Angel investors – a guide for small business

You could have the greatest idea and product in the world but without an initial investment, there is no way your small business will ever get off the ground. Raising seed capital remains one of the most significant pain points for potential small business owners.

There are many options to consider, of course, from begging relatives to taking out small business loans. However, working with your family is rarely a good idea and loans often come with heavy interest. This is where angel investors come in.

What are angel investors?

An angel investor or ‘business angel’ is an individual or group with enough spare money to invest in what they see as opportunities to add to their portfolios. They offer a sum of money for a negotiated share of equity in the company related to your business valuation, and offer not only funding but their expertise and connections. Think Dragon’s Den but less drama.

Angel investors are always looking for businesses that they can help scale quickly through innovation and mentorship. They are also ruthless when it comes to what they choose to invest in, so if you’re pitching you’ll need to come prepared. And also be aware that you’re probably going to have to kiss a few frogs before you find the right angel.

Do I need an angel investor?

Whether or not you need angel investment depends on your business goals. If you are just starting out in the early profitable stages and want to scale fast, it’s a great option, particularly if you are looking for less than £500,000 in funding, as an investor will rarely be prepared to offer any more than that unless you want to essentially give away your company.

You’ll also be working alongside this investor for several years, so make sure you get along with them on a personal level before pulling the trigger.

How to find angel investors

The best way to find angel investors is to start looking into your existing personal and professional network. A referral from a mutual contact can be a great way to get that crucial first introduction. Network with other entrepreneurs in similar circles and industries, and visit plenty of industry events, getting introductions wherever possible.

Remember, they are investing in you and your team as much as in your business, so be personable and spread the word. Sooner or later, the good word should filter through to somebody who matters, and if not there’s always the UKBAA member directory of angel investors.

Once you’ve got an angel in your sights, you’re going to have to pitch, and this is where you’ll either sink or swim.

Pitching to angel investors

It’s not going to be like Dragon’s Den. A pitch is more likely to be a conversation with the potential investor than a high-stakes drama. But there are a few key points expected of you at every pitch meeting.

• Go into the meeting knowing exactly how much money you need and what you plan to spend it on.

• Have a compelling story about how your business began, where you see it going and why you’re looking for investment. It’s the story that will seal the deal.

• Prepare realistic projections and growth strategies that the investor can help you achieve.

• Do your research about your investor and know what you want from them and their portfolio. Why do you think your business will work for them, and what is it about their existing portfolio that speaks to you?

• Have an elevator pitch ready to go at any moment, because at any time you might be in the right place at the right time with the right angel.

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