Business angels are high net worth individuals; they form another way of gaining finance for businesses. Business angels form part of what is known as equity finance. This equity finance is money that is invested into a business that doesn’t need to be repaid. Business angels are one of the most popular forms of equity finance and in recent years more and more people are realising the benefits of using the help of a business angel.
Business angels are established entrepreneurs who have already built up their own business. They are typically men over the age of 35 but there are no strict guidelines as to who can and cannot become a business angel. The majority of these business angels make investments for financial reasons; however in many cases there are often other factors as to why business angels wish to make a contribution to a business. These reasons include things such as they wish to take part in the entrepreneurial process and to have the enjoyment of being part of a successful investment.
It has been estimated that business angels invest roughly £300 million every year into established and start-up businesses. It is also safe to say that the majority of these investments happen at the start-up stage of business rather than later on in business. Typically, Business Angels invest between £10,000 and £750,000 in an investment. Where larger amounts are invested in a business, this may be as part of a syndicate organised through personal contacts or a Business Angel Network.
When it comes to the type of business that business angels invest in it should be noted that business angels invest across most industry sectors and stages of business development; however many business angels especially invest in early and expansion stage businesses. Most business angels prefer to invest in companies within 100 miles of where they live or work. Investors in technology companies tend to be more prepared to travel longer distances. One thing that is certain is that business angels rarely have a connection with a company before they invest but they will often have experience of the industry sector that they will be getting involved with.
If you are either a start-up business who needs start-up finance or you are an established business who needs extra finance for a specific purpose then a business angel could be just what you are looking for. A business angel can bring not only money to a business but by using the help of a business angel you are also gaining help in the form of experience, contacts and additional skills to a company.
Not all businesses are often able to gain the help of a business angel. Your business/company has to have a decent history and you need to prove that you will be able to establish yourself. There are certain aspects that business angels will look at within your business to determine whether you are eligible to gain the help of a business angel. These aspects are things such as:
• The expertise and track record of the business founders and management team
• The competitive edge or unique selling point of the company
• The characteristics and growth potential of the market your business is in
• Compatibility between the management, business proposal and the business angel’s skills and investment preferences
• The financial commitment of the entrepreneur
If you are interested in gaining the help of a business angel it is important that you get in touch with a financial company who will be able to put you in touch with a business angel who will be able to possibly help your business.
By: Helen Cox
Posts Tagged High Net Worth Individuals
Private equity fund is a pooled investment from various private investors. Usually, investors bring along their funds and invest directly on private companies or business ventures or at other times, decide on buyout of public companies to facilitate a removal of a public equity.
The funds pooled together for a private equity fund is commonly secured from retail or institutional investors. The collected funds are then used to fund fresh business ideas, new business or enterprise technologies, expand working capital of an existing company, make further asset acquisitions and the like.
A person investing in a private equity fund is usually someone capable of committing large sums of money for long periods of time. As it is, private equity investments require long holding periods to facilitate a turnaround for a distressed company.
Typically, most private equity funds are structures as limited partnerships. Usually, the setup would require that the partnership be supported by a general partner who raises capital from cash-rich investors like pension plan and insurance companies, colleges and universities, foundations or high net worth individuals. These investors are identified as limited partners in the equity fund.
In this setup, it is normal that various components would first be agreed upon to establish the stake, claim and right of a limited partner. First of all, the term of the partnership is determined. On an average, this usually spans for ten years.
Secondly, management fees are usually settled in the case of a private equity firm’s decision to use the fund as an investment for expansion or further wealth generation. In this case, the management fee is used to pay the fund manager or fund generator.
Thirdly, as a matter of performance incentive (so as to increase the income-generation of the partnership, which is why partners invested in the first place), a carried interest is paid to the private equity fund’s management company. Here, a share of the profits of the fund’s investment is used.
Since it is expected that the private equity fund would later yield into profit, at the onset, it must be settled upon that part of the transfer of an interest must be secured to the fund. Since private equity funds cannot be openly traded, usually, they may be transferred to another investor amongst the involved partners.
It is most crucial during the legal structuring of the partnership, that the chosen fund manager be given enough power and discretion to conduct investments and control the affairs of the pooled fund. In this way, no influence by any limited partner may affect any investment option. Of course the fund manager would always have discussed restrictions, limitations and control which cancel out possibility of mismanagement of funds. In the end, it is important that restrictions on the General Partner be set.
It may be perplexing how some business investors would decide on investing their money on a high-cost, long-bond, long-pay of Return of Investment type of investment. However, since the 1970s, there has been a growing trend in the United States for this kind of setup, as apart from fostering business relations and strengthening existing companies, it has opened opportunities for private investors to obtain rights to huge public companies they cannot acquire individually.
By: Shawn Jacobs