Venture capital on a smaller scale
A business angel will want to make a smaller investment than a venture capitalist and will take a more active role in your business.
If you're a controlling person who wants a business to behave exactly as you want it to, then you don't want a business angel. You might not want anyone who's going to take a significant stake in your organisation as they'll have some say in how things are done.
Not everybody feels this way, though. Judith Clegg, formerly of the senior management at Pret-a-Manger and a founding director of online website builder Moonfruit, has used business angel funding and speaks highly of it. "The best angels act as a great mentor for the management team because usually they have been very successful in business in their own right," she says. "They can be invaluable for finding and picking the right private equity partner later in the process, too."
A business angel will typically want to invest less than a venture capitalist.
A business angel will typically want to invest less than a venture capitalist – say £10,000 - £250,000, and they will want to help mould your business into a success. "Angels often have a unique set of insights because they have usually run a successful entrepreneurial venture themselves," says Clegg.
"Private equity backers have a wealth of experience in backing entrepreneurial ventures but it's rare for their executives to have hands-on experience." Angels will therefore be more likely to poke their noses into your day-to-day business operations, but will do so from a position of great knowledge.
You need to be aware of a number of things when approaching an angel:
Finding an angel happens in many ways. Some are informal – you might know a family member or friend who wants to be involved, or a professional adviser might be able to put you in touch with someone. Angel networking organisations also exist and are good sources of contacts. The more rigid and formalised structures in these can offer benefits in their own right. Look also in the business to Business sections of the local and national press.
It is also worth looking at the British Business Angels Association (BBAA). BBAA also has its own magazine which highlights opportunities to its network of angels.
The pitch to an angel is vital – anyone who has watched Dragon's Den will have seen several pitches fail. Here are some tips:
On this last point, note also that different angels have different areas of expertise. Just because you're dismissed by one potential backer doesn't necessarily mean you've got an unworkable idea.
If they don't understand your business, you're free to abandon the deal.
You will then be down to negotiating over contracts. The thing to remember then is that you should be evaluating the angel in the same way they are evaluating you – and if you feel they're asking too much, or they don't understand your business, you're free to abandon the deal.
Remember the words of John Straw, CEO of Netrank: "In the beginning there was cash and there was equity. And cash was king whilst equity was as cheap as copper. In the middle cash was still king but equity was turning from base metal into the most precious of all..."
Or so we hope. Good luck!