5 Angel Investment Tips for East of England Startups
Angel investment is one of the most significant sources of funding for startups and early stage businesses. It is a form of equity financing where high-net worth individuals invest in a company using their own personal income. In return for providing equity finance, the angel investor will usually take a share in the business. Angel investors are often experienced business people, so may offer advice and knowledge to help the business succeed.
Unlike venture capital firms — where investment decisions must be approved by a number of people — angel investors make their own decisions about where to invest. They are less risk adverse than venture capitalists, so are willing to take a gamble and invest in very young businesses.
Around £850m of angel investment is secured by UK startups every year. East Anglia has its very own network of business angels, Anglia Capital Group. This is a private network supported by the New Anglia LEP, who have a co-investment fund to invest alongside the angels. To date, the group has invested over £3.4million into local startups.
We spoke to Hannah Smith, business manager at Anglia Capital Group, about how early stage businesses in East Anglia can secure angel investment. Here’s a roundup of what she said…
- Play it straight and go into detail
Always be honest, otherwise it will look worse down the line when anything you’re hiding or exaggerating inevitably comes to the investor’s attention. Give the investor all of the information you have, and don’t leave anything out: that is the least you can do.
For example, businesses seeking investment at Anglia Capital Group must complete a comprehensive online application. The number of times we’ve seen this application only half-completed is astounding. And then, entrepreneurs chase us to ask why we haven’t reviewed their application. Be sure to provide as much detail as possible in your application or business plan. Proofread this thoroughly — typos and mistakes don’t make a good impression.
- Team, team and team!
First and foremost, business angels are investing in people.
The team behind a startup can have a huge impact on whether this business will thrive. Even the most cutting-edge ideas can flop if poorly executed.
Investors will want to know about the management team in some detail — it’s worth including profiles of these figures in your pitch deck.
Since investing in early stage businesses is always a bit of a risk, investors want to see that you have the drive and passion to give your company the best chance of success. If your team is small or incomplete, consider how the skills of an angel investor could support and strengthen your company.
- Know your price
When preparing your pitch for potential investors, you need to decide how much your company is worth and what proportion you’re happy to sell.
Valuing a startup can be much more difficult than valuing a more established business. The best thing to do is to look at what similar businesses have been valued at, at a similar development stage, in a similar market.
While your startup may be your pride and joy, don’t refuse to budge on your ‘dream’ figure. Whatever you choose, you should be able to justify your valuation, and be willing to negotiate with the investor.
- Preparation, preparation, preparation!
You never know when an opportunity might arise to attract interest or investment to your business. Perfecting an elevator pitch that you can deliver in under two minutes is a handy tool to have.
For more formal pitch events and competitions, preparation could be the difference between securing angel investment or going home empty-handed. Your pitch deck should be thorough and attractively designed, as well as practiced to perfection.
Before an investor will agree to anything, they will most likely ask you some probing and financial questions. Trust us when we say that being unable to answer such questions looks much worse than delivering poor or unimpressive figures. If you’re an entrepreneur who doesn’t have a firm grasp on your numbers, team up with someone who does and prepare this aspect especially thoroughly.
- Angel investment is only one option
While angel investment can be a great way for entrepreneurs to finance their startup, you should be realistic about what it is and isn’t
The amounts offered by angel investors are typically much smaller than those available through other fundraising methods. This money may be much-needed, but it won’t last forever. You will need a clear strategy for using your investment funds in order to maximise your chances of success.
While investment is often viewed as preferable to a loan, there are still strings attached. After taking a share of ownership in return for their investment, some angels will want to be ‘hands on’. They may have certain expectations you have to meet, and will need to justify your decisions if you cannot. In relinquishing a share of your ownership, you are also giving up a share of your future profits. But the best tech angels bring their own knowledge, contacts network and experience to your business.
For some great further reading on the world of Angel Investment check out Cambridge-based angel Peter Cowley’s blog, The Invested Investor.