Angel Investment

An Angel Investor is an individual who invests their own money in a small business that wants to grow. They offer mentoring and support to business owners, as well as money.

“Anything can happen to a business along its journey. So, making money isn’t the primary motivation for Angels – or they just wouldn’t do it. It’s as much about being a part of the entrepreneurial journey and seeing the success of a business that you backed.”

Jenny Tooth Angel Investor and CEO @ UKBAA

Killer Stat   Angels invest £1.5bn in UK businesses every year. That’s three times the amount invested by Venture Capitalists.

Key requirement

You need to be clear about how you’re going to grow your business

Key benefit

You will get a close relationship with an experienced mentor, who will champion your business in their networks

Key consideration

You need to make sure that you and your Angel have the same short and long-term goals for the business

What is Angel Investment?

Angels are High Net Worth Individuals who invest their own money into businesses in exchange for a minority stake (usually between 10-25%). They tend to be entrepreneurs themselves or have extensive experience in the business world.

Angel Investing is about more than just money. Businesses will also benefit from their Angel’s time, skills, contacts and business knowledge.

Angels get hands-on with a business. They will spend lots of time with the entrepreneur and help to push the business forward. It’s crucial that the Angel and the entrepreneur have a strong relationship, as they’ll typically spend at least five years working together closely.

Angel Investment regulations control the way businesses seek investment and make sure the investor is genuine and certified. Here are the two main regulations you should be aware of:

 

  1. EIS and SEIS
    The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS), for start-ups gives generous tax breaks to Angels. The schemes help businesses grow by making investing less risky for investors.
     
    Under EIS, Angels cannot take more than a 30% share of a business, which makes sure that entrepreneurs stay in control and incentivised.

 

  1. FSMA
    The Financial Conduct Authority (FCA) regulates Angel Investing. The Financial Services and Markets Act 2000 (FSMA), states that Angels should self-certify as a High Net Worth or a Sophisticated Investor. This means that they are suitable to receive business plans and invest in businesses.

 

Who's involved with Angel Investment?

  • Syndicate Angels can invest alone, but usually they invest together as a ‘Syndicate’. This is when a number of Angels work together to pool their money and experience.
  • Lead Angel When a Syndicate invests in a business, the Lead Angel is the person who co-ordinates the investment deal. The Lead Angel will also have the most contact with the business after the deal. They can act as an adviser or even as a Non-Executive Director.

The Angel CoFund, a delivery partner of the British Business Bank, provides larger sums of money than Syndicates can usually afford.

“An Angel should be a trusted point of contact. They could be just a sounding board or even serve as a non-executive director. They’ll guide the entrepreneur and help steer the business towards growth and success.”

Rod Beer Strategic Relations Director @ UKBAA

What are the benefits of Angel Investment?

Expert mentoring

Angels offer strategic, financial and sector advice to help achieve growth.

Retain control

Angels typically take a 10-25% share of a business, which leaves the entrepreneur firmly in control.

Validation

Angel Investment can give a business credibility for later rounds of investment (from VCs for example).

What are the risks of Angel Investment?

Equity and growth

There is no guarantee that your business will achieve growth as a result of the investment and your Angel’s involvement.

About your business

Business stageGenerally early stage, pre-revenue or pre-profit
Annual turnover Less than £5m
SectorsAll sectors, but especially suitable for companies with a scalable business proposition
Regions All regions

About Angel Investment

Key benefitA passionate and knowledgeable partner, committed to your business success
Purpose of financeWorking capital, product development, entry into new markets, build teams, increase sales
Amount of financeUsually £15k-£500k, but large Syndicates may offer up to £2m
Duration of financeTypically 3-8 years
Cost of financeNone
Time to finance2-6 months

Jenny Tooth, Angel Investor and CEO @ UKBAA

 

Unlike Venture Capitalists, Angels don’t go into weeks of research and analysis. I will decide quite quickly whether or not to invest in a business, based on:

 

  1. Personal connection
    Do we get on? Are we going to be able to spend the next eight years together? Do you have a story I can engage with? Can you accept my guidance?

 

  1. Passion
    Do you have the drive to see your plans through? Are you committed to your business?

 

  1. Honesty
    Are you being transparent with me about your story and your numbers?

 

  1. Understanding
    Do you know how much money you need and when you’re going to need it? Do you know what is involved in your growth journey?

 

  1. Proof
    Can you prove your financials, patents, customer loyalty, incorporation, market research?

 

 

Considerations for Angel Investment

  • Equity You're giving away a small share of your business, so make sure you understand the terms and are comfortable about what you're getting in return
  • Long-term picture You may need to ask for some more money later so it's important to be transparent about how many funding rounds you might need
  • EIS eligibility If you're looking at EIS tax breaks, make sure you are eligible before you speak to an Angel
  • Time Tracking down the right Angel or Angel Syndicate for you and your business can take time. Consider all of your options

How do you apply for Angel Investment?

  • Angel Investment doesn’t happen overnight, so prepare to network and do your research. Take time to prepare your pitch.
  • It usually takes about six months from your first approach to the Angel to get finance.

“At the start of the journey, when you are pitching for investment, the Angel doesn’t know you yet, so you have to captivate them and capture their interest to want to know more. Your story of why you set up this business is so important in your first approach to an Angel.”

Rod Beer Strategic Relations Director @ UKBAA

What's your next step?

In partnership with, UKBAA

Other finance options

Private Equity
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
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IPO
Equity
An IPO (or Initial Public Offering) is when a business sells shares via the public markets, such as the Main Market or AIM operated by the London Stock Exchange.
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Start Up Loan
Debt
A government-backed loan that helps people who are starting their own business.
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