- What is angel investment?
- Is my business ready for angel investors?
- How do I raise equity investment?
- Valuing your company
- Other sources of funding
- Access to support
Angel investment is where private individuals provide funding for a business, either individually or collectively via a syndicate or a fund, in exchange for equity (shares in the company). The company may also receive ongoing support from the angel investors, in addition to the capital invested.
Angel investors are prepared to back higher risk early stage companies and help them scale rapidly to meet strategic business objectives and secure next stage funding. They will generally follow their initial investment by taking advantage of pre-emption rights during any further scale up fundraising.
An investment ready business will usually have a robust proof of concept, an understanding of the market for their product or service, early paying customers and a clear business plan for scaling the organisation. There are some exceptions to this, particularly in life sciences, where products can only b be marketed when they have completed a lengthy regulatory approval process.
As a company founder considering angel investment, it is essential you’re comfortable with selling a share of the equity in your company. Investors will expect the company to have an appropriate board and governance structure, employ an effective leadership team, manage delivery of the business plan and understand how to address variances to plan and issue regular investor updates to keep them appraised of the company’s progress. In return, you benefit from investors’ support for your shared ambitions and access to their knowledge, experience and networks.
Most angel investors will want to take advantage of Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS) tax reliefs. Make sure you’re familiar with the advance assurance requirements and confident your business can meet these. It can be helpful to complete your application before you approach potential investors.
Potential investors will want to find out more about your company before they decide whether to invest. Key to this process is the pitch, where you share details of the investment opportunity and your scale up business plan with investors. You should be prepared to discuss your strategy, business model, financials, the competitive opportunity, the team and your exit plans. Remember to focus on the opportunity to invest in your business, not buy your product.
You must be prepared for investors to decline the chance to invest. You can increase your investment readiness for future opportunities by delivering key milestones in your business plan such as product development, recruitment or securing commercial contracts.
Where investors want to invest in your business, they will look to carry out due diligence, giving them confidence that information you have shared is accurate and there are no barriers to buying shares in your company. Professional advisors may support you through this process and help you collate your ‘data room’ of relevant documentations to share with new investors.
Equity investment needs to be part of a longer term growth and exit strategy, as investors can only realise returns if your company is sold or listed, or they are bought out by next stage funders.
You will need to agree a valuation for your company with any angel investors, who will want to buy shares at a fair market price. This price can be difficult to identify for early stage companies, as traditional revenue based models don’t translate and there will be no secondary market for the shares.
Angel groups or investors usually have experience and access to specialist resources to help you identify appropriate revenue multiples or market comparisons in your sector to support the valuation process.
Early stage businesses can also be funded by self-funding, friends and family, start-up loans, small business loans, personal loans, peer to peer lending or, most sustainably, paying customers.
If you’d prefer to fund your company through debt finance, you might consider a Start Up Loan or contact your business banking provider. The Department for Business, Energy & Industrial Strategy provides information about business funding which can be filtered by the company’s stage, sector, location and size.
Start Up Loans, in partnership with distance learning specialist the Open University, offers a selection of free courses designed for business owners. These cover topics such as entrepreneurship, finance, commercial awareness, sustainability and mental health.
Our angel group members curate investment opportunities into early stage businesses across Scotland and further afield. Details of all our current members are available in our member directory.