Well, before you even consider looking for an angel investor you should have exhausted all other routes for startup finance. As I have said before but will say again, your family and friends can be a great starting point for startup finance, not only from a cost effective point of view but they will usually give you one of the best market rates available. (i.e. incomparable to regular high street lenders).

The first route I would always advocate for external investment from a business angel is contacting one of the many business angel networks that operate across the UK and overseas. The British Business Angel Association (BBAA) matches investors and companies from across the country. There are several other examples, Envestors.co.uk and AngelsDen.com to name just two. These angel investors are part of a syndicate of wealthy businessman and women who provide competitive funding for small business investments for up to £2 million.

The process of securing investment is relatively straightforward but depending on how you and your business perform, that may not be entirely true. You must plan and detail your business plan (thoroughly), then send in a preview of your opportunity for the investors to consider. If the angel investor requests for more details then you would normally turn up for an interview and a formal meeting. It is usually the “getting through the door” stage that most small businesses struggle with since angel investors have no shortage of applications for funding each and every week. Think yourself lucky for even getting a response from them!

The most important thing to get right before you even consider going to an angel investor is your business plan. The business plan has to be squeaky clean and secure enough to withstand a barrage of questions and queries from your potential investors. If you have seen the BBC television series Dragons Den, you will know exactly what I am referring to when it comes to having a solid business plan. You need to know your business inside out and have all the important figures to hand at a moment’s notice.

You should be prepared to have your business and personal life questioned inside out by an angel investor. I mention this as for some reason some small business owners walk into an investor and feel these questions are inappropriate or aren’t worthy of a proper answer. You have to remember that the investor isn’t just funding your business, they are funding the people behind the business too. Try and put yourself in their shoes before refusing to answer their questions. Refusal to answer will often lead to your funding application being tossed out straight away. They will want to nail down to who exactly is going to be running the business, how they are going to run it, and what your projections are for success and expansion. This should all be in your business plan, but if it isn’t, make sure it is come interview time.

The above isn’t an exhaustive list and certainly aren’t the only things that should be top of your list when you are trying to secure business angel investment but they are a start. Remember, the business plan is key.

Business angel investors are usually extremely wealthy individuals who invest in new startup businesses or companies looking to expand in return for equity in the business. Business angels quite often operate on their own, but also occasionally work in large conglomerates or an investment syndicate to either share the risk of investment or to combine funds for a large scale investment.

Who are business angel investors?

Most typically, business angels have already made their money through their own business ventures and are now looking for opportunities to invest in other businesses to get a return on their own capital. Statistics say that most business angels are men and aged between 40 and 60. With the expansion of the technology industry, specifically the Internet, those statistics are without doubt subject to change. Surprising enough, 40% of all business angel investments are lost due to business failure. Therefore it isn’t uncommon to see many venture investors sharing the risk with other angel investors rather than chasing high returns which, statistically have depleted chances of coming to fruition.

What can they offer small business startups?

Venture investors can usually provide an instant injection of capital for a small business startup. Business angels are an obvious alternative to bank loans or friend/family investment. They are most commonly associated with being a source of equity finance, in other words they retain a stake in your business in exchange for the capital injection.

How much finance do venture investors typically offer?

The amount that business angel investors invest in your business will of course differ depending on your situation. No two situations are the same in the business angel game. Typically, investments ranging from £10k to £250k are most common. Quite often as previously discussed, the higher the investment, usually the more investors that are involved in the funding of the deal. Larger investments (£100k plus) typically take place through syndicates.

What else are business angel investors useful for?

It should be stressed that business angels aren’t just cash injection providers, they can usually offer unrivalled business experience or provide lucrative contacts within specific industries that can either expedite product/brand development or bypass various channels. (I.e. expedite market entry, provide direct access to suppliers/brands etc).

In part two of this article, we will look at how you can find business angel investors and how to secure a deal with them – Don’t miss it! [Part Two is now available. Follow straight on from this article here: Finding Business Angel Investors for Startup Business Finance.]