Finance | Nov 22

Angel investment: are you investment ready?

Finance | Nov 22

Angel investment is the wild west of the financial world for businesses. It’s fast paced and can result in immediate and significant change. But how do you know if your business is ready for it?

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Searching for investment is often a necessary evil for many SMEs. No one wants to give away a percentage of their business, but it is usually the catalyst for early-stage growth. British Business Bank estimates that about 41% of SMEs use some type of non-government funding.

One of the options available to SMEs when looking for funding is angel investment. This is when a high-net-worth individual invests in early-stage companies in exchange for equity. The appeal of this approach over others is that they typically provide funding as well as mentorship and their expertise as a successful entrepreneur.

Alex Toft, Head of angel network Minerva, will be on the investment panel at the upcoming Help to Grow: Management Alumni national conference in London on Thursday 23 November. Minerva connects its network of over 100 active angel investors with SMEs across the UK seeking funding.

Two immediate challenges business leaders face when searching for funding from angel investors are where to find them, and how to ensure their business is investment ready. Toft explains how Minerva helps SMEs to solve these problems.

‘Most business leaders don’t realise how much time the process is going to take. Searching for funding is like a full-time job. Gathering all the documents and searching for the right investor can be extremely time-consuming. A lot of people speak about being investment ready but it’s largely a myth. Business leaders need to be aware of what will be expected of them.

Alex Toft
CEO, Minerva

‘Since 2010, Minerva has found funding for over 130 companies and invested just under £100m. We’ve done this by working on our network of investors and matching them with the right businesses. We run workshops to help SMEs get pitch-ready and then get them in front of investors. We also send some of our SMEs to Venture Fest each year, giving them an opportunity to get in front of investors and an audience.’

The benefits of angel investment

The main difference between angel investment and other forms of investment is that angel investors are typically the sole investor. There are no limitations on how much they invest and when they make a decision. And with this, they bring with them something Toft calls experience capital.

‘It’s well known that if you get the right experience around an early start-up, the chance of success dramatically increases. A more seasoned businessman will know more of the pitfalls. They have a black book of contacts to keep you well-connected. But perhaps most importantly they validate what you’re doing right as an SME and tell you what you’re doing wrong. You know they’re going to commit to you as well because your success directly impacts their wallet. This is called experience capital.’

Kiss a lot of ugly frogs

With other forms of investment, like venture capitalists or private equity firms, firms typically ask you a series of questions and then go away for several months and present to an investment committee before coming to a decision. However, with an angel investor, it’s going to be faster paced.

‘Angel investors will usually accept a higher level of risk but there will always be a document demand. They will want financial reports, business plans, a cap table, and any other relevant data. You will then need to convince them as to why your business is going to be successful, and you might only get one chance.

‘Preparing a data room [a secure digital space where all these documents sit] and a pitch is time intensive and you’re not always guaranteed to be in front of someone who is going to take you seriously, essentially wasting your time. You may have to jump through a lot of hoops and kiss a lot of ugly frogs before you find your prince charming. You need to be prepared to play the game.’

The process of seeking angel investment can be an intense, exhausting process but one that can yield results fast. Minerva began working with a business who started putting together a data room and presentation in June 2023 and was able to exit in September in a buyout. While the speed of this deal is unusual, it does show one of the upsides to angel investors.

Alex Toft was part of an expert finance and investment panel at the Help to Grow: Management Alumni national event. Watch the finance and investment panel via the Help to Grow: Management YouTube channel.

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