Considering around two-thirds of small businesses are still having problems finding funding, business angels are almost as hard to find as their celestial counterparts.
Except they’re not. The UK is teeming with business angels, angel networks, early growth funds and intermediaries, all of whom are eager to put money – much of it their own – into innovative high-growth businesses. Once you’ve found them, it’s down to your business plan, concept/product, management team or all three if you are to secure the funding you seek.
Business angels are private investors willing to plough small amounts either individually, as part of a network or syndicate, or alongside traditional venture capitalists. With the ‘equity gap’ (a term the government uses to define the £25,000 to £3m funding required by smaller companies that often fall below the radar of traditional VCs) still in evidence, business angels provide manna from heaven for the engine room of the UK economy.
As Nigel Griffiths, former minister for small firms has said: “Business angel investment is critical to the success of many SMEs, and it is growing in impact.”
Where to find them
The prime source of business angels in the UK is the British Business Angels Association (BBAA). Its primary role is to promote angel investment, with a focus on the early stage investment market. The group also includes around 24 business angel networks (BANs) and a number of early stage capital funds and professional service providers. And just recently the BBAA announced a new membership category for individual investors and small syndicates.
LINC Scotland is the national membership organisation for the business angel community in Scotland, and comprises of angels operating individually, groups or syndicates to provide finance for Scottish companies.
Local knowledge
The BBAA can direct you to angel networks, syndicates and early growth funds. Many of these are regionally-based, working with local angels to match funding alongside co-investors, and can be found on the BBAA website. Examples include:
Northwest Business Angels, founded in 1992, is one of the UK’s longest established business angel networks. A founder member of BBAA, it has raised over £20m for more than 250 promising companies in the north west with the amounts ranging from £2,500 to £500,000.
The Thames Valley Investment Network (TVIN), launched in March 2003, links investors to companies seeking funding of up to £1m and is managed by Oxford Innovation and sponsored by the Thames Valley Economic Partnership, the South East England Development Agency and Business Link. Since 2003 TVIN has raised finance for 21 companies, investing a total of £4.1m.
For Scottish entrepreneurs Archangel is a good bet. It was formed in 1992 when a group of Edinburgh-based entrepreneurs and investors joined forces to help fledgling companies source equity-based finance and offer hands-on experience. It was one of the first business angel groups to be formed in Scotland and has now provided in excess of £55m equity funding in around 60 early stage companies and in the last three years has been investing at a rate of around £10m a year.
The Scottish Co-investment Fund (SCF) is a £20m equity investment fund set up by Scottish Enterprise to invest from £10,000 to £500,000 in early stage companies operating between the £20,000 and £1m mark. The preferred level of investment is between £250,000 and £500,000 but they do invest as little as £50,000 and as much as £2m.
London Business Angels (LBA) has invested in over 175 companies since 2000, amounting to over £35m. LBA provides investment for promising early stage companies, generally investing between £100,000 and £1m. It also launched a £300,000 EIS Roundtable Fund in 2010, to help companies secure funding and investors build a diverse portfolio.
Though not listed on the BBAA, The Viking Fund provides finance for start-ups and fast-growth technology-based businesses in Yorkshire and the Humber region, with investments typically of £25,000 to £75,000 in early-stage businesses, matching the investment made by business angels and private investors. In three years, Viking Fund has made 48 investments in 23 companies, totalling £3.4m plus an additional £4.6m in match funding.
And Oxford Innovation Opportunity Network (OION, affectionately referred to as Onion) is a technology business angel network, operated by Oxford Innovation. It has raised £19m for 90 companies over the last five years.
A common factor in the success of these regionally-based networks is that private investors tend to prefer to invest in companies within one hour of their home address. “Region is key at the smaller end,” according to Mike Weaver, chief executive of Beer & Partners chief, a private regional business angel network, and one of the best known in the UK. “People want to invest in an area they live in – it’s important to them and to you. If they have local contacts and local knowledge, they know who’s around, including accountants and other local investors. However, at the top end, there are a number of investors who don’t care where the business is – it’s about sector.”
The prevalence of syndicates in angel networks can provide benefits for both investor and investee: a larger number of investors can deal with smaller amounts of cash (£25,000 is a common syndicate starter), and therefore risk. Additionally, the investee only has to deal with one or two appointed ‘leading investors’, generally chosen as the most appropriate for the sector and the ‘best match’.
Regional networks also give you access to a fundamental part of any angel investment: presentation events. Most networks have several events per year, where a small number of business can pitch to private investors.