Last post: Sep 2, 2019
You may consider seeking external investment in your business for any of a wide range of reasons. Of course, the prospective monetary benefit is the most obvious one, with cash injections often instrumental in the development and growth of firms in all manner of sectors. There are also certain strong non-monetary advantages that investors can often bring, such as relevant expertise and professional connections. Whatever your reasons for looking for an investor from outside your company, it will doubtless be helpful for you as an entrepreneur to know what kind of investors are out there, as well as how you can boost your business’s attractiveness to the right investors for you.
Business angels vs venture capitalists
When business owners initially investigate their options for investment from someone not currently involved in or connected to their firm, they often think of business angels, otherwise sometimes known as angel investors. These are high net worth individuals who invest their personal disposable income into businesses like yours, normally taking shares – an equity stake – in the business in return for the equity finance (funds) that they provide.
However, angel investment can also frequently be confused with venture capital finance, even though it differs in various key ways. Not only is venture capital finance associated with much larger sums than angel investment, but the investment also takes place through managed funds, raised with private or public money. A venture capitalist manager makes investment decisions on behalf of the fund, which has to be profitable and make a return for the fund's investors.
Business angels, by contrast, make their own decisions as to which businesses to invest in, and often engage directly with entrepreneurs by meeting them in person. They apply their own signature to the legal investment documentation, and then continue to follow the deal, such as by taking an active role on the board of the company or providing other active support to the business. Some angels, however, take a more passive involvement as part of a group represented by a single lead angel.
While the amount of investment that you can expect from a business angel will depend on your business, its growth requirements and other factors as we will detail below, between £10,000 and £500,000 is typical for a single venture by an individual business angel. However, larger amounts of £1.5 million or more may be possible for your business when multiple angels join forces.
Is my business a candidate for investment right now?
While pre-revenue, pre-profit and profit-generating businesses are all possible candidates for angel investment, the former two are understandably often regarded by angels as representing a higher risk, in terms of their chances of getting a return on their investment.
If, then, your business has not yet begun generating profit or revenue, it'll help greatly to be able to show 'proof of concept' or have a protected idea, such as relevant intellectual property. Science-based firms, for example, are often at the pre-revenue stage when they look for angel investment.
It is much less likely, however, that your business will be able to attract angel finance if it has not yet advanced past the ideas stage. In this situation, you'll probably have more luck turning to family and friends for support, and perhaps grants and accelerators – the latter programmes that provide investment, training, network access and support to businesses at this delicate early stage.
How can I boost my chances of securing investment?
As we touched on above, to attract an angel investor as a pre-revenue business, a proven concept is necessary. Are customers already showing an interest in your business, for instance, or do you have proof that your product 'works'? Have you built a defensible position for your company, such as through the use of copyright or the protection of your brand?
Whatever stage your business has reached, it's important to have a clear business plan prepared, so that potential investors can see you have done your homework into the market for your products or services. As for how you might find investors, you may start by simply networking with people you already know, asking family and friends whether they know of any business investors. You might then move onto checking out funding websites or joining your local chamber of commerce.
Even making all of the right steps to put yourself in front of investors, however, will ultimately count for little if your business doesn't tick enough boxes to make it an attractive investment proposition.
Does your business's core product or service genuinely solve a problem in the market or society? Is your business likely to be disruptive, making a real impact in the marketplace or establishing a distinctive niche? If your business isn't yet generating revenue or profit, how does it propose to do so? How big is your firm's market, do you have a scalable business model, and how much market share do you have a realistic chance of capturing?
These are all questions that you will need to ask yourself when you are seeking investment in your business. However, it's also important to recognise that you are likely to have a lot of options for the funding of your company in its early stages, extending well beyond angel investment.
Why not browse our range of business finance solutions here at Choice Business Loans, for example, or contact our friendly customer service team for more guidance on how we can help your firm to keep the cash flowing well into 2020 and beyond?
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