It can be hard to scale your small business without external investment, advice and the right contacts – which can all come from an angel investor.
Angel investment is a form of equity finance. Business angels are wealthy, entrepreneurial people who invest their own money into start-ups or scalable early-stage enterprises in return for a share of the business.
Business angels want your business to succeed, because this will bring them the returns they seek. So, how do you find an angel investor?
1. Decide whether angel investment is right for you…
If you need £10,000-£750,000 to grow your small business and you’re willing to give up some ownership and control, angel investment can be ideal. Usually, investments worth more than £250,000 come via angel investor syndicates.
The angel(s) expect to make a 20%-30% return over the investment term (three to eight years). Your business, you and your fellow owners/management team must impress an angel investor and fill them with confidence that they’ll get the returns they want. Other funding options may better suit your circumstances, needs and ambitions. And you might not want to concede any ownership or control of your business.
Action point: Use our interactive tool to identify the right financing options for your business.
2. Know why you need the investment and how you’ll use it…
You should have a sound business development strategy, one that will deliver the growth required to scale your business and keep an angel investor happy.
Angel investors usually have plenty of experience. They’re normally serial investors and often successful business people in their own right. They’ll want to know exactly what you plan to do with their money. You might need to develop new products/services, increase your output/capacity, target new markets, improve your brand, buy new equipment, take on more staff or move to new premises. However you invest the money, it must bring about significant business growth.
Action point: Learn how to develop a sales strategy for growth.
3 .Get your business “investment ready”…
Long before you approach an angel investor, you must get your business in good shape by minimising your costs and maximising your sales and profit. An investor will expect to see evidence of healthy cash flow and a business with growing sales, potential new opportunities and a bright future.
There must be clear signs that your business is worthy of investment. Your systems should already be functioning well, your brand should be second to none. Address any issues likely to put off an investor.
Action point: Read a guide to controlling business costs.
4. Update your business plan…
If your pitch goes well, an angel investor will want to see clear proof that you know your business and market inside out, that your business is well managed, your figures add up and there’s a clear opportunity for growth. They’ll also want to have confidence in your management team.
Having a sound business plan is essential, because it should detail all of the above and more. It should show how much investment your business needs, how it will be used and how it will fund growth. Your executive summary must pack a powerful punch, but the rest of your business plan must stand up to closer scrutiny.
Action point: Find out how to update your business plan.
5. Look for angels in the right places…
If someone within your existing professional network doesn’t know (or know of) a potential angel investor, you could visit the UK Business Angels Association (UKBAA) website, which features a member directory that is “the UK’s single largest source of early-stage investors, advisors and intermediaries”. Before approaching a member, the UKBAA recommends carrying out thorough research on a potential investor and tailoring your approach accordingly.
6. Perfect your pitch…
Once you reach out to potential angel investors, you’ll need to meet them to pitch your investment opportunity. You may even meet a potential investor unexpectedly, so practice your pitch until it’s perfect.
Aim to make your pitch within two minutes. It should explain what your business sells, who buys it and what makes your business special and successful. Know your key numbers (ie revenue, net/gross profit, costs, unit sales, number of customers, etc) and be able to evidence any claims you make.
Explain how much money your business needs, why and what results this will bring – as well as how much of the business you’ll give in return for the investment. Be prepared for supplementary questions (expect some). You must engage a potential angel investor and give them a compelling reason to want to find out more about the opportunity you’re offering. Why would someone want to invest their money in your business?
Action point: Get tips on how to improve your pitching skills.