4.2 Business angels
Business angels (‘angel investors’) are typically wealthy individuals, many of whom are entrepreneurs themselves. They usually provide their own personal finance in exchange for equity (i.e. a share in your business).
They might invest via crowdfunding platforms (as discussed earlier) or via angel investor networks or syndicates. Angel investors won’t always have expertise in your sector or specialism but if they do, or if they have run a small business themselves, they can also offer mentoring and business support.
Angel investors tend to look at two key areas:
- the people involved in the business – in this case, you and your experience, skills and drive, and
- core aspects of your business plan.
Generally speaking, they are more likely to invest in a product than a service-based business, and they are usually more interested in a business that has already launched.
If the idea of a business angel sounds interesting to you, watch Video 5 of a craft business on the BBC’s Dragon’s Den to see how this can work.
Note: viewing this video clip is optional. It is longer than other video clips in the course, but may give some useful insight, particularly if you are building a craft-based business.
Now complete Activity 3.
Activity 3 Would I invest in Armando?
Read this short scenario:
Armando has a business idea and is looking for some early investment to allow him to research it further and quantify the demand.
You are an angel investor with £10,000 to give to a project you are inspired by.
You meet with Armando in a local coffee shop. He is dressed casually and doesn’t stand up to greet you when you arrive. You join him at his table and he doesn’t offer to buy you a coffee, so you get your own.
When you ask him to explain his idea to you, he looks shifty and asks you to sign a document saying you won’t disclose what you hear in the next few minutes. When he sees you are reluctant, he puts the document away and starts to explain his idea. He is rather vague.
Armando shows you his business plan, which is brief and doesn’t indicate how he would spend your investment. When challenged, he explains that he needs to pay himself a salary and buy some materials before he can start to test his product with his target market.
You ask him who his target audience is and he describes it as ‘young people who like festivals’. He doesn’t seem to have any idea of how to approach that market other than a vague reference to social media and talking to festival goers.
You tell him you won’t be investing and stand up to leave the coffee shop. He is clearly disappointed but makes no attempt to persuade you to stay.
Looking back, are you glad you didn’t invest in Armando? Make a note of the things you think Armando did wrong in the box below.
Discussion
- Meeting in a coffee shop probably wasn’t a good idea if Armando was reluctant to share his idea with others publicly.
- His appearance and demeanour didn’t suggest that he was trying to be persuasive or to win you over, which may also indicate how he would be with potential customers.
- His vague answers to your questions didn’t demonstrate a well thought through plan or any sense that he had already started to sound out his target audience.
- Overall it seems like a lacklustre performance from someone who has had an idea that they hadn’t yet developed very fully.
Either Armando wasn’t yet ready to pitch his idea to a potential investor or he just wasn’t very good at it. Investors look at the person they are investing in as much as the business so he should have presented himself in a more professional and committed way.
Another source of potential funding, found in both the arts and small business sectors, is competitions. You will look at these in more detail next.