Angel investing is the most significant source of investment in start up and early-stage businesses seeking equity to grow their business.
Angel investment differs from venture capital finance which invests in businesses through managed funds, raised with private or public money. The venture capitalist manager invests the money on behalf of the fund which has to be profitable and make a return for the fund’s investors.
Business Angels make their own decisions about investments and engage directly in meeting the entrepreneurs, often seeing them pitch their business. Angel investors often support their investment by taking an active role such as being part of the board or as part of a group with a lead Angel taking this role on their behalf.
There is a regulatory framework for Angel investing that both protects the Angel and the entrepreneurs. Before a company passes their business plan on to a potential Angel investor, they should ensure that the investors have self-certified as either a High Net Worth or Sophisticated Investor, as defined by the FCA under the Financial Services and Markets Act 2000 (FSMA).
In general, individual business Angels will invest anywhere between £10,000 and £500,000 in a single venture depending on the business and the growth needs. However, this can vary according to the disposable wealth of the individual and the opportunity identified.
Angels can also invest as part of a syndicate, pooling their experience and time to add more value and bring more capital to their investment. This means that larger amounts of finance can be raised by investors.
Angels cannot take more than 30% equity in your business as they understand that you will also need to have equity left for future funding rounds. It is not uncommon for there to be 2 or 3 Angel rounds prior to the business taking on larger, institutional money.
The people involved in a business have been shown to be the most significant aspect for Angel Investors when deciding to make an investment. Namely, their experience, skills, drive, and how they come across. The Investor will then of course look carefully at the business itself and the core aspects of the business plan.