Angel investors are individuals who use their own money to support small and new-to-market businesses they believe in, hoping to make money if the business succeeds.
In addition to taking an ownership stake, they also provide financial help and share valuable knowledge and experience to help the business grow.
Angel investors for start-up businesses provide much-needed money to help your business grow and develop, giving you the funds to bring your ideas to life.
They often have valuable knowledge and experience in the business world, and they can offer guidance and advice to help you make good business decisions.
Angel investors can also introduce you to their network of contacts, potential customers, or partners that could support your business growth.
Accepting investment from angel investors for your small business means sharing ownership, which could lead to less control over important business decisions.
Angel investors for a start-up business might have unrealistic expectations for your success and might put pressure on you to achieve certain goals, which can be challenging.
You’ll need to learn how to write a business plan that compellingly explains your idea and how it will be profitable to secure an angel investor.
To get their interest, you’ll have to connect with them at events, introductions or through online platforms.
Offering a stake in your business is also key to acquiring an angel investor for a start-up business.
Overall, learning how to pitch to angel investors convincingly and showcasing your passion and expertise, will likely get you over the line.
Whilst there will always be exceptions to this, an equity stake of between 10% and 25% would be a reasonable expectation for an early-stage investment.
Many investors active in the early-stage market have a particular appetite for tech-based businesses with high growth potential. They will take a commercial view on the validity of sales projections presented to them by companies fitting this profile, but an experienced investor will also understand that the reality will always be that it is far more difficult and carries far greater risk to try and accurately project sales growth when looking at a high growth, aggressive model.
Another area an experienced investor will be familiar with (and usually fund) is where an early-stage company is undertaking R&D as part of its development plans. Whilst a company will typically carefully cost out and present its R&D programme, it’s then not at all unusual for there to be subsequent variances in both cost and timescale, which can often place additional pressure on cash flow. It is under such circumstances that the investee company needs to have an investment partner who, post-investment, it can trust and who is experienced enough to accept that there will nearly always be variances between actual performance and projected performance.
Fundamentally, whilst targets, milestones or value points may form part of the terms of an investment offer, an investor does not want to see their investment fail. So, if there is a justifiable reason for supporting their investment with additional cash, then they will usually be amenable when targets have not been met.
With a capable, experienced management team, it might well be that an investor can take a back seat and simply observe and monitor progress from a distance. However, where the management team is less experienced, the investor might feel the need to provide support or indeed, be asked to provide support. Most investors have experience in building companies and there is no doubt that early-stage businesses can benefit from this insight. An experienced investor will have also developed a network of valued contacts able to be brought in to provide specialist services across a wide range of disciplines.
Examples of support an investor might be able to provide or introduce are provided below:
An investor is taking a share in your business in exchange for the funds that they are providing. Consequently, they will become a co-owner. In practice, the degree to which an individual investor gets involved day to day, or the control they will seek to exercise, will depend upon the individual investor - it is not possible to make a general statement. The key point to note is that they have the ability to do so, consequently, this is something you will want to explore as part of your due diligence process. You may want to address this in consultation with your professional advisers as part of the agreement.
With regards to a lender, it is a different relationship as they are lending the funds over a set term in exchange for interest being paid on the sum outstanding. Any rights they have to involve themselves with the business will be dictated by the facility agreement (where they exist) and most likely be dependent upon an act of default by you.
If you’re considering using angel investors in Manchester, get in touch with us today. One of our specialists will be able to advise you on how to get started with tailored advice for your business.
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