Angel Investors are high net worth individuals who invest on their own, or as part of a syndicate, in high growth businesses.
In addition to money, an Angel Investor often make their own skills, experience and contacts available to the company. This has been immortalised by the program The Dragons Den where people pitch for money and also additional Dragons expertise.
Angel Investors rarely have a connection with the company before they invest but often have experience in the industry or sector. Therefore, the commitment of Business Angels Investors is often very strong.
Why Angel Investors invest their money
The majority of Angel Investors make investments for financial reasons. However, there are other motives for investment including taking an active part in the entrepreneurial process, enjoyment from being part of the success of a good investment and the sense of putting something back.
Angel Investors are an important but still under-utilised 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 linking up with others to form a syndicate. Some Angels invest more frequently. There are approximately 18,000 angel investors across the UK, and around £800m (about $1bn) is invested by Angels annually.
Busting the Angel Investor Myth
It is often thought that you have to be very wealthy to be an Angel Investor, but in fact, many individuals invest from around £10,000 (about $13,000) in any one company. However, some Angels invest much more and money is also tied up for potentially many years.
Given that, an Angel Investor would generally invest between £10k-£750k (between $13k-$1m) in capital funding but are usually in return for shares. So, most Angel investors will take a portfolio approach and invest in more than one company to give a spread of opportunities to diversify risk.
Angels often invest as part of a group called a syndicate, organised through personal contacts or one of the many Angel Networks. One investor will generally act as a Lead Investor, sometimes referred to as the ‘archangel’, and will act on behalf of the syndicate.
The Value of Angel Investors
Apart from just investing money, Business Angel Investors can also bring valuable know-how, contacts and experience to the businesses in which they invest. Investments are made across most industry sectors and stages of business development, but especially in early and expansion-stage businesses.
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’s the Down Side?
With Angel Investors having numerous investments it means that they are not always available when you need or want them. Angels may also appear happy, wonderful people but once they are in a company some of them take on a different persona.
They might not be so happy and can sometimes say the wrong thing making you feel embarrassed and unloved. Also, an Angel Investor can often require a substantial share allocation and in certain cases become a majority share owner which also has its challenges.
An Angel Investor may not see the same as you even when you explain it and could be dismissive suggesting they have seen it all before.
Well Worth Considering
Getting outside investment is a gamble but with the right mindset and business plan and a little rapport they can also be hugely valuable. It is worth considering everything from all different angles before giving away large share 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 have taken time to understand your proposition at a granular level!