How to find an angel investor for your business
Make sure your start-up business has the right type of backer before signing a deal, says David Prosser.
Business angels are spreading their wings. The Angel Investment Network says last year saw a record number of people registering as angels – investors who are prepared to back start-up businesses with funding and their expertise – and the number of connections between angels and entrepreneurs rose 16%. That is good news for business owners looking for support for their fledgling enterprises.
Business angels come from a variety of backgrounds and may operate individually or as part of a syndicate, investing their own money in start-up ventures. They are typically prepared to back companies at an earlier stage than investors such as venture capital and private equity firms. And they often offer valuable insight, as well as cash, helping inexperienced entrepreneurs to navigate the path to growth.
If you’re looking for angels, there are several good places to start the search. The UK Business Angels Association effectively operates as the UK’s trade association, with 650 members who invested £2.3bn last year. The UK is also home to several prominent networks of business angels, who share opportunities and pool information: the most active of these in 2021 included Envestors, Minerva Business Angel Network and Cambridge Angels, says start-up platform Beauhurst. And entrepreneurs should not feel bound by geographical borders; the Angel Investment Network and Angel Capital Association, both US-based, have many members who invest on a global basis.
With so many potential sources of angel capital, it makes sense to be discerning. Business angels will naturally want to conduct extensive due diligence before parting with their money, but this should be a two-way process. Entrepreneurs should be interviewing potential investors just as they are being interviewed themselves.
Founders will want to know that angels have the financial capacity to make the investment, but other qualities may also be paramount. Does a prospective investor have expertise in the area in which you operate? How much experience do they have of the investment process? Will they be able to provide ongoing advice to your business, acting as a mentor to the management team?
Hands-on or silent partner?
One particularly crucial question is how hands-on a business angel wants to be. In some cases, angels are looking to operate as more or less silent partners, leaving the entrepreneur to run the business on a day-to-day basis. Others are looking for much more involvement; they won’t want to take on an operational role, but they will expect to be consulted regularly and to be involved with key strategic decisions.
There isn’t a right approach, but entrepreneurs need to be clear about what they want. If you’re looking for active and regular support, a silent partner may not provide it; if funding alone is the priority, having a more involved business angel may cause tensions.
Given these nuances, it is important that entrepreneurs and potential angel investors take some time to build a relationship before sealing the deal – anywhere between three and six months is pretty typical. The conversation doesn’t have to be exclusive; there is nothing to stop founders exploring investment from several angels before making a final decision.