Business Finance - Essential facts about Business Angels

Despite it not really reflecting the diverse range of small businesses started in the UK, the TV programme Dragons’ Den has done a great job in educating people about a handy source of funding: Business Angels.

Just like the Dragons themselves, Business Angels are people who are already minted, and want to invest in businesses to make even more cash!

Angels invest on their own or together as syndicates. Typically they are looking for high growth industries. And depending on the people involved, they are more likely to take a punt on something that hasn’t been done before, as a business like that will probably be better placed to grab a larger share of a potential market.

To attract a business angel you need a solid business plan. Decisions are typically made quickly. While it’s great to get angel funding, there are downsides too. You will be handing over a slice of your company to someone else – if you’ve previously owned it 100%, this could be tough as you won’t have overall control of the decisions any more. Some angels are hands on, some aren’t. You may certainly find them “meddling” in the business if it doesn’t perform as expected.

Here are some other essential facts you need to know about Business Angels before you go hunting their cash.

What is the business angel looking for?

The typical business angel has between £10,000 and £750,000 to invest – and of course they will want as near a guaranteed return as possible. So they will want to determine the experience and expertise of the people who started the business and manage it. No business angel will hand their money over unless they have confidence in the people involved.

They will also be keen to ascertain what gives the business a competitive edge in its market place, how it has performed so far, and what the potential growth is. And of course they’ll need to see a plan of how their investment will be used to grow the business. You’re not going to impress a business angel if you desperately need the cash just to pay the wages for the next few months.

It will also give a business angel confidence to see the business’s founders put their own money in, even if it is just a few thousand.

Check the business angel’s motivation

Why do they want to invest in your business? Do they see you as a way of making a quick buck, or do they have a genuine desire to help the business grow and thrive, of course making a profit along the way? Most business angels only invest once or twice a year. Ask yourself if a serial investor has the time and right motivation to get involved.

What can the business angel bring to the table?

The best business angel matches happen when the angel doesn’t just invest cash; they bring knowledge too. For example, if you are very good at making a product and your business angel is very good at marketing, it could be a match made in heaven.

How much do they want to be involved?

It’s understandable that your business angel will need updating on the performance and direction of the business regularly. This can be done with pre-agreed regular meetings. You should ensure your business angel and you have a clear agreement on how else they will get involved in the business. Are you relaxed about them walking around your premises chatting to staff?

Remember your business angel could have made their money building their own business, so will probably have something to add to help make life easier for you. However it is easier to set the boundaries before any investment is made.

Are you and the business angel compatible?

It’s vital to spend time with the business angel before investment and check you can have a solid relationship. Any cracks will grow if the business doesn’t perform as expected. It’s also worth checking the business and the angel’s skill set match.

What is their likely exit strategy?

A business angel is primarily investing to make a profit. And that means they may be likely to sell down the line. Don’t be afraid to discuss this before investment. If you are both working to a shared five year goal where you can buy the angel out, it will give you both focus.

Further Business Angel Resources

It’s worth asking around your regular network to see who is looking for an investment. Someone you have built a relationship with before investment is even discussed, could make a very strong partner.

There is also a British Business Angel Association, which has a directory of potential business angels here.

Here are some more useful Bytestart articles on Business Funding:

• Business Plans for Business Angels
• Angels or Dragons - Who do you trust?
• How to fund your business
• How to secure business funding for startups