Mind Your Business

Useful advice for SME's from the team at Business Success Partners


How to Land a Business Angel

A ‘business angel’ is a private investor who provides capital for a start-up or growing business in exchange for equity in the company. Business angels are the second most common source of capital for small businesses and represent the largest pool of capital worldwide.  The range of investment angels generally make is from $ 20,000 to $1 million, although higher amounts are sometimes available. Angels usually develop a personal relationship with the owner of the business they finance, and want some sort of ongoing involvement with the organisation.

Angels sometimes work behind a screen of agents or brokers; they can be referred by accountants, lawyers or other business owners. They generally expect a business to offer them a fairly comprehensive package before they’ll commit to providing capital, including:

·     A comprehensive and realistic business plan

·     A timeframe for achieving business goals

·     An equity stake in the business representing their risk

·     A high rate of return on their investment

·     And quite often, a seat on the board of directors

Angels are similar to venture capitalists but tend to fund smaller deals and to place their funds for longer periods of time. Angels are usually individuals, often from entrepreneurial or executive backgrounds, whereas the venture capitalists of today are mostly managed pools of funds.  Most business angels tend to invest their money close to where they live. Some networks of business angels exist, but these are mostly local or occasionally regional in scope.

Angels can be intrusive

Angels tend to be more intrusive than venture capitalists. It’s important that you and your angel share the same objectives for the enterprise as well as a similar timeframe for these objectives to be realised. You need to check out the angel in much the same way that they’ll perform due diligence on you, to ensure that you will be compatible for the term of your relationship. The ideal angel will bring more than just money to the table. They can introduce valuable contacts, provide strategic assistance, or serve as contributing board members.

Tips for dealing with angels

Acquiring a business angel will probably mean several changes to your way of doing business and even to your personal life. There are a few rules that entrepreneurs should be prepared to follow if they’re going to acquire finance from an angel:

1.   Personally finance your enterprise as long as possible, until there’s a positive case for obtaining external finance to develop and/or grow the business.

2.   Be certain you can work with a business angel before beginning the search for one.

3.   Have realistic expectations of the money you’ll need and the amount of equity you are willing to give an angel in exchange for it.

4.   Be selective in the kind of business angel you approach; look for one with particular skills or abilities that will benefit your business.

How to attract an angel

Business angels are looking for capital growth and sound indications that your business will be able to provide them with a good return on their investment. Prepare a business plan with the most up-to-date information, realistic financial projections, and sustainable valuations. Support it with as much research as you can gather. The business plan is evidence of the competence and knowledge of the entrepreneur who prepares it.

Locate business angel investors by approaching the established networks in your area, by indicating your interest to your accountant and legal adviser, and by searching on the Internet. You should also check the financial pages of the newspapers where they often advertise. It’s not just about money. Look for an angel with business skills that can complement yours and who will be able to share your vision for the organisation.