Angel investment

While the money helps, angels also offer valuable mentoring, support and knowledge, and access to contacts.

An angel investor is someone who invests their own money in a small business in exchange for a minority stake (usually between 10% and 25%). They tend to be entrepreneurs or people with extensive experience in the business world.

However, angel investment is about more than just money. Angels offer mentoring and support, and businesses that receive investment will generally benefit from the investor’s time, skills, contacts and business knowledge.

Angels take a hands-on approach. 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.

Who’s involved?

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 CoFundLink opens in a new window, a delivery partner of the British Business Bank, provides larger sums of money than syndicates can usually afford.

Expert mentoring

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

Retain control

Angels typically take a 10% to 25% share of your business, which leaves you firmly in control.

Validation

Angel investment can give your business credibility for later rounds of investment (from venture capitalists, for example).

No promise of growth

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

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:

Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)

EISLink opens in a new window and SEISLink opens in a new window give angels generous tax breaks. By making investing less risky for investors, the schemes help businesses grow.

Under EIS, angels cannot take more than a 30% share of a business, which makes sure that entrepreneurs stay in control and incentivised.

Financial Services and Markets Act 2000 (FSMA)

The Financial Conduct Authority (FCA) regulates angel investment. FSMA states that angels should self-certify as a high net worth or sophisticated investor. This means they are suitable to receive business plans and invest in businesses.

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
  • Regions:  All

 

About the finance

  • Purpose of finance: Working capital, product development, entry into new markets, build teams, increase sales
  • Amount available:  Usually £15,000 to £500,000, but large syndicates may offer up to £2m
  • Duration of finance:  Typically 3–8 years
  • Cost of finance:  None
  • Time it can take to get finance: 2–6 months

Ask an expert: Jenny Tooth, angel investor and CEO of UK Business Angels Association

Personal connection

Unlike venture capitalists, angel investors don’t go into weeks of research and analysis. I’ll decide quite quickly whether or not to invest in a business, based on the following:

  • 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?

Passion

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

Honesty

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

Understanding

Do you know how much money you need and when you’re going to need it? Do you know what’s involved in the journey to grow your business?

Proof

Can you provide evidence of your financials, patents, customer loyalty, incorporation and market research?

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.

This infographic shows you the typical journey to securing angel investment.

To learn what steps you need to take to ready your business for angel investment, use this checklist.

“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 CEO, UK Business Angels Association

Other finance options

Click here to visit Corporate Venture Capital
Equity
Corporate Venture Capital is an investment made by a large company into a smaller business, in return for a share of that business.

Corporate Venture Capital

Investors like

An early stage business - no revenue or profit is needed - willing to give up a share of control.

You're looking for

£1m+ of finance within 6-12 months of your application for things like acquisition or research and development.

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Corporate Venture Capital
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
ABOUT Corporate Venture Capital
Purpose of financessss Acquisition, research and development
Amount of finance £1m+, depending on business
Duration of finance 3-5 years
Cost of finance None
Time of finance 6-12 months
About your business
Business stage Any
Annual turnover Depends on the business
Sectors All
Regions All
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Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.

Private Equity

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Mature, growing and profitable business with an annual turnover typically between £10m and £100m.

You're looking for

Finance in the region of £10m to £50m to shake up your business through management buy-outs, acquisition, product development or entry into new markets.

Find out more about Private Equity
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.
ABOUT Private Equity
Purpose of financessss Change in shareholder ownership, management buy-outs, acquisition, product development, entry into new markets
Amount of finance £10m-£50m
Duration of finance 3-5 years
Cost of finance Monitoring and director fees; loan note interest
Time of finance Minimum of 3 months but can take up to a year
About your business
Business stage Mature and growing; profitable
Annual turnover £10m-£100m
Sectors All sectors
Regions All
Click here to visit Overdraft
Debt
Businesses can borrow money on demand up to the limit of their overdraft. Overdrafts can be expensive, but a business will only pay interest on the amount they actually borrow.

Overdraft

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Established businesses with assets and a trading history.

You're looking for

Short-term working capital, quickly.

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Overdraft
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
About your business
Business stage Established with assets and a trading history
Annual turnover Any
Sectors Any
Regions Any

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