Typically business angels have already made their fortune
through other business ventures, possibly their own
startup or a career in business. Most are men aged between
45 and 65. However, investors can be younger –
particularly in the technology sector. Business angels
can operate independently or as a syndicate. Angel investors
look for companies that exhibit high-growth prospects,
have a synergy with their own business or compete in
an industry in which they have succeeded.
The term covers a wide range of individuals investing
varying amounts of money at different stages of business
development, according to George Whitehead, of The Oxford
Investment Opportunity Network (OION). In general there
are six different types of investor:
Virgin: Has not yet invested
Latent: Has not invested in the past
three years
Wealth maximising: Experienced businessmen
and women investing for financial gain
Entrepreneur: Backs businesses as an
alternative to stock market investments
Income seeking: Invest for income or
to gain a job
Corporate: Companies that make regular
investments, often for majority stakes.
What can they offer?
Business angels are a vital tool used to fill the gap
between venture capital and debt finance – particularly
for startup and early stage companies.
They also provide a useful source of equity finance
– where the investor takes a stake in the company
in return for a cash injection – for relatively
small amounts that would not otherwise be available
through venture capital.
Investments can be anywhere between $20,000 and $500,000
although in practice most investments are in the region
of $50,000. In addition to a first investment, business
angels often follow up with later rounds of financing
for the same company.
As well as cash, business angels can offer years of
experience in the business world. Although some prefer
to become a sleeping partner, others will get actively
involved in your business from writing a marketing plan
to taking the company through a flotation on the stock
market.
Capital from angel investors is likely to cost no less
than 10 percent of a company's equity, and, for early-stage
companies, perhaps more than 50 percent. In addition,
many angel investors charge a management fee in the
form of a monthly retainer.
Financing from angels is appropriate for early-stage
companies with no revenues, or established companies
with sales and earnings. Companies seeking equity capital
from angel investors must welcome the outside ownership,
and perhaps the surrender of some control. In addition,
to successfully accommodate angel investors, a company
must be able to provide an "exit" to these
investors in the form of an eventual public offering
or buyout from a larger firm.
The supply of angel investors is large within a 150-mile
radius of metropolitan areas. The more technology-driven
an area's economy is, the more abundant these investors
are.
What are business angels?