Most businesses fail in their early stages of development. By virtue of being a startup – they often lack the cash and capital to get operations off the ground. As such, small businesses, including startups should reach out to investors to find the funds they need to grow.
Businesses and entrepreneurs aren’t the only ones who often want to forge a beneficial relationship with an investor. In fact, investments are always beneficial for all stakeholders.
Essentially, an investor will willingly put their cash forward if they believe they can make money from a small business pursuit. Whilst there are a range of reasons for investors to enter into a new project, professional investors have one primary objective in mind: to get their targeted return over a specific time.
What is an Angel Investor?
Whether you’re trying to grow your business, launch a new product, expand into a new market or simply just scale up; don’t fret when your personal finances are tapped out. Angel investors are affluent individuals who actively seek out new investment opportunities – regularly found in startup businesses. They provide capital in exchange for convertible debt or ownership equity.
They stay true to their name, as angel investors save many startups when most investors and traditional financial institutions are not prepared to back them. Just like the businesses they back, angel investors come in all shapes and sizes.
Businesses benefit from angel time, skills, contacts and business knowledge. Angels tend to get hands-on with the businesses they support. It’s therefore clear as to why so many businesses are seeking angel investment. And the same can be said for angels seeking out prosperous businesses. In fact, Angels invest £1.5bn in the UK each year. To put this figure into perspective, that’s three times the amount invested by venture capitalists – another popular source of finance.
The UK Business Angel Association has found that angel investors are starting to invest at a lower age than before. A large portion of angel investors are beginning to make their first investments under the age of 45.
Angel Regulating Bodies
Angel investment regulations seek to control the investment process, protect investors and help businesses make sure the investor is genuine and certified.
The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) each offer generous tax concessions to angels. The aim is to help UK business grow by reducing the risk in the investment process for investors.
To promote sound entrepreneurship and keep business owners in control; the EIS ensures that Angels cannot take more than a 30% share of the business.
The Financial Conduct Authority (FCA) operates independently of the UK government and is financed by charging fees to members of the financial services industry. It regulates angel investing by stating that each Angel should self-certify as a ‘high net worth’ or sophisticated investor. This means that they are able to receive and assess business plans and resultantly invest in businesses.
Is Angel Investment right for me?
Getting finance from angels doesn’t just happen overnight. An intricate process of preparation, research and networking takes time. In fact, it typically takes up to 6 months from your first approach to get the angel to back you.
Before you even begin your search, it’s important to consider whether you’re ready for angel investment and whether this finance method is right for your business. You will need to tick a few boxes yourself before approaching angel investors.
Consider the following as a brief checklist, you should firstly own a profitable early-stage business but have an annual turnover of up to £5 million. After your calculations, you should be in need of between £15,000 and £500,000. Obviously, you should be willing to hand over a share of your business and be keen to work closely with your angel.
Where to find Angel Investors
Angel investors aren’t just roaming the streets waiting for you to bump into them. In most cases, they largely remain under the radar; so you will have to know where to find them. In general, it’s likely for a business owner to be referred to an angel. In such cases, it’s important to know the right person who can put you in contact with them. As such, it’s important to throw yourself into the local business and social community.
Networking with people who know angel investors or perhaps may become one themselves; is a good way to establish your presence in the business community. Businesses and trade organisations are a great source of information and often host networking events. By getting your name and face out there, you increase your chances of finding your angel or being referred to them.
Search online angel directories to be matched with the perfect investor. Directly pitch your ideas to angels and if nothing else, you can get your proposal in front of a large investor community.
Angel Capital Association (ACA) is the United States largest professional development organisation for angels. With over 1,300 accredited angel investors and 260 angel groups and platforms – it’s the perfect place to find an angel for those located in the US and Canada.
For the more international entrepreneurs, Gust is the worlds largest startup network – with over a $1 billion funding raised through its angel network. What’s more, this online platform lets business owners create just one single application to be sent to hundreds of angel groups around the world.
The BC Angel Forum is an online space that connects businesses with angels. Both tech and non-tech pre-screened companies who are seeking equity financing of $100,000 to $1 million are able to deliver live presentations to pre-screened private and corporate investors.
Whether you network your way to an angel or match with them on an online platform – the most important part of the process is yet to come – the pitching.
Preparing your pitch
There’s no magic formula and each pitch is as different as the entrepreneur that produces them. Securing angel investment requires the entrepreneur to effectively sell their idea. As simple as it sounds, it isn’t. It can be a daunting experience, made worse by ill preparations.
A decision to invest is often the result of the right combination of people, product, time and chemistry. Better your odds by preparing well and avoiding common mistakes.
1. Begin with yourself. Most investors will tell you that they invest in the person behind the company as much as the business they own; often more so. An attractive investment opportunity will be supported by confident, collected and knowledgeable entrepreneurs.
Passion for your business is key – and often gives rise to a story. Whilst facts and figures are critical, they don’t get angels as interested as the story behind your brand. Let them connect with your past experiences or whatever situation was that drive you to creating your business.
2. Be prepared to provide evidence. Angels will want to see proof that what you’re saying is true. Avoid schoolboy errors like not knowing your facts and figures. Whilst these should be at the top of your head, you should also have supporting evidence like your company accounts, sales forecasts, profits and expected returns.
3. Be clear about your needs and ambitions. You will be expected to know precisely how much you will need, when you will need it, how you’ll use it and the impact it will have on your business. You will also have to share your ambitions for the company and connect the dots to show your understanding of how an angel can contribute to materialising this.
Without accounting for this in your pitch, prospective angels will lack the information they need to make well-informed judgements on the extent to which they can help you.