Business angels are individuals who make investments in high-growth potential businesses in exchange for equity. This often comes in the form of purchasing shares in the company. Angels are often sought out by growing companies in order for them to fund expansion, be that through product development, acquisition of another business or to fund capital expenditure.
Business angels are normally entrepreneurs or seasoned investors who have already had experience growing a business either as an investor or from within. They often play mentor-type roles, helping the founder and management team up skill which will help scale the business.
Additionally, business angels will have crucial business links, which can help a business grow through networking.
The amount of funding you might receive depends on how much you want, what stage your business is at, your growth prospects and your current business value.
Sometimes business angels will club together to invest a larger amount of money. This is called a business angel syndicate, this is better for a business looking for a larger investment.
Typical Investment Size: £5,000 - £500,000 (I) £50,000 - £2m (S) I = Individual S = Syndicate
Stake: Typically, less than 30%
Involvement Timeframe: 7-10 years
Can be a cheap form of finance. Many angels don’t expect dividend returns, but rather a capital gain.
Angels will be ambassadors for your business and will often offer business support including help with introductions through the networking effect.
Provides confidence in your product which can help with gaining additional funding from the bank.
Reasonably easy to set up (compared to other investments through venture capital funds or crowdfunding)
Dilutes the founder’s ownership of the business.
Convertible arrangements, which are loans which can be converted into equity further down the line, may require interest payments.
There is no guarantee that you will get on with your investor, which could result in a clash of opinions.
This document is intended to be an aide-mémoire to help you consider different forms of finance and which ones might be appropriate for your business; it is not a comprehensive guide to all forms of finance. There could be different tax and legal implications associated with different forms of finance. Professional tax and legal advice should be sought to prepare for these different forms of finance.