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Everything you need to know about: Angel Investors

Everything you need to know about: Angel Investors

Thinking about getting investment? Here is everything you need to know about Angel Investors.

There tends to be two types of Angel Investor. Those who have useful experience and or knowledge for your business and in turn wants to be hands-on. The other is an Angel with plenty of cash but doesn't want to be involved. The latter of two is often easier to work with.

Choosing an Angel Investor

  • Golden rule: if they want to charge for being on the board/service in kind run a mile! Good angels will back their money

  • Remember shareholders are bosses so if you can make sure they are going to be easy to work with/report to ... choose investors as you would choose clients i.e., can we work together?

  • The small investor can be the most painful - the price for gaining investment is losing equity, control

  • Be wary of investors: do due diligence on them as much as they do on you

Red flags to look out for

  • Be wary of 'trip wires' in the shareholders agreement like low thresholds of sign off on expenditure

  • Do not take in management based on money (they may have an agenda in running the business that does not tally with yours

  • Consider the effects of any clauses and the impact of current value and terms of investment on potential future rounds

  • Complex clauses/conditions in any agreement now might limit your chances of successfully raising funding in the future

Finding an Angel Investor

  • Look at leveraging all your stakeholders who have an interest in the business's success

  • Whilst some of our members have had success using angel networks, the consensus is they are a poor route to finding investment

  • Entrepreneurs need to be wary of angels who waste time by seeing presentations to keep abreast of stuff and to learn with no real intention of investing

  • Ask a journalist in the trade who would be a good person to approach

  • Most people agree that they need to build personal networks to find the right angel investors

  • Suppliers or development partners can prove useful initial investors

  • The Angel networks like Newable, Syndicate Room and Angel Investment Network are well developed in the UK, with government support and funding

How to attract an Angel Investor

  • You can use PR sometimes. You're in a stronger position when people approach you to invest rather than other way around

  • Create a sense of "fear and greed" that if they don't invest now, they'll miss the boat

  • Important to know your audience as the way you present may differ depending on type of angel

  • Certain geographical hubs are easier to find funding in (e.g. the Cambridge area for tech funding)

  • EIS schemes can be extremely attractive to angel investors

Venture Capital vs Angel Investment

  • VCs (Venture Capital) will invest lesser amounts if they can see opportunity to invest a good slug over the course of expansion, but they're very focused on returns

  • Angels can be more flexible and can often provide more help

  • With family and friends, you need to be very clear on risks and emphasize the risks (consider the amount they are investing relative to their wealth)

Managing Investors

  • Do not keep secrets, be candid. Have a quarterly newsletter outlining updates, successes, new additions, and plans. Use "we" when talking about business and "I" when discussing thought leadership or market

  • Have ad hoc meetings throughout the year (4/5 times) just for shareholders and send through monthly management update with comments

  • Meet investors individually to ensure they're onside

  • Create a separate Investor Board to the Operational Board

  • Set up guidelines on who can make what decisions and at what level

  • Seek a non-exec chair with clout to manage non-execs and steer board meetings

Disclaimer: All the insight we share is in good faith, being the combined wisdoms of our members and Club friends. We cannot however accept any liability in relation to the content of this material, or for the consequences of any actions taken on the basis of the information provided. All parties are responsible for their own actions und decisions und for undertaking their own due diligence prior to entering into any contractual relationships.