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Business angel investment process

Business angel investment process

Business angels are high net worth individuals who provide capital in return for a proportion of a company’s share capital. They are willing to accept a high degree of financial risk in return for the chance to invest in a promising high growth business opportunity where there is potential to realise a substantial capital gain upon exit. Business angels typically invest between £10,000 and £250,000. For sums above £250,000, equity finance is usually provided by venture capitalists rather than business angels. There are a number of powerful tax reliefs to incentive business angels to invest in small unquoted companies. Learn more about the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

The business angel (angel) and venture capitalist (VC) investment process usually has four distinct stages:

On average, less than 5% of business plans seen by business angels and VCs make it through all four stages. This means that to stand any chance of business angel or VC finance, you must have a very well thought out and well presented business plan. You also need to understand each of the four stages and what is required of you at each. This process is not dissimilar to tackling an arduous obstacle course where each obstacle is progressively more challenging than the last. You will also need to have a realistic view as to the fair economic value of your business. Learn more about business valuation.

Executive Summary – The executive summary is the first and most important stage in the process and the first and most important part of your business plan. This is because it determines whether you will be invited to present your plan face-to-face to a prospective investor. Fail at this stage and there is no investment. Consequently, the executive summary has to be absolutely right, no more than two pages in length and whet the appetite of the investor to want to meet you. About one in four progress to the second stage.

Presentation – Here you have the chance the wow your potential investor. You will be expected to make a presentation and answer some tough questions. Thorough preparation is essential as is a rehearsal. You’ll need an elevator pitch to introduce yourself and your business plus a short 20 minute presentation with 10 slides at most. Tell a compelling story, keep your slides clean, use a big font and make sure you know your numbers inside out. Remember also that investors invest in companies and entrepreneurs first and products and services second. So let your prospective investor see your energy and passion. About one in three make it past this stage.

Due diligence – Having captured the interest of a potential investor, due diligence is the process by which the investor drills down into the details of your business to form an opinion on its true state and on the viability of your business plan. At this stage, you will need to provide a detailed business plan, answer more penetrating questions and provide documentary evidence to support vital pieces of information such as key contracts, trademarks and patents. It is only after the conclusion of due diligence that an investor will finally decide whether to invest or not. About one in three survives this stage.

Investment – By now, you are getting near, but you still only have a 50/50 chance of securing the funding you require. You may be asked to present again, and if you do, this is your last chance to get buy-in and commitment to your vision. More importantly, however, you need to convince your investor that you possess the exceptional executional abilities that are necessary to deliver the superior returns they expect. Succeed and you’ll have earned your investment, enabling you to move on to the hard part of turning vision into reality.

For the majority of entrepreneurs, the harsh reality is that you will fail to secure an investor. If you do get turned down at any stage, don’t lose heart. Learn from the experience and use what you learn to raise your game for the next time. Many successful entrepreneurs have been repeatedly refused investment, before finally raising the funds they fought hard to secure. Remember investors have cash that they want to invest, and that there are an estimated 18,000 angels in the UK seeking attractive investment opportunities. Your challenge is to meet the right one. So persevere and don’t give up easily.

To discuss your business critical issue

Please call Paul New on 020 8390 9972 or 07790 501225 or send a message.

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To discuss your business critical issue, please call Paul New on 020 8390 9972 or 07790 501225 or send a message.


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