Angels are high net worth individuals who invest on their own, or as part of a syndicate, in high-growth businesses. In addition to money, Business Angels often make their own skills, experience and contacts available to the company. This has been immortalized by The Dragons Den show where people cast for money and also the additional Dragons experience.
Angels rarely have a connection to the company prior to investing, but they often have experience in your industry or sector. For this reason, the commitment of Business Angels is usually very strong.
Most Angels make investments for financial reasons. However, there are other reasons to invest, including being actively involved in the business process, enjoying being part of the success of a good investment, and the feeling of giving something back.
Angels are an important but still underutilized source of money for new and growing businesses. A typical angel makes one or two investments in a three-year period, either individually or by joining with others to form a syndicate. Some angels invest more often. There are approximately 18,000 angel investors across the UK, with angels investing around £800m a year.
It is often thought that you have to be very rich to be an Angel Investor, but in fact many people invest around £10,000 in any company, however some Angels invest much more and the money is also tied up for many years. Since an Angel would typically invest between £10k and £750k as an investment, but usually in exchange for shares. Therefore, most angel investors will take a portfolio approach and invest in more than one company to provide a variety of opportunities to diversify risk.
Angels often invest as part of a group called a syndicate, organized through personal contacts or one of the many angel networks. An investor will generally act as the Principal Investor, sometimes referred to as the ‘archangel’, and will act on behalf of the syndicate.
In addition to investing money, Business Angels can also bring valuable knowledge, contacts and experience to the businesses they invest in. Investments are made in most industry sectors and stages of business development, but especially in early stage and expansion companies. Most prefer to invest in companies within 100 miles of where they live or work, although investors in technology companies tend to be prepared to travel longer distances.
What is the negative side? Since angels have numerous investments, it means that they are not always available when you need or want them. Angels can also seem like happy and wonderful people, but once they are in company, some of them take on a different personality. They may not be so happy, and sometimes they may say the wrong thing that makes you feel embarrassed and unloved. In addition, an angel can often require a substantial allocation of shares and in certain cases become a majority owner of shares, which also has its challenges. An angel may not see the same thing as you, even when you explain it to him and could be dismissive by suggesting that he has seen it all before.
Getting outside investment is a gamble but with the right mindset and business plan and a bit of rapport they can also be very valuable but it’s worth considering everything from all different angles before giving away large stock allocations as soon as your angel appears.
Do your homework, know your numbers, and follow a plan – it can only be good news when you’ve taken the time to understand your proposal on a granular level!
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