What is an angel
investor?
An angel investor is
someone who gives a
chunk of money to a
company in return
for a share of that
company. They are
usually private
individuals, come in
all shapes and
sizes, and from all
walks of life.
How much money
do they typically
invest?
Single angels
generally invest
between five and a
few hundred thousand
pounds. Once they
get together in
informal groups or
syndicates the upper
limit can be
millions of pounds.
Do they lend to
home based
businesses?
Of course! In fact
many Angels work
from home
themselves, keeping
overheads low and
managing their
investment
portfolio.
What are the key
things Angels look
for, before they
invest?
They’ll be
looking to work with
someone they like
and trust. They need
to know there is the
potential for them
to make money so the
business has to be
able to grow fast
and allow them to
sell their shares
after a few years.
They’ll need to see
at least a brief
business plan and
financial forecasts
and on larger
investments will
have legal and
accountancy
professionals check
out your business in
reasonable depth.
What should a
home business look
out for when
choosing the perfect
Angel?
It’s a bit like
finding a life
partner, you can
create an ideal
checklist but in the
end you find you
sometimes click with
someone quite
unlikely. Ideally
they should share
your business values
and finding someone
who has useful
contacts and
expertise can be
useful, but with
their investment you
can generally hire
those in.
Try having them along to your Board meetings (yes, you’ll need to have them!) before they invest and see if they contribute to your business or drive you up the wall with their ideas. Your partnership with an Angel can last longer than a marriage so it’s worth making sure you like working with them. Don’t be afraid to say no to someone you don’t like - there could be a great fit just round the corner.
How does an
owner calculate the
percentage of their
company they offer,
in return for
investment?
It’s extremely
difficult to work
out how much a
fledgling business
is worth. It’s
highly subjective
and in the end comes
down to how much
someone is prepared
to invest in you.
If you want the
scientific approach
you can project your
profit, find the
Profit Earnings
Ratio for your
sector and multiply
the tow out (or get
your accountant do
it!). Then once
you’ve valued it you
divide the amount
you need by the
value and that is
the proportion of
the company you
should offer.
Angels generally want between 5 and 30% of a business. The more enlightened ones will provide the money required to properly fund the business in return for a share that leaves the entrepreneur with a good majority to keep them motivated.
However it’s all down to negotiation and how many offers you get. Don’t look at the shares offered on Dragons Den as these are heavily biased to the Angel, compared with real deals, reflecting the celebrity status of the Dragons.
Lois Cook is the co-founder of Angels Den.