So what is an angel investor? The term angel stems originally from the private investors that would fund Broadway musicals. Over the years, the term has become more encompassing and now business angels invest in industries and countries all over the world.
The UK angel market is a thriving one as more and more investors look for investments outside the traditional stock market and property market. The UK now has around 18,000 business angels. Collectively, it is reckoned they invest around £500 million a year in around 3,500 businesses – though since a lot of deals are private in nature the exact sum is unknown. One way or another, however, angel money is a growing source of funding for early-stage business.
So who are these people? A recent survey tried to paint a profile of a typical investor. It found that the majority of angels in this country are thought to live in London, the South East or East Anglia, although there seems to be a growing contribution from the Midlands. Most of them – around 95% it is believed – are male. In the main they tend to be over 35, have experience of running a company and often have directorships at one or more firms.
That is another defining factor. Many of these people are looking for investments with which they can be involved and over which they can have a degree of control. Around 39 per cent have active managerial involvement in the majority or all of their investments. A further 40 per cent have involvement in selective investments. Just 20% prefer not to be involved.
This is a very satisfactory arrangement for most companies seeking funding. In my experience, companies are often looking not only for funding but also for an investor with managerial experience and industry contacts. The “marriage” can therefore be highly beneficial for both parties.
It is traditionally thought that angels like to invest in a business located close to their home. There is some comfort in being able to go and ‘kick the tyres’. Some 17 per cent of target companies tend to be located within 50 miles of the angel’s home. A further 30 per cent are within 150 miles. Most of the remaining 53 per cent are further away within the UK.
A small, but growing, percentage of investments are abroad. Proximity, it would appear, is becoming less of an issue. With the advancement of technology, angels are getting more comfortable investing cross-border. The falling cost of communication and travel has meant that it is now easier than ever to check up on investments in the US or elsewhere.
The rise in communications has certainly made it easier for angels to find investment opportunities. There are a number of websites dedicated to bringing investment opportunities to potential investors such as the angel investment network http://www.angelinvestmentnetwork.co.uk which allows investors to scan hundreds of potential proposals. However some investors still prefer the old-fashioned method of finding investments in printed publications or by attending presentation days.
One of the keys to success is what corporate financiers call ‘deal flow’. The more deals that cross your desk, the more chance you have of spotting a genuine growth opportunity. To that end, the majority of business angels are members of at least one angel association or network, and most have joined two or three. These associations and networks however tend to be quite regional in nature and often angels take it upon themselves to seek out investments outside their immediate community.
Around 55 per cent of angels interested in doing a deal prefer to share the risk with like-minded people, and be able to access other investors. However, according to the survey, only around one in six prefers to invest with friends or as part of a syndicate or club – a desire to keep business, friends and family separate perhaps?
So what is a typical angel investment? The majority of angels spread their investment around two or three companies. This makes sense. They probably look for one to generate a stellar performance, one to produce no more than an average return and one to go bust. Typically, angels invest on average around £30,000 but obviously this figure can be considerably higher, with many investments around £100,000 and upward. 606 angel number
Angels want to see an executive summary or short précis at first contact. Many angels feel they are presented with too many complicated business plans and do not wish to be over-burdened reading long reports at the outset. It’s a bit like reading someone’s résumé. The recipient of a new plan probably spends less than two minutes evaluating the initial submission, so attention has to be grabbed by an articulate, compelling and concise writing style that focuses on the excitement of the opportunity.
Often the original investors are unwilling to give enough away to the new investors or there may be problems over the ownership of patents and rights. Some of these things really need a corporate financier to come in and advise on how to structure them properly before they go and raise money.
Why are Angels looking to invest? Although it is thought that many individuals invested for tax reasons, recent surveys have shown that angels actually invest for a whole host of reasons – of which tax planning and tax optimisation came surprisingly low.