Raising Growth Capital through Business Angels
The next in our current series of blogs looks
at what has always been a key issue for small businesses in particular, that is
raising capital for growing SME’S.
will always come a time, particularly for a successful business, that generated
capital available to continue to grow the business becomes insufficient to meet
the business needs. Sometimes this can be solved through mainstream borrowing
through a bank or similar funding institution.
increasingly, especially for long term growth, an owner will look for a
potential investor to provide the necessary capital. Such investors are often
referred to as “business angels”
An angel investor is usually an affluent individual or
group of individuals who provide capital for a business start-up or an early
stage growing business, usually in exchange for convertible debt or ownership
Angel investing is one
of the most significant sources of investment, and whilst the market is difficult
to calculate since many business angels are investing privately, an estimated
£1.5bn per annum is invested by angels annually in the UK.
differs from venture capital finance, which invests in businesses through
managed funds raised with private or public money. The venture capitalist
manager invests the money on behalf of the fund which has to be profitable and
make a return for the fund’s investors. Due to high costs of administration and
the need to be very selective to ensure a return on the fund, VC funds are more
risk averse and thus make fewer small investments in smaller growing
businesses, hence the growth in business angels.
individual business angels will invest anywhere between £10,000 and £500,000 in
a single venture, depending on the business and the growth needs. Often Angels will
also invest as part of a syndicate, pooling their experience and time to add
more value and bring more capital to their investment. This means that larger
amounts of funding can be raised if required.
Angels usually invest
under formal regulated EIS/SEIS schemes in order to achieve maximum tax relief
on their expected investment returns, and under those rules they cannot take
more than 30% equity in your business. Crucially however you need to be
motivated to grow your business and increase returns for both you and the Angel
How Angel Investors
look at a business and assess its suitability for investment is a huge subject
which needs to be covered in a separate blog. Generally, the key initial aspect
is the people involved in the business, their experience, skills, drive, and
how they present themselves that is most important for Angel Investors. They
will then of course look in great depth at the business itself and the business
now an increasing number of types of Angel Investor. Some are entrepreneurial,
others corporate with a different vision of growth, some focus on specific
sectors such as high–tech, while others still are professional Angels, often
professionally employed as lawyers, accountants or advisers, who may build
groups of businesses and have numerous investments.
To these can also be added the most recent
phenomenon, Crowdfunding, which must be the subject of a separate blog. For any
business owner, it’s clearly important to choose the best Angel Investor to
suit your own circumstances, for which as always, some expert professional
guidance will be invaluable.
16 May 2019