What is Angel investment?
I help to operate a network of business angel investors across Norfolk and Suffolk, called Anglia Capital Group. We hold pitching events throughout the year at which carefully selected companies are invited to pitch to our investor-members for potential equity investment.
Angel investment is a form of finance for early-stage businesses provided by wealthy individuals, usually successful ex-entrepreneurs or professionals, in return for a share of equity in the business. It is typically one of the earliest equity investments made into a start-up business and is actually the largest source of early stage capital in the UK. Approximately £1.5 billion is invested in this format in the UK, per annum.
Business angels tend to band together in networks, like Anglia Capital Group, in order to share knowledge, expertise and to syndicate deals.
How do I achieve angel investment?
STEP 1: Put yourself in their shoes
Before you can begin to understand what an angel investor might be looking for in a business, you have to put yourself in their shoes.
Set aside between 10 to 20% of your investable capital to invest in high-risk securities.
You know that high risk investing could return much larger returns than low-risk investing, but you are also aware that you could lose everything you invest in this form overnight.
In order to try and achieve these potential high returns you are looking for products or services that are unique and that have the potential to disrupt whatever market place they intend to operate in. You are looking for innovation.
You most likely want to do a bit more than just put your money somewhere, you want to give time and knowledge alongside your capital, to a business that you feel you can work with and make a difference with.
When you invest in a business, you are tying yourself in to a close relationship with the company for an absolute minimum of three years, but sometimes up to ten!
Scale up businesses usually have more than one investment round, and you want to be sure that they will have enough capital to make it through to profitability. Will you have to invest more money in the business down the line?
You know that 90% of start-up businesses fail.
You are going to use your best judgement to make sure you are backing the right horses. So, this is where the due diligence comes in…
You’re going to look in depth at the business plan, the route to market, you’re going to do a market analysis, ask about their exit strategy (i.e. when and how am I going to see a return on my investment?), understand their intellectual property and protection, and scour their finances. But most of all you want to know that you trust and like the people that you are giving your investment to, that they are the right people to take their product or service to market.
In fact, 90% of business angels say that PEOPLE are the deal breaker.
STEP 2: The deal
Understand this: When you stand there in front of an angel investor and pitch your business, you are PROMISING that person that you GENUINELY BELIEVE that you can multiply their money SIGNIFICANTLY if they hand it over to you and your business.
STEP 3: Think about the small things that might put them off:
Mistakes in your business plan.
This is on par with mistakes on a CV… except that you could be asking someone for hundreds of thousands of pounds worth of investment and you can’t be bothered to triple check you spelling and grammar?
Incomplete information, or avoidance of the truth.
Just be honest otherwise it will look worse down the line, when whatever it was that you were hiding or exaggerating comes to the investors attention. Give the investor all of the information you have, don’t leave anything out, that is the least you can do.
Pre-occupation with the technology/ product.
Often founders are not from a business background. They are scientists, engineers, academics, inventors, etc, etc. And there is absolutely nothing wrong with that, as long as you can prove to investors that you, or someone in your management team, has the capability to think as much about your business strategy as you do your product. You need to be able to sell your product after you’ve built it! Remember, people are the most important aspect to a business angel. Surround yourself with advisors that can fill skill gaps and experience gaps in your management team.
Sounds obvious, right? But a lot of entrepreneurs act as if they are entitled to investment, that they know everything, and that nothing can go wrong for them. Very off-putting and very wrong. Something always goes wrong and it is more comforting to an investor if the entrepreneur can accept this and be ready for it.
Also, don’t forget that when you invest in a start-up, you are signing up to at LEAST a three-year relationship with the entrepreneur…. Would you want to commit to a three-year relationship with someone that, frankly, you don’t like?
Keeping them waiting.
Recognise that investors have a lot of other options in terms of what they could do with their money. Do not keep them waiting, they will get bored and give their money to someone else! Make sure that you have everything ready before you start pitching, including legal documents, a full business plan and financials.
A silly company valuation.
Valuing their start-up is something a lot of entrepreneurs get stuck on. Understandably so, because it is extremely difficult to value a start-up business, in comparison to valuing an established business. The best thing to do is to look at what similar businesses, have been valued at, at a similar development stage, in a similar market.
And then think of your company like a cake… An investor wants to purchase a slice of your cake as he believes that your cake has the potential to become more expensive in the future, and then he will be able to sell his slice of the cake and make a profit. He has a £10 note to invest. If you price your cake at £40 he can buy 25% of the cake. He might well decide to invest his £10 for 25%, if your cake is a beautifully decorated, 3-tier wedding cake… he definitely will not if you have a cupcake!
If you would like to speak to someone about potentially pitching your business to Anglia Capital Group, please contact Hannah@angliacapitalgroup.co.uk