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 to 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.
An experienced private investor, known as a Business Angel, can make a valuable contribution to a new, small business, not least in the form of a long term cash investment, usually for a minority stake in the business. They also provide expertise, whether this be specialist technical skills, industry specific knowledge and understanding or more broadly based management experience, and they frequently act as a ‘sounding board’ for management to discuss strategy options and plans, bringing commercial common sense and a steady hand in times of crisis.
Each Business Angel is unique. They are usually individualistic, often ‘quirky’ and likely to be motivated by a wide range of desires and preferences; there may be a moral or social dimension to their investment decisions, or they may be driven by personal experience.
Usually, Business Angels invest between £20,000 and £750,000 in an investment. Business Angels invest across most growing industry sectors and at all stages of business development. Most prefer to invest in companies within 60/70 miles of where they live or work.
Is Business Angel Investing suitable for you?
Becoming a Business Angel is not an easy decision. There are risks attached, and the investor who does not recognise this and minimise these risks will not make money. It is not a job for the amateur, but needs a high degree of professionalism and skill on both sides. The investor must have the right balance of personal qualities, business acumen and first hand experience to match the needs of the entrepreneur. Indeed, in some senses, investors need exactly the same attributes as the entrepreneurs. Above all, it requires honesty, and a determination to make the partnership work to their mutual advantage.