Equity finance

Business angels

Business angels (BAs) are wealthy individuals who invest in high growth businesses in return for equity in - ie a share in the ownership of - those businesses. Some BAs invest on their own, others as part of a network, syndicate or investment club. In addition to money, BAs often make their own skills, experience and contacts available to the company.

BAs typically invest in businesses with:

• an investment need of between £10,000 and £750,000
• the potential for high return - BAs are not averse to high risk
• good early stage development or expansion
• a presence in a particular sector

The advantage of using a BA is that they often make an investment decision quickly, without complex assessments. However, you will still need to draw up a professional and tailored business plan.

Most BAs can bring valuable first-hand experience of either working in a small business or running their own business venture. They're also likely to have local knowledge, as they tend to focus their investments within a small geographical area.

Some BAs may be eligible to have their investment funds matched by the government under its Enterprise Capital Funds (ECFs) within its Finance for Business product. ECFs are commercial funds, targeted at small and medium-sized enterprises and investing a combination of private and public money against a share of equity in small, high growth businesses seeking up to £2 million of equity finance.

Find out more about ECFs on the Department for Business, Innovation & Skills (BIS) website - Opens in a new window.

The disadvantage of BAs is that they don't make investments very regularly and may not be actively looking for an opportunity, so they may be difficult to find. While you may decide to approach an agency to help, BAs will place a lot of emphasis on their relationship with you and how well you can work together directly. Tracking down the right investor may take longer than expected and can typically take several months.

The British Business Angels Association (BBAA) can direct you to local and appropriate BA networks and provide guidance with preparing and presenting your business proposal. You can find out about business angels on the BBAA website - Opens in a new window.

Subjects covered in this guide

Introduction
• What is equity finance and is it right for your business?
• Sources of equity finance
• Business angels
• Venture capital
• The equity gap
• Advantages and disadvantages of equity finance
• Securing equity finance - preparation
• Securing equity finance - your pitch
• Alternatives to equity finance
• Here's how I found a business angel to invest in my business

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