Business Angels

1. Before You Start

Your business is unlikely to be suitable for investment by a business angel unless the following six conditions are fulfilled.

1.1 You want to raise £25,000 to £750,000 and are willing to sell a share of your business in return for financing.

• Raising finance in the form of equity (shares) strengthens your balance sheet. The bank (or other lenders) may then be willing to provide additional debt finance.
• Equity finance of over £250,000 is usually provided through a syndicate, when several business angels invest together, or when business angels co-invest alongside venture capital funds.

1.2 You are willing to develop a personal relationship with a business angel.

• Typically, business angels want hands-on involvement.
• A business angel with the right skills can strengthen your business by adding skills or experience that you lack.

1.3 You can offer the business angel the possibility of a high return.

• This usually means an expected average annual return of at least 20 to 30 per cent over the life of the investment. Most of this return will be realised in the form of capital gains, typically over a period of three to five years.

1.4 You can demonstrate a strong understanding of your product and market.

• Some business angels provide expansion financing for businesses with a proven track record.This enables an already successful business to grow.
• Business angels are also a significant source of start-up and early-stage capital for companies without a track record.A business plan based on convincing market research is essential.

1.5 You have an experienced and professional management team.

• As a minimum, you must have strong product and sales skills.)
• You need to show enthusiasm and commitment. A measure of your commitment will be how much money you (and other managers) have invested in the business and how strongly your personal earnings are linked to the success of the business.

1.6 You can offer the business angel the option of an exit.

Even if the business angel has no plans to realise the investment by any particular date, the angel will want the option to be available. The most common exits are:

• A trade sale of the business to another company.
• Repurchase of the business angel's shares by the company at current market value.
• Purchase of the business angel's shares by the company's directors or another investor at current market value.