By Andy Clegg, Corporate Finance Director, KPMG in the UK
For many small businesses securing funding can be the vital in order to move to that next stage of growth. Traditionally, small businesses have tended to turn to their local bank manager when it came to looking for extra money, but over the last few years, it has been widely reported that funding has not been as readily available via that route, leading some small businesses to start looking at new and less familiar routes to obtaining investment.
To my mind, this is no bad thing.
Many small businesses owners will be unfamiliar with Business Angels, but think of them as Dragons …. only friendlier! An Angel investor makes use of their personal disposable finance to invest in your business in return for shares and usually want to see a return on their investment over 3-8 years. An angel can invest anywhere from £5,000 – £150,000 depending on the business and the growth needs.
There are an estimated 20,000 angels out there and the industry is regulated. Angel investing is a significant source of investment in early stage businesses seeking equity to grow their business. Whilst the market is relatively difficult to calculate since many Angels are investing privately, an estimated £850m per annum is invested by angels annually in the UK. This is more than 2.5 times the amount of Venture Capital invested in early stage small businesses annually.
So exactly what should businesses looking to attract an Angel investor be doing? Well, it’s very much like we’ve all seen on TV.
Like so much in business, the number one draw will always be the people. Experienced, skilled and passionate people will always be investable, so make sure you come across as well researched and well organised and where possible, highlight the skills that you want on board from your Angel to take the business to the next level. Next the focus will be on the project; does it challenge the market or is it likely to be disruptive or offer good intellectual property? Finally as business people they will always been interested in the deal.
For many small businesses the idea of giving away shares or equity in the business won’t appeal. But for innovative small businesses with high growth potential that are looking for a cash injection, bringing an experienced business person in to the business to either take an active role on the board or purely supporting the business, could be the win-win situation that all parties are looking for.
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