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Business angels

Business angels

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).

For the budding entrepreneur considering a start-up or an owner with an early stage company seeking an injection of cash to fund the next stage of growth, it is important to know what inspires a business angel when deciding whether to invest in you and your company.

The first thing to remember is that a business angel accepts venture capital investments are risky. For every 12 investments, a business angel can expect six to result in a total loss irrespective of how thorough and selective the angel is. Three of the 12 will break even plus or minus, two will do ok and one will do extremely well and go supersonic. And the one that goes supersonic has to compensate for all the others that do not. Consequently, a business angel will only consider an investment opportunity if he or she can see line of sight to an exceptional return. Any business plan with a projected compound return on investment of less than 40% is likely to be short changed, as will any poorly conceived business plan, as will any business plan with a poorly written executive summary. And never forget, over 95% of business plans seeking business angel investment fail to secure funding. Spot any links?

Business angels are wise. They need to be. And they know exactly what to look for when seeking out the most attractive investment opportunities. A business angel will typically look for ten things:

1. A well written compelling business plan with a snappy executive summary

2. The five rights: right business model, right strategy, right execution plan, right amount of finance and right entrepreneur and management team

3. A scalable business with efficiency economies of scale

4. Protectable intellectual property and or first mover advantage

5. An exciting and interesting business

6. A motivating projected return on investment

7. Scope for the business angel to add value

8. A credible, resilient and likeable entrepreneur who is receptive to advice

9. A balanced management team with relevant experience

10. A clear exit plan

Not much to ask for then? Which is why so few companies and so few business plans succeed in securing funds from wise owl business angels.

When it comes to the executive summary, often the angel’s first point of contact with your business, remember the old adage, you never get a second chance to make a good first impression. If the executive summary is not up to scratch, you will have fallen at the first hurdle. Get over this hurdle and the business angel will go straight to the financial plan. Get over this hurdle and then and only then will the business angel will start to read the full business plan. If interested, the business angel will want a face-to-face meeting. About one in four business plans make it past the first stage. In other words, three out of every four business plans seen by business angels fail at this stage. See more reasons why business plans and companies fail.

There are three other stages in the business angel investment process:

At each stage, there are many more fallers than those who make it through to the next stage.

And please do not underestimate just how important, you and your management team are. Research undertaken by Cranfield University found that when considering whether to invest or not, 48% of business angels identified the management team as the single most important decision making factor with 38% identifying the entrepreneur. In other words, 86% of business angels consider people to be the single most important factor when deciding whether to invest or not. This is worth repeating. 86% of business angels consider people to be the single most important factors when deciding whether to invest or not. Therefore the question to ask of yourself and of your team is whether you are investable. If you and your team are not right, it does not matter how good everything else is, you are unlikely to secure funding. Food for thought.

To discuss your business critical issue

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

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