How To Raise Business Funding – Business Angels

Typically Angel Investments are one of the last sources of capital to fund business expansion. But it doesn’t need to be this way.

With every early stage business there comes a time when you’ve exhausted the more immediate forms of finance and you are either starting to become a real contender in your market or have supreme confidence in your company’s prospects.

You may have decided that you do not feel comfortable with securing more debt against your company’s assets, you are unwilling to take on more personal debt via a re-mortgage or credit card, you may have invested all of your, or your family’s, savings and feel unwilling to approach companies about the Small Firms Loan Guarantee Scheme.

When it comes to venture capital, you are generally expected to make over £1 million of share capital available for the venture capitalist and they generally expect a significant say in the direction your business will take.

There is, however, another option. Angel Investors generally invest anywhere from £10,000 to £250,000 and will work closely with you to maximise both their own and tour personal return.

If you have not got the assets to raise debt finance it will be unlikely that you’ll be able raise further capital without offering some of your business in return for the much needed cash.

With these debt finance options you are able to be vague with your objectives for the funding. However, when you bring in an Angel Investor they will have their own money at stake, so you will be required you to be crystal clear regarding the organisation’s current financial situations and how you will use any finance to take the company forward.

Offering part of your business to an Angel Investor will allow you to bring significant levels of expertise to the business without paying them a salary which can offer significant cash-flow advantages over the alternative sources of hiring human-capital.

One of the important factors in determining the likelihood of securing Angel Investment is the quality and robustness of your business plan – as well as the potential performance of your business and products. We have produced or top 5 quick tips on writing a business plan, however, if you need comprehensive information we have gone into significant detail about how to write the type of business plans suitable for securing angel investment here.

There are few facts that should be considered when looking to raise investment finance:*

• Angel Investors are typically 45 to 65 and have taken early retirement

• Business Angels don’t expect that every angel investment will earn significant returns. They are aware that around 40% of their angel investments will result in a partial or complete loss.

• 90% have worked for themselves or within a small business; hence they are generally aware of the issues that you face on a daily basis.

• You can expect to meet a potential Business Angel at least five times before investing. This compares to ten times with venture capital. You could potential speed this process up via Speed Pitching.

• Ten per cent of business angel investments are actually for less than £10,000 and forty five per cent are for over £50,000.

• Angels are more inclined to invest in businesses within an hour of their location.

• Business Angels often invest together. A quarter of all deals are when Business Angels invest together.

• Angel investors are significantly more likely to invest in start-ups or early-stage businesses than Venture Capitalists.

• Business Angels are more likely to invest when they can build up a strong relationship with you.

• Business Angels typically look for a calculated annual return of 20%-30%.

• Angel investors require you to have a strong and complete understanding of your products and the industry you operate in.

• If you are looking for expansion finance you will need to provide a proven sales track record that can be built upon.

• Angel Investors would expect to raise the topic of “exit” strategies at the outset of discussions. This is where they will realise their investment. Typically this would entail a trade sale of the business to another company, the purchase of the angel’s shares by the company or by you.

But how do you find a business angel?

Angels Den offers a service that allows you to place your business summary your requirements onto a searchable database which Business Angels who are able to prove their credentials can use to find businesses to invest in.

If you would like to find out how to get started, click here or if you would like to ask some questions you can find our contact details here.

* Source: My Business

Do I Need An Angel Investor Or A Venture Capitalist?

Academics from the University of Maryland School Of Business has written a report into the nature of small-business funding and if Angel Investment, Venture Capital or a combination of the two is the most effective route to secure early-stage funding. Here we take a look at the report and comment on its findings. The report studies 182 equity fundings in the US and compared the outcomes of these fundings given the nature of each liquidity event. There were some good, broad conclusions which could be of use when deciding to search for Angel Investment or Venture Capital: Firms which seek relatively small amounts of early-stage funding do so with Angel Investment, Venture Capital funding or a combination of both. The average Angel Investment is approximately £75,000.

However, when large investments are needed, VC involvement is generally a required condition.
Angel Investors almost always take preferred shares, however, even if Venture Capital is involved, Angel Investment is traditionally associated with weaker cash flow control and less stringent control rights, regardless of the deal size.

This, however, is not true in every event; the nature of investor control is dependent on the composition of each deal.

With smaller deals there is a lower incidence of failure when Angels invest without Venture Capital

When there are large deals, the success rate is greater when Venture Capitalists are operating without Angel Investors.

