Guide to angel investors.
Angel investors provide significant amounts of capital to start-ups and established businesses in exchange for an equity share of the business – they can also provide advice and industry contacts, but may want a say in the company’s future decisions.
What are angel investors?
Angel investors, otherwise known as business angels, are wealthy individuals that invest in high-potential businesses in exchange for an equity (ownership) stake in the business. This ownership is often conferred in the form of shares. Angel investors often work alone but can also operate as part of a network, pooling their resources and offering more favourable terms to businesses.
What can angel investors offer me?
Angel investors can provide significant funding to either kick-start a company or allow it to grow rapidly, typically from hundreds of thousands of pounds up to several million pounds. They frequently combine this with expert advice and industry contacts in order to give your company the best chance of succeeding. This makes them a particularly attractive form of start-up finance. Angel investors will typically invest in companies working in their own industry; this makes it easier for them to help you with both advice and contacts.
Is angel investing right for my business?
Angel investors think long-term and want an exit i.e. a way to leave the business with a substantial profit, typically in the form of an initial public offering (IPO) or buy-out. Angel investors will be less likely to invest in companies that can’t display this kind of potential. If you’re unwilling to give away part of your company, and potentially a controlling stake, you might want to consider another form of start-up funding. Take a look at our guide to start-up finance to see what options are available to you.
How hard is it to gain investment?
Gaining investment from angel investors depends on a range of factors, including your industry, potential for growth and willingness to compromise on equity. Angel investors buy your equity at a price and then hope it to sell it at a later date for much more. Because of this they require an exit strategy, such as a buy-out by a larger company. This means that angel investors will typically invest only in companies where a buy-out or IPO is likely to be tenable. The industry is also extremely competitive; you’ll need a polished presentation, business acumen and the right attitude to win over an angel investor.
Comparative cost of angel investing
It’s difficult to compare angel investing to other forms of financing because expert advice and industry contacts don’t have innate monetary value. Angel investments also have less inherent risk; payment is made in the form of shares and the transaction is then closed. With bank loans, the transaction carries on until the loan is repaid, with the potential to lose your property should you default on repayments. In terms of the actual financial investment, angel investments can often be relatively expensive; it’s common for start-ups to give away up to half of their business in exchange for a medium-sized investment. Even established companies may give away around 25%.
Where can I find angel investors?
As of 2009, NESTA estimate there are around 4000 to 6000 angel investors throughout the UK, with an average investment of around £42,000. In the past, unless you knew how to find them – perhaps through a mutual friend or colleague – they can be hard to find. Fortunately there are easier ways today; the UK Angel Investment Network aims to build a progressive community of businesspeople to connect entrepreneurs and angel investors directly. A simple Google search for UK business angels will yield a range of options, typically networks and alliances of investors that you can contact.
