Jenny Tooth of the British Business Angels Association explains how to access funds for a fast-growth business
Business angel investment is a key source of investment along the finance ladder for growing an innovating business. Many have seen BBC?s Dragon?s Den and so are aware of the concept of angel investing and may be wondering if this is a suitable source of finance for their business.
So what is a business angel? They are high-networth individuals who invest in small businesses, often at start-up or early growth stage. They are generally attracted to a company that has an innovative product or service and that has the potential to be scalable. In return for their investment, they take shares in the company ? generally not more than 25% in the first round. In addition to money, business angels generally make their own skills, experience and contacts available to the company.
Business angels often have an entrepreneurial or professional business background and have a keen interest in supporting the businesses they invest in. At the same time they are concerned to ensure they make investments in the right business so that they will get a good return on their investment. They generally invest between £10,000 and £50,000 as an individual investment, but can invest over £750,000 in an investment. Where these large amounts are invested in a business, they may invest as part of an Angel syndicate. This is where a group of angels get together and invest in your business together. Syndicates are usually co-ordinated by a ?lead angel?, who will take a seat on the board of the business and acts as a link between the 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 ten times their money in three to five years. Most prefer to invest in firms within 100 miles of where they live or work, but this can vary according to the interests of the investor.
So how can you tell if business angels are for you? 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 the money (as you would have to do if you take a loan) and no personal security to provide. Most business angels will look to make their money through the business exit, ie a trade sale, often through acquisition or through a large VC investing in the company, or a public market floatation IPO such as on AIM. As already discussed, business angels also bring their skills, contacts and experience to your business alongside their money, and this can bring huge advantages in identifying new markets, customers and strategic alliances.
However, these benefits must be weighed against the fact that, in return for the investment, business angels take shares in your company and will dilute the ownership of your business. A business angel will normally take a seat on your board either as an individual or representing a syndicate with the aim to advise and strategically direct your business in relation to planning and finance to ensure that you will continue to meet your key growth targets. This is, of course, a good thing and ensures you can move strategically in the right direction, but it also means you have less direct control over your business, although they rarely will wish to be engaged in the day-to-day operational management.
So if business angels are for you, how should you find them? 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. The best way to get in contact with a relevant business angel network is through the British Business Angels Association (BBAA). The BBAA is a trade body representing the business angel networks and the early stage investment market across the UK. BBAA will be able to introduce you to your nearest business angel network.
It also offers you access to further information about angel investing and the process, as well as providing legal documents that can assist you in ensuring that you set up the right legal procedures and protections for your company when seeking investment. Through BBAA, you can also find other sources of information and advice about accessing early stage funding.
For further information about BBAA, business
angels in general or to find your nearest
business angel network, contact Nick Turton,
Added the 17 September 2008 in category Innovation UK Vol4-1