So, you have a great business idea which is just getting it off the ground, but you need finance to move it to the next level. One way to achieve this at an early stage is to seek Angel investment.

Angel investment is a form of equity finance in which high net worth individuals – Angels – look to provide financial backing for start ups and businesses in their early stages in exchange for equity or shares in the business. If you think Angel investment is for you, then you need to be sure that you are comfortable with ceding a stake in your business to a third party.

Once you have decided that you are going to seek Angel investment how do you go about finding a suitable Angel Investor? Here are some things to consider:

• How to find an Angel Investor
• How much will a business Angel invest in my business?
• What is the expected return on investment of Angel Investors?
• How much does Angel investment cost?
• The pros of Angel investment
• The cons of Angel investment

How to find an Angel Investor

Before you start looking for Angel investment you will need to put together a first-rate business plan and a financial model of the next three years of your trading. You should also include monthly cashflow and profit and loss and balance sheet details. Off the back of this you will need to provide a pitch deck.

You will need to fully explain all the assumptions that you have used in your financial forecasting. Remember that people invest in people so make sure you include details of your management team and their past successes in your plan. A funding business plan is an important sales document – you are selling your company to potential Angel Investors – so if you’ve never written one before it’s a good idea to seek professional advice.

Perhaps the easiest way to find an Angel Investor is to approach an independent broker who will have access to its own network of Angel Investors.

It can be difficult to find an individual Angel on your own because they are very private people. The best way to find and approach them is through an Angel Network. Try to use a regional network close to your business. The most efficient way of dealing with an Angel Network is by going through an authorised intermediary who is trusted y that network. If you go direct, they will probably not look at your business plan.

There are a few things you should look for in a potential beyond simply the amount of cash they can bring.

• Find out if they have experience in your industry, particularly in building a start-up. Preferably, they will have knowledge and skill that are similar to your own.
• Make sure that their reputation and their network are good so that they can give you access to potential customers and future Investors.
• They should have realistic expectations for your growth.

There are online resources to help you including the Angel Investment Network and the UK Business Angels Association (UKBAA).

How much will an Angel invest in my business?

Typically, you could realistically achieve finding from around £10,000 up to multi-million-pound sums. Most Angels will invest sums of between £20,000 and £50,000.

Investment can be in one up-front lump sum or accessed in stages according to specific milestones that your business hits such as new product launches or hitting specific sales targets.

What ROI do Angel Investors normally expect?

According to some estimates, Angel Investors will expect in the region of 31-40% return on their investments. This can be expressed by the formula ROI = value of investment/cost of original investment x 100.

Angels are also looking for several other important qualities in a business they are considering investing in. The most important is the potential for a good return on their investment. They will expect to get more than just their original investment back.

They also going to want to see an experienced management team, a sound business plan, a structure that is geared to investment and a viable exit strategy once they have achieved their own goals.

An Angel will be looking for a return on their investment over a period of about 3-8 years.

How much does Angel investment coast?

There is normally an up-front fee of between £500 and £5,000 when using an intermediary to broker a funding deal with an Angel Investor. Once you have successfully won your funding there is also a success fee payment of 5% of the funds you have raised.

The pros

Angel Investors can invest in your business for the long term and may be able to invest in multiple rounds. Once you’ve found an Investor, accessing funds can happen quickly and without the need for complex assessments.

Because you are likely to be at the start up or a very early stage of your business there will be a perceived risk attached to investing in you. Angel Investors are often willing to take on high risk. However, in return they may require a high share of your business.

Not only are Angel Investors a valuable source of finance for your business. They can also be a great source of information and mentoring for your business. Many business Angels are experts in their fields and will be happy to provide your business with advice and support. After all, it is in their interest to see you succeed. And they’re not looking to take over ownership of your company rather they are concerned with using their expertise to help you with the day-to-day running of your business.

The cons

It can take quite a lot of time to find your ideal Angel Investor.

You need to remember that the money you receive from an Angel Investor is not a loan, it’s an investment on their part and you will lose equity shares in your business.

Although Angel Investors are concerned with seeing your business succeed, they will expect a high rate of return in quite a short space of time.

All this means that you will need to be open to external input into the day-to-day running of your business.

For more information on Angel Investors and how to access them call one of our experts today on  0203 327 0567.