Advantages of angel investmentĪndrew Shepperd, director and co-founder of Entrepreneurs Hub, says the companies most likely to attract angel investing are disruptors with low capital costs credible, patentable ideas and strong plans and leaders.Ĭapital intensive businesses, such as in manufacturing or catering, are less popular, he adds.Īttracting angel investment provides you with a source of capital often unavailable through other means such as loans, especially in your early growth stages. This is a good return, especially as they can often do it through tax efficient Enterprise Investment Scheme (EIS) or Seed EIS structures.īut it does mean angels are looking for investees that have the potential to deliver stellar returns – ideally around 10 times the original investment over seven to 10 years, says Rod. However, they spread this risk by investing in many companies, which helps experienced angels achieve a 14% average annual return on investment over 6.6 years, according to 2021 research by Envestors. But via a syndicate, they can collectively invest up to about £3m in a single company.Īngels know they’re taking large risks by investing in such early stage businesses, and many will fail or flounder.Īccording to UK BAA research, 80% to 90% of returns come from just 10% to 20% of an average angel portfolio. “And they want to encourage the next generation of entrepreneurs.” How much angels invest and what returns they seekĪngel investors typically provide between £20,000 and £40,000 of funding per deal. “They enjoy being part of a team that can deliver innovation. “It’s fun for angels to support exciting, high-growth businesses,” says Rod. They may be interested in a specific industry or sub-sector, such as biotechnology, or in companies that strongly emphasise ethical causes such as financial inclusion, fair trade or green energy. Rod Beer, managing director of the UK Business Angels Association (UKBAA), says angels often invest in small companies or startups because they want to support businesses in communities and sectors they believe in. This enables them to pool their funds, spread the risks, and share other investors’ due diligence and experience. While angels can invest independently, they often join together and invest via a syndicate. They’re usually happy to wait between five and 15 years. Here’s what we cover: What is angel investing?Īngel investing is a way to provide finance for a business.Īn individual known as a business angel invests their own money directly into startups and small, high-growth businesses.Īngels can also usually provide valuable experience, skills and introductions – including to other investors, customers, suppliers and advisers – to help you grow your business.Īngels want to profit from their investment but they are patient and don’t expect a rapid return or exit. We talk about all of that and more in this article. As a small business owner, you should consider the potential advantages and disadvantages of angel investment carefully before seeking it. What’s more, angel investing comes with the experience, connections and support of individual backers, which is often invaluable.īut there are potential pitfalls in exchanging shares in your company for funding this early in your growth journey. In fact, given the general difficulty in obtaining bank loans, it’s often the only source of finance available to such firms. These investors provide hugely valuable funding and support to startups and early stage companies in exchange for a small stake in your business. It’s the name given to an investment from one or more individuals who can take your hand and lead you and your business to the gates of high-growth heaven.
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