Business Angel Networks: 20 Questions to Ask

The financial crisis has had a significant impact on the way SMEs are finding funding in 2010. Mervyn King admitted in a recent report from the Bank of England on 12th August 2010, that banks lending terms to businesses have worsened significantly since the financial crisis began, making it almost impossible for small businesses to secure funding through the traditional channels. Whilst this is not altogether surprising, considering the credit crunch was caused by overeager bank lending, the result is that thousands of SMEs have been left unsure of where they can go to raise the capital to grow their businesses.

The answer for many such SMEs, is through business angels.

Business angels are high net worth individuals who invest money in companies in return for a share of the equity. They have considerable experience managing businesses, and many are successful entrepreneurs in their own right. They understand the way businesses work because they have been there themselves, and so in addition to the financial investment they offer, they can also provide guidance, and add value to your business.

The recently published first government report on the UK business angel market concluded that

“angels are increasingly ‘the only game in town’ for businesses seeking smaller amounts of equity finance”.

The report revealed that the angel investment market is growing at an unprecedented rate, with more investors registering with business angel networks than ever before.

The UK’s most successful business angel network Beer & Partners, has raised in excess of £17million for small businesses in the last two years alone taking on promising businesses from all over UK as their clients, and then presenting those businesses to their network of over 1,700 business angels, and 300 institutional investors. With over 45% of Beer & Partners clients securing investment from registered business angels, the network’s success rate is more than double the industry average.

The UK Business Angel Association (UKBAA) recognises that there are now 24 registered business angel networks in the UK in August 2010. The services provided by business angel networks in the UK vary significantly, and with so many different to choose from, it can be hard to asses the quality of a network.

A good angel network will take the time to build a relationship with the businesses it takes on, and have an excellent understanding of its investors. Good networks help businesses to prepare throughout the different stages of the process, and put their clients in touch with the right investors, who have the knowledge and particular interest in the appropriate industry. Not all networks provide this level of service.

Beer & Partners CEO Mike Weaver claims that

“choosing a good angel network will significantly increase your chances of securing investment.”

He advises that with so many to networks to choose from

“small business seeking funding should look for a business angel network with a good reputation and solid track record.”

In order to establish the quality of a business angel network, small business seeking funding should ask any network 20 key questions before deciding whether to commit.

What Questions should I ask any Business Angel Network?

About investors

  1. How many investors are in your network?
  2. Where did those investors come from?
  3. What sort of information do you hold about them?
  4. Do you know how many have expressed an interest in my sector?
  5. Do you know how many would be interested in the stage of development that my business has reached?
  6. What is the typical profile of your investors?

About the deal

  1. Is there any exclusivity or can I go to other networks?
  2. What happens if I find the funding myself whilst working with you?

About the process

  1. How do you actually get my business in front of investors?
  2. Do you produce any marketing materials for me?
  3. Do you help me prepare by business plan?
  4. Do you come to investor meetings?
  5. Do you help with negotiations and valuations?
  6. How long does the whole process take?
  7. Is there a time limit on the help that you give me?

Track record

  1. How many companies do you act for per annum?
  2. How many completions do you achieve per annum?
  3. What do you class as completion?
  4. What are your total funds raised per annum?
  5. What is the average deal size?

So when you are looking for funding, talk to a few business angel networks and compare their answers to these questions, to help you choose the best network for your business.

For more information contact Matt Beard on 020 7329 4884 beard@beerandpartners.com or check out the Beer & Partners website.

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