The private investor is not a recent invention. For centuries the wealthy have sought to invest their surplus cash in new ideas and viable businesses. However, it is only recently that academics and entrepreneurs began to recognise and study their growing importance as a source of funds for the new enterprise in the modern economy.
Who are the Business Angels?
Generally successful entrepreneurs themselves, or perhaps senior managers from industry, looking for the opportunity to invest in up and coming small businesses. There is no such thing as a typical business angel but one thing they have in common is that they invest in people as much as in business propositions. A good business plan is necessary but never sufficient to clinch a deal. The chemistry between the investor and the management has to be right for both sides.
Who needs them?
This kind of equity investment is best suited to high potential businesses which can provide the very demanding rates of return required to offset the risk in this sector. This could include:-
Young companies requiring amounts of equity investment too small to interest mainstream venture capitalists, ie under £250K.
Growing businesses who recognise the need to strengthen their board or management team to sustain successful development.
How much is Available?
Collectively, business angels have many millions of pounds available but as individuals they tend to invest in the range of £20K to £250K. This helps to bridge the so called ‘Equity Gap’, where conventional sources tend to be thin on the ground. The most common single investments tend to be around £25K to £50K but syndicates or investor clubs can come up with much more. This latter kind of risk sharing by investors is growing in popularity particularly in the high-tech sector.
What can they Offer?
First and foremost, long term risk finance – the angel is taking the risk of sharing in the fruits of the business as they ripen. If there are no fruits there is nothing to share – or it could be a share of significance if your company has prospered.
Business skills and experience – since they tend to invest in sectors they understand, angels can be an important source of advice and mentoring for the management of innovative or technology-based businesses. This kind of added value can give the company a real edge over its competitors.
Credibility and leverage – with their track record of business achievement, having business angels on your team can greatly influence other funders. This is equity not debt finance, so the balance sheet of the business is strengthened. This puts it in much better shape for supporting growth and for levering funds from other sources. Quite often the angels have the financial skills and contacts to help bring the whole package together.
What kind of Business can get this investment?
In principle Business Angels can support any business that appears to offer a suitably attractive return. However the members within the LINC Network focus almost exclusively on companies qualifying under the terms of the HMRC Enterprise Investment Scheme and establishing your eligibilty should be a first step before seeking investment. More information can be found HERE.
How do I find them?
Through personal contacts of your own, your accountant, lawyer or banker, and of course through an introduction service such as LINC Scotland. We are not an organisation of investment advisers but provide an independent and impartial service which can plug you into local and national networks of business angels. We do this by acting as a clearing house for information on investment opportunities and investors’ requirements.
To contact us please CLICK HERE.