Business angels fall under the category of equity finance. They form the most popular form of equity finance and can truly do wonders for your business venture.
When it comes to starting up your own business the most important thing to sort out before anything else is your start-up business finance. You will need funding for your business before you even start trading. No matter what type of business you are planning to go into, whether you are selling a product or a service you will need to secure finance before you open your business up for trading.
Funding for your business can come in many forms, ensuring that you choose the one that is best for your business is the tricky part so here’s some helpful advice. Most new business fail due to incorrect funding with many making the mistake of turning to their bank for finance only to find out that the bank refuses to give them the capital they need and with many more finding out the hard way that they can’t keep up with repayments, which ends with them losing not only their business venture but typically their house that they thought was a good idea at the time to use as an asset to their bank loan.
You’re probably left thinking now ‘what am I going to do?’ well lucky for you there are people out their waiting to give you money for your business start-up funding that you, wait for it, don’t have to pay back! Who are these kind people I hear you cry, business angels of course. A business angel is a high net worth, wealthy individual who has already made their fortune through other business ventures. They are often retired individuals who invest their skills as well as capital into new and developing businesses. Business angels invest money into your business that you never have to pay back in return for a growth share of your business.
Business angels typically seek investments that will give them ten times more back than their original investment within five years of your business being active. They invest their own funds and usually invest between £10,000 and £750,000.
As well as cash, business angels can offer years of experience in the business world. Although some prefer to become a sleeping partner, others will get actively involved in your business from writing a marketing plan to taking the company through a flotation on the stock market.
Business angels will invest across most industry sectors and stages of business development. They tend to generally look for the following within your business as a basis of whether to go ahead with an investment:
• The expertise and track record of the management
• Your businesses competitive edge or unique selling point
• The characteristics and growth potential of the market
• Compatibility between the management, business proposal and their skills and investment preferences
If you do decide to choose the help of a business angel within your business start-up funding then you must ensure that the angel you choose is right for your business needs. You should choose a business angel that is best suited to the needs of your business.
It is also important to keep in mind that business angels tend to mainly invest locally and within a specialised area.
By: Helen Cox