Business Angels Explained
Business Angels are individuals who make equity investments in high growth businesses. Recently angel investing has changed with angels operating much less as lone rangers but instead investing in syndicates to pool their resources, share deals, expertise and due diligence. One Angel then generally takes the lead in ongoing relations with the investee business.
Investments tend to be smaller than those offered by Venture Capitalists and Private Equity Firms and tend to target businesses in the early stage of development or established businesses looking to expand. Angels will typically invest between £10,000 to £2M, either alone or in a syndicate and will invest in high risk opportunities as long as there is a potential for high returns. Many focus on investments in a particular geographical area/sector in which they have expertise.
When Angels invest in a business it is not just about their capital commitment, most make their valuable first-hand experience available to the business as well as their network of contacts. Any proposal will first, however, need to pass the Gatekeeper who will filter down applications ahead of them reaching the ultimate investor so it is imperative that a quality application is made.
So what will wet their appetite?
• The possibility of a high return in terms of regular dividend payouts and capital gains.
• An experienced management team who are committed and passionate about the business.
• A desirable product/service and a strong understanding of its market.
• Chemistry and trust that the relationship will work.
Whilst the above may be present, it will make no difference if this cannot be satisfactorily communicated to the investor.
Just as an Angel investor will carry out due diligence on their potential investment, make sure you do the same for them. Clearly a degree of personal chemistry is important to form a successful working relationship, but it is equally important to check the Business Angel’s credentials. Look for evidence of previous success by researching or contacting companies the Angel has already invested in. Also, confirm officially that the Angel can provide the level of financing required to avoid wasting time with someone who has insufficient funds.
Whilst not directly promoting investment opportunities more information can be found at The UK Business Angels Association http://www.ukbusinessangelsassociation.org.uk