Business Angels: How to Find Them, Pitch and Secure Investment
Learn how to successfully seek and secure angel finance – from using your connections to checking the credentials of a potential investor…
If you’re looking to secure investment above £25,000 and below £750,000, then a business angel could be the way to go. A business angel is any individual prepared to provide you with capital at their own personal risk.
The personal nature of their investment means an experienced angel can also offer hands on knowledge and expertise than can help grow your business.
This guide will give you advice on finding a business angel that suits your needs, how to pitch to them successfully and how to secure their investment.
When should I consider using a business angel?
An angel should only really be considered if you are able to fulfil the following conditions.
You must be:
Trying to raise £25,000-£750,000
Equity finance over £250,000 is generally the preserve of syndicates – angels investing together, or co-investing using a venture capital fund.
Willing to sell a share of your business
Selling equity to finance your business will improve your balance sheet, and can persuade other lenders to provide additional financing.
Able to show a good grasp of your market and offering
This is especially important if you are a start-up – you’ll have to prove you fully understand your market and objectives by producing a business plan based on comprehensive market research. Angels are more likely to be interested in investing if you have a proven track record.
In charge of a knowledgeable, hard-working management team
Your team should be able to demonstrate commitment and enthusiasm, as well as high-quality product and sales skills in order to be taken seriously by investors.
Able to offer a hands-on role for the angel
With their personal investment, most angels will want to have some input into the running of the business. You could benefit greatly from their knowledge and expertise
Able to offer a high return
An annual 20-30% return on investment is what an angel will be expecting if they are to invest.
Able to offer an exit possibility
Now matter how exciting the opportunity, most angels will require an exit route if things don’t work out. You should allow them the option of selling their share to directors, other investors and companies or back to the company itself after a certain date.
How do I find a business angel?
While these angels don’t just fall from heaven, there are a number of different fairly accessible methods of finding a business angel to secure investment from.
Make the most of who you know: the majority of angels are found through contacts such as friends and family, business contacts, major suppliers and clients, or any other professional advisers such as an accountant.
B2B sections in newspapers
Investors looking for opportunities often post advertisements in the business sections of newspapers – or alternatively you could post your own advertisement asking investors to contact you.
Angel networking organisations
Angel networking organisations help angels find investment opportunities. You’re required to register your details and submit financial forecasts and a water-tight business plan in order to be placed on the network
What should I look for in an angel?
Remember that, as investment structures go, angel investments are comparatively informal and personal – their success will depend on the both of you being able to work together. Establish as much as you can about their objectives and perspective before agreeing to accept their investment.
Make sure your priorities are compatible. The angel’s objectives should match your business needs. If you are after investment alone, look for angels who are happy to keep a distance from the business. If you are seeking experience and expertise, look for angels who have experience of your line of business.
Find out their credentials. Don’t be afraid to request their CV and get in touch with companies they have previously invested in to check their reputation and viability as a business partner.
Do you have a shared perspective? What aspects of your business made them interested in investing and what they can offer you. Ask if they have any suggestions about your operations and performance.
How do I pitch my business to an angel?
Most angels will expect you to make a short, sharp and concise pitch to them directly. And remember: you’re selling yourself as well as your business.
Explain exactly what your business does in layman’s terms to avoid confusion. Don’t be coy about stating exactly how much you need to raise and what you’re hoping to achieve with the finance.
State exactly what you want to get out of the deal in terms of equity and their involvement in the running of the business. Be prepared to compromise and be flexible, but don’t offer too much.
Explain what your business has achieved so far and showcase your financial projections, as well as any endorsements from customers or the media.
Angels are likely to try and find a chink in your armour so make sure you know your business inside out and can provide satisfactory answers to difficult questions – this is a big risk for them and they want to know it’s worth it.
How should I begin the investment process?
Confirm their financing
Establish exactly how much they are prepared to invest and how much they have currently available – and make sure to arrange any additional financing you need as soon as possible. Don’t waste time with people who can’t prove they have the funds to invest.
Angels will want to check your finances check out – submit your business plan and provide any financial information they request.
Negotiate key issues
Sit down and discuss what you think are the most important areas of focus on your business plan. Establish how you will work towards them together, who makes decisions, how you will both withdraw money, what you will do if extra capital is required, and how the angel can exit the business if they need to.
Deal with legalities
The angel may ask you for warranties to confirm that what you have told them is true, as well as indemnities to give you liability in particular circumstances. They can be entitled to compensation if you fail to fulfil certain promises.
Fix the final investment terms
Seek counsel from your solicitor and accountant to see if it’s possible to structure a more tax-efficient investment for the angel.