Development tax relief to cut your corporation tax bill, or even get cash back from HMRC