Business Angels

WHAT ARE BUSINESS ANGELS?

• Business Angels are men and women who use their own money to buy shares in privately owned companies, i.e. companies not quoted on a stock market. They are an important but still under-utilised source of money for new and growing businesses.
• Business angels invest on their own or as part of a syndicate, and in addition to money they can often if needed bring skills, experience and valuable contacts. They usually invest in industries or sectors that they already know, or can get to know fairly easily.
• They invest in anticipation of making a return that rewards them for the risks that they take, but their other motives include the enjoyment of taking an active part in the entrepreneurial process, and the satisfaction from being part of the success of a good business and the sense of putting something back in.

ARE BUSINESS ANGELS FOR YOU?

• Either individually or through the creation of a syndicate, business angels generally invest between £10,000 and £500,000 in each business.
• They invest in most industry sectors and stages of business development, but especially in the launch and development stages of high potential businesses. Most prefer to invest in companies within an hour of where they live, but investors in technology-based companies tend to be more prepared to travel longer distances.

WHAT BUSINESS ANGELS LOOK FOR

• The expertise and track record of the founders and management
• Competitive edge or unique selling point of the product/service
• The characteristics and growth potential of the market
• Compatibility between the management, business proposal and the business angel's skills and investment preferences
• The financial commitment of the entrepreneur

Alistair Arkley is the managing director of New Century Inns has an impressive history in the brewing industry. Heavily involved in the governance of the North East, he is chairman of the Northern Business Forum, board member of Tees Valley Regeneration and One NorthEast. He was awarded a CBE in 2006.

Let me begin by stressing that we really aren’t ‘angels’ at all--we do not invest for purely philanthropic reasons but because we believe that we can get a return—eventually.

Private investors are, in general, people like me who have had some success in business, have gained some personal wealth and are interested in using their money in a positive way.

Business Angels are at the high risk end of that finance ladder...most investments do lose money and if 25 per cent produce a return you can count yourself as having done well. The art is to ensure that you do everything possible to ensure that you have as good a chance as possible as backing at least some winners.

By and large I believe the best way of achieving that is by working with others through a syndicate or network...in my case I am member of two such organisations...because, as well as enabling you to develop a wider spread and ‘critical mass’ of investments, it provides that crucial benefit of a wider spread of business knowledge and expertise within the syndicate membership

For instance, I have a considerable amount of expertise in the leisure industries. It’s not the same if it’s a different kind of business—say electronics—but there’s a good chance that within the syndicate the expertise in that sector will be there.

It also enables you to have the back-up and administration services you need to ensure that you maximise the chance of investing in potential successes. You can have the professional support which can weed out the non-starters...and it has to be said that’s the vast majority...leaving the syndicate members to concentrate on that relatively small number, probably no more than five to ten per cent, which are worth considering.

I also think it’s important to say here and now to anyone who is considering seeking support through the Business Angel process that generally we aren’t ‘dragons’ and the process is not like ‘Dragon’s Den.’ That confrontational approach might make good television but it really doesn’t make sense if what you are looking to do is establish a long-term relationship with individuals in developing their business ideas.

Where Business Angels can play a particularly important role is where people may not have significant assets and do not have immediate income—but they do have an idea which they believe can become a success if it’s given the chance.

That is, of course, often the case in many of today’s growing business sectors—for example electronics and communications, leading edge medical developments and, of course, the internet.

It’s clearly very difficult—if not impossible—to go to a bank or venture capital company if all you have is an idea...however brilliant it may be. They really are too high up what the British Business Angels Association describes as the ‘Ladder of Finance’

The bottom rung of that ladder is any funds you can invest yourself or gain from friends and family and if, hopefully, you reach the top of the ladder you might eventually move towards a public float or private sale.

It is that immediate stage, after you have pulled together as much as you can from your own resources and friends and family, that so many business ideas find it so difficult to move onto the next rung—and it is there that the Business Angel can provide a help up.

WHAT YOU SHOULD LOOK FOR IN A BUSINESS ANGEL

The company must ensure that the business angel willing to invest in them is right for their company. Before signing an agreement the business must ensure that: 

• The management team and the business angel are compatible and will be able to work together.
• The Business Angel’s skills match the company’s needs

FINDING A BUSINESS ANGEL

The following Business Angel Networks are members of the British Business Angels Association (www.bbaa.org.uk) and have signed up to its code of conduct. They are all based in the UK, and match investors with Businesses from across the UK.