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. This has been immortalised by the program The Dragons Den where people pitch for money and also additional Dragons expertise.
Angels rarely have a connection with the company before they invest but often have experience of its industry or sector. Therefore, the commitment of Business Angels is often very strong.
The majority of Angels make investments for financial reasons. However, there are other motives for investment including taking an active part in the entrepreneurial process, enjoyment from being part of the success of a good investment and the sense of putting something back.
Angels are an important but still under-utilised source of money for new and growing businesses. A typical Angel makes one or two investments in a three-year period, either individually or by linking up with others to form a syndicate. Some Angels invest more frequently. There are approximately 18,000 angel investors across the UK, and around £800m is invested by Angels annually.
It is often thought that you have to be very wealthy to be an Angel Investor, but in fact many individuals invest from around £10,000 in any one company, however some Angels invest much more and money is also tied up for potentially many years. Given that a Angels would generally invest between £10k-£750k as an investment, but are usually in return for a shares. So, most Angel investors will take a portfolio approach and invest in more than one company to give a spread of opportunities to diversify risk.
Angels often invest as part of a group called a syndicate, organised through personal contacts or one of the many Angel Networks. One investor will generally act as a Lead Investor, sometimes referred to as the ‘archangel’, and will act on behalf of the syndicate.
As well as investing money, Business Angels can also bring valuable know-how, contacts and experience to the businesses in which they invest. Investments are made across most industry sectors and stages of business development, but especially in early and expansion-stage businesses. Most prefer to invest in companies within 100 miles of where they live or work although investors in technology companies tend to be prepared to travel longer distances.
What’s The Down Side – With Angels having numerous investments it means that they are not always available when you need or want them. Angels may also appear happy, wonderful people but once they are in a company some of them take on a different persona. They might not be so happy and can sometimes say the wrong thing making you feel embarrassed and unloved. Also an Angel can often require a substantial share allocation and in certain cases become a majority share owner which also has its challenges. An Angel may not see the same as you even when you explain it and could be dismissive suggesting they have seen it all before.
Getting outside investment is a gamble but with the right mindset and business plan and a little rapport they can also be hugely valuable but it is worth considering everything from all different angles before giving away large share allocations as soon as your Angel appears.
Do your homework, know your numbers and follow a plan – it can only be good news when you have taken time to understand your proposition at a granular level!