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
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:
- 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.
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?
Angels offer strategic, financial and sector advice to help achieve growth.
Angels typically take a 10-25% share of a business, which leaves the entrepreneur firmly in control.
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 growthThere is no guarantee that your business will achieve growth as a result of the investment and your Angel’s involvement.
About your business
|Business stage||Generally early stage, pre-revenue or pre-profit|
|Annual turnover||Less than £5m|
|Sectors||All sectors, but especially suitable for companies with a scalable business proposition|
About Angel Investment
|Key benefit||A passionate and knowledgeable partner, committed to your business success|
|Purpose of finance||Working capital, product development, entry into new markets, build teams, increase sales|
|Amount of finance||Usually £15k-£500k, but large Syndicates may offer up to £2m|
|Duration of finance||Typically 3-8 years|
|Cost of finance||None|
|Time to finance||2-6 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:
- 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?
Do you have the drive to see your plans through? Are you committed to your business?
Are you being transparent with me about your story and your numbers?
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?
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|