Updated: Nov 19
Table of Contents
UK small and medium-sized enterprises generally have insufficient resources of their own and no venture capital either. While many go the conventional route, others call on a particular type of financial actor called "business angels", whose job is to make their address book and money available to new entrepreneurs looking to get funding for their start-up.
Innovative projects that bode well for future growth potential are specifically in the line of sight of these investors, who in turn will raise funds to make them happen. But what exactly is a business angel? How can they tilt the balance in your favor and how to submit a project?
What is a business angel?
Whether a retired senior executive or an ex-entrepreneur, a business angel, who comes to the financial rescue of new enterprises concerning their development needs, is a natural person who wishes to invest part of their financial wealth into high-potential innovative solutions.
Any SME showing prospects of success is of interest to a business angel. Given that a great majority of them have had extensive entrepreneurial experience and have on hand full address books, precious pieces of advice, and relevant knowledge of enterprise development, they have what is necessary to help a promising start-up flourish.
How can business angels assist new innovators in their projects?
Either individually or as part of a network of sharing contributors, the goal of a business angel is to walk an enterprise toward sustainability and, ultimately, success. While the average sum handed amounts to about £300'000 to £500'000, some investors are committed to putting up to 1 million pounds in a project that delivers to fulfill their initial objective!
Business angels contribute to the seed phase - namely, the research and execution of the project at hand - as well as the different development stages of either a new product, service, or promising sales opportunities with yearly investments ranging from £10'000 to £20'000.
A rather advantageous trade-off
While business angels take a lower-than-20% stake in a funded enterprise's capital, actively take part in its life and decision making, and get a tax break (as any individual who directly invests in a company can), they do not own it per se. It is important to keep that in mind.
On what criteria does a business angel pick a start-up?
Business angels carefully select their projects with the same shared interest in mind: generating substantial extra value out of their initial investment. That, in itself, is the biggest of all decisional elements. But other than on the odds of success of a start-up concept, investors also base their choice on the following criteria:
The geographic area the company is going to be established. For simple practical reasons, business angels tend to favor local and regional enterprises.
The field of activity: an angel should secure their investment in an economic sector preferably linked to their field of expertise or personal interests.
How to call on a business angel?
We saw earlier that, thanks to their extensive network, field experience, advice, and more specifically because they can bring invaluable financial investment while lending further credibility to the project, business angels act as formidable leverage, which opens doors for other financing possibilities along the way.
However, to better the odds of having an investor onboard, one needs to undertake to gather a few preliminary documents before submitting the whole to the targeted business angel, which consists of:
A file composed of an executive summary of the project in question, followed by an 18-month-long business plan projection detailing monthly data.
Once the dossier is handed over, the application is reviewed following three main determining factors: the field of activity, the sum asked, and the overall project maturity.
The executive summary
Upon submission, and to maximize its chances of being reviewed favorably, the executive summary - a synthesis paper introducing the enterprise creation project - should not exceed a few pages in length.
How does the selection process take place?
As stated before, the more feasible the project and attractive the prospects of success are, the more likely an applicant's candidature is to be accepted.
If the project gathers enough praise and enthusiasm, the entrepreneur who spearheads the operations is expected, along with the collaborating team, to deliver a 10-to-15-minute oral business presentation before the selection committee, comprised of several affiliated members.
If the presentation manages to get favorable attention, a thorough application examination will be conducted, followed by negotiations on the modalities concerning shareholding of the future company.
The project starts getting funded once the shareholding agreement is settled.
A solid business model
Pleasing the jury means rewarding the shareholders graciously down the line. That is where a solid business model comes in. A project worth funding must be able to not only show proof of long-term sustainability but moreover ensure that good profit is awaiting investors.
How much time does it take a start-up to collect the funds?
First and foremost, calling on a business angel is notably time-consuming. In between the application submission and the day the funds are credited, it is not rare to see months pass by, although speeds can vary.
Ordinarily, here is the estimate:
In preparation for the hoped-for interview, roughly three months are necessary for the designing of a good business plan, detailing the presentation of the team and start-up project, the development of both the market study and the sales strategy, the planning of budgetary resources, the drafting of the executive summary, etc.
The time between the initial contact with the concerned business angel and the setting in motion upon final agreement can range from five to nine months on average.
One whole month between the fund-raising process and the grants.
Whether you are setting up an import-export business or are after a business opportunity, at Funding Routes, we offer entrepreneurs a wide array of alternative funding solutions for their start-ups. Not only do we constantly update our address book but we more specifically focus on SME-oriented advice. Do not hesitate to let us know your funding needs!