The assertion of the report is that the search costs of finding an Angel Investor prohibits entrepreneurs from seeking more than modest levels of funding. However, we have seen at Angels Den [link] where the costs of attracting Angel Investor interest are limited to £499+VAT, that this assertion is not necessarily true in the UK.

The report suggests that Angel Investors could be more patient than Venture Capitalists as they relinquish more control so that the organisation has a longer period to become profitable.

It is also suggested that entrepreneurs that need greater patience, exhibit greater managerial expertise, or greater control typically perform best with Angel Investors. Whilst entrepreneurs that require greater managerial input, or have the business need for much faster growth typical select venture capital.

It would appear that choosing Angel Investment or Venture Capital for smaller funding requirements does not depend solely on financial requirements, however business processes and management and marketing needs may determine whether an entrepreneur would be suited to Angel Investment.

To discuss how Angels Den [Link] can reduce the time and cost of receiving Angel Investment funding then drop us a line.

Your Questions Answered - Angel Investment Network

Here's a list of a few questions you may have about the Angels Den offering but may not have found an answer for.

How much does Angels Den cost?
To put your request for business funding in front of active Angel investors, costs a total of £499 + VAT. This is broken into two payments.

Initially you would create a summary of your business, which acts to entice Angel investors to contact you if they are interested in your offering.

When an Angel has shown an interest (and even before) you can create a detailed business plan in the searchable format that is favoured by Angel investors.

If you are successful and an Angel invests in your business there are no additional fees, hence your outlay to attract funding is kept to a minimum.

Angels Den isn't a free service as it is a commercial service and there is fantastic value in our offering. We take a lot of the pain out of attracting business funding, however it takes a great deal of time and effort to develop a solution that allows us to do this for you.

How does Angel Den's costs compare to angel groups?

Angel Groups often assign an advisor to help you write a business plan and offer coaching as part of a package. With this there is often an upfront fee, a monthly fee of hundreds of pounds, or even a set up fee of several thousand pounds. Often these groups would expect to take an fee of 4-5% or around 5% of the business.

In many circumstances this potential outlay makes Angel investment an unattractive option. Angels Den aims to open Angel investment to more businesses that require funding.

Furthermore, we offer the two payment stage to further help with your finances and to limit your financial exposure.

How can I protect confidentiality?
Protecting your confidentially is built into the Angels Den offering and we take the protection of your intellectual property (IP) very seriously.

We ensure that Angel investors can only review your information if they have signed a confidentiality clause. Furthermore, we ensure that any Angel investor that is registered has made such investments before, have over £100k in unsecured assets or are FAS registered.

We also recommend that you take steps to protect your IP as soon as possible by registering it with the relevant trademark, copyright or patent authorities.

Angels Den is a company you can trust. We are the only online service that is an Associate member of the British Business Angel Association and are active members who work alongside several Angel groups and have individually over 25 years experience in business.

Why should I use Angels Den?
Not only is the price attractive, not only can we deliver you access to over 2000 angels but we understand the process that you will go through to find Angel investment. We help you through the process and offer both telephone and email support to ensure that the path to securing funding is one that you will enjoy.

How much of my business should I offer to an angel investor?
The first task is to establish the value of your business. If you offer 10% for £75,000 then you are obviously saying that your business is worth £750,000 - is that a realistic figure.

Current and future sales figures aren't the entire story when valuing a business for Angel investment. Angels would also take into account your (including your management team's) level of experience in business generally and the target industry specifically.

You should look at what steps you have taken to protect your IP. A business idea with a strong brand which is fully protected is worth more than an idea that is open to direct competitive pressure.

When should I think of my "exit strategy"?
Now. If you secure Angel investment that will be dependent on your Angel investor agreeing an exit strategy. The Angel investor is putting money into the business in the expectation of a certain level reward at an agreed date. Make sure you think through your exit strategy as soon as possible and try and understand how long you would expect an angel investor to remain an interested party.

I'm not sure if securing Angel investments is right for my business, what else can I do?
You can try debt financing, the Small Firms Loan Guarantee Scheme, bank loans, credit cards, overdrafts, re-mortgaging your home, money from your family, your savings, or venture capital - just to name a few. All have their pros and cons so research all opportunities and take an informed decision.

We recommend that you approach an accountant and a lawyer as soon as practical. However, often the business link is seen as the first port-of-call for many new businesses.