WHERE LOCAL BUSINESS GROWS

Business angels



Overview
 

Business angels invest in businesses in exchange for a share of the business’ equity. Most business angels invest between £10,000 and £750,000.

Business angel investors usually invest in start-ups or young businesses that need to fund activities like product development or market expansion. They can make investment decisions quickly but will still need to see that you have a good business plan before they commit.

Business angels may take an active role in your business and can be a useful source of knowledge and mentoring.

The process
 

Your business should be ‘investment ready’ before you apply for funding.

You should have:

  • a business plan
  • audited accounts for the past two years
  • evidence of current performance
  • a profit-and-loss forecast for next year
  • business bank statements for the past six months
  • profiles of each partner or director in your business
Pitching to business angels

Business angels are more likely to be interested in your proposal if they:
  • understand the product or service
  • have worked in the same industry
  • are confident that your business is well managed
  • feel they can bring added value to your business
  • are not being asked for a huge investment, or repeated investments
When pitching your business plan to a business angel you should cover:
  • the benefits they would gain by investing
  • details of the investment required
  • terms of the proposed deal - eg share of control, skills you offer and timescale of investment
  • how your management team will implement the plan
Finalising the business angel investment deal

It can take several months to finalise business angel deals and for funds to be transferred. You should also allow for additional finance to cover legal fees and bank charges to arrange debt.

Legal elements of business angel deals include:
  • the investment and shareholders' agreement - sets out the terms of the investment and regulates the shareholders' relationship
  • the service agreement - eg employment contracts with managers or directors
  • other contracts - with more junior employees, suppliers, or customers
  • the disclosure letter - details of any warranties or assurances agreed between the parties
  • articles of association - your company's internal regulations
  • share options

Pros and cons
 

Pros

  • business angels are free to make investment decisions quickly
  • no need for collateral - ie personal assets
  • access to your investor's sector knowledge and contacts
  • no repayments or interest
  • business angels are invested in your business’ success and can help you explore new ideas
Cons
  • might not be suitable for investments below £10,000 or more than £750,000
  • it can take a while to find a suitable business angels investor
  • giving up a share of your business
  • less structural support is available from a business angels than from an investing company

Common mistakes
 

You may be refused business angel finance because you haven’t made sure that you are ‘investment ready’ before you approach potential investors. For more information, see Getting ready for funding.

You should also identify potential risks and how you might overcome them.

You could benefit by doing a SWOT analysis, which identifies your business's strengths, weaknesses, opportunities and threats.

Investors will want to know if there will be an exit opportunity and that they can recover their investment and make a profit. You should be able to tell them about your business’ long-term plans and ambitions.

Remember to prepare for difficult questions and stay polite and respectful during your pitch.

Funding sources
 

You can find individual business angel investors or syndicates (groups of investors) through business angel networks in the UK and Europe. These include:

  • Archangel Informal Investment – business angel syndicate of around 100 investor members
  • European Business Angel Network – the European trade association for business angels

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