Business angels fund high-growth businesses ? and also bring their own skills, contacts and expertise
Business angel investment is a growing source of finance for high-growth small businesses. Currently, $13bn of business angel finance is invested in over 50,000 businesses per annum in the US. Within the UK this market is not quite so developed, however from what we know, up to £1bn is invested by around 20,000 business angels in the UK on an annual basis.
Business angels are high-net-worth individuals who invest on their own, or as part of a syndicate, in high-growth businesses. In addition to money, business angels often make their own skills, experience and contacts available to the company. The majority of business angels make investments for financial reasons. However, there are also other motives for investment, for example, taking an active part in the entrepreneurial process, and the enjoyment from being part of the success of a good investment and the sense of reward of putting something back in.
Business angels invest between £10,000 and £750,000 in an investment. Where larger amounts are invested in a business, this may be as part of a syndicate. This is where a group of angels get together and invest in your business together; syndicates are usually overseen by a ?lead angel? who acts as the conduit between company and the angels.
Business angels invest across most industry sectors and stages of business development, but especially in early and expansion-stage businesses. Businesses from all sectors are considered as long as the business has high-growth potential; business angels are looking for propositions that can give them returns of 10 times their money in three to five years. Most prefer to invest in companies within 100 miles of where they live or work as they do not wish to travel 300 miles up the road every time they wish to visit their investment.
There are many benefits of using business angel funding over other funding options, however there are also some disadvantages. Key advantages are the fact that business angel funding is a longterm form of funding resulting in there being no requirements to repay and no personal security to provide ? most business angels will look to make their money through the business exit, that is a trade sale or a business float. As already discussed, business angels also bring their skills, contacts and experience to businesses alongside their money; a government report relating to business angel finance highlights small businesses? need for more than money from their angel investors.
However, these benefits must be weighed against the fact that in return for the investment business angels will dilute the ownership of your business and it should be noted that this may be diluted further by successive funding rounds. As well as financially diluting business, angels will also dilute the control over your business. Many business angels will wish to have an opinion over some key strategic and financial issues ? something that not all entrepreneurs are willing to forgo.
In general, business angels are highly elusive. Government statistics state there are over 18,000 business angels in the UK, but there is no official database that you can access. So how do businesses meet their business angels? The answer is though business angel networks. These organisations act as facilitators, attracting investors looking for opportunities to invest in and managing the process of introducing them to high-growth businesses.
Business angel networks are mainly regional (with a few distinct exceptions) and the best way to get in contact with them is through the British Business Angels Association (BBAA). The BBAA is a trade body representing the business angel networks across the UK. BBAA will be able to introduce you to your nearest business angel network.
For further information about business angels in general or to find your nearest business angel network please visit:
Website: www.bbaa.org.uk or e-mail: