Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Angel investors play a vital role in the UK economy. They provide valuable funding to promising startups, powering the creation of new jobs and exciting ideas which can offer new solutions to age-old problems. Yet what are the benefits and risks of angel investing – both for the business owner, and for the investor? In this article, our team at Bure Valley Group offers some answers.
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Angel investment in 2022
An angel investor is someone who focuses a large part (perhaps most) of his/her portfolio on startups, or early-stage businesses. They provide funding typically in exchange for an equity stake (e.g. 10-25%, commonly). Yet angel investors do not simply provide money and then walk away, hoping for the best. They also tend to provide mentoring, advice and guidance to owners about how to steer the business towards its goals. It is a type of active investment when angel investors commit significant time and effort. Given this and the higher risk typically involved with startups, angel investors seek high returns (i.e. in the double-digits) in a relatively short space of time (e.g. 3-5 years).
The benefits of angel investing
For business owners, an angel investor will often be very experienced in helping startups get to profitability. Their insights and support can, therefore, be hugely valuable in assisting owners with avoiding costly mistakes and pitfalls (which they might otherwise have missed). An angel investor, also, does not take control of the business when making an equity stake. It can also be quite cost-effective for owners. After all, no monthly repayments of the investment are required. All the angel investor requires is that the startup grows in value, so they can make a profit when eventually selling their stake later down the line. Finally, gaining angel investment often provides owners with validation for future investment rounds.
Angel investors also enjoy a range of benefits from their startup holdings. It opens up chances to generate much higher returns from, say, most publicly-traded stocks and bonds. There is also a sense of excitement from involvement with a dynamic startup which grows quickly and enters new markets with its products/services. Angel investors can also pick from a wide range of sectors, providing variety and opening opportunities to learn new skills and insights (as well as forge new connections and networks).
Angel investment risks
For both owners and angel investors, there is no promise of growth. Early-stage investments are, by nature, higher risk compared to established companies with an established business model, healthy profits and greater financial reserves to see through bad times. For owners, an angel investor can be hard to find. Much depends on who you know, although investor networks (like ours at Bure Valley Group) can help investors and business owners to find each other.
Business owners can sometimes find the angel investment process frustrating when funding comes in slowly. Ambiguous terms within agreements can also cause problems, so it helps to make sure these are clearly defined from the outside (to avoid future disagreements). Angel investors also offer less funding compared to, say, venture capital – and the support/guidance owners receive may be less available, or lower in quality, than they originally expected.
Angel investors need to be especially careful with their due diligence before investing in any startup. There will be little/no business history to examine, and this may be the owners’ first experience with running a business. A failure to ask the right questions during (and after) a startup pitch can lead to problems later on, after you have made your investment.
How & when to use angel investment
For business owners, the stage of your business is key when considering angel investment. As a general rule, the “pre-revenue” or “pre-profit” early stage of your business is typically the best time (when turnover is under £5). If your business is scalable, moreover, then you are likely to attract more interest from angel investors. All regions and sectors can be suitable.
The purpose of the finance is also important. Generally, angel investors will be glad to see their funding go towards the likes of product development, new market entry and increasing sales. If owners want to use most of the money to pay for non-growth-related expenses (e.g. paying the salaries of existing team members), then this is unlikely to excite most angel investors.
The amount available from an angel investor varies, but typically ranges £15,000-£500,000. Later syndicates can offer millions, however. The finance will usually be available for 3-8 years and it can take 2-6 months for it to arrive.
Invitation
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