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What are Business Angels?
Business Angels are high net worth individuals who invest on their own, or as part of a syndicate, in high growth businesses. In addition to money, business angels often make their own skills, experience and contacts available to the company.
Business Angels rarely have a connection with the company before they invest but often have experience of its industry or sector. The commitment of business angels is often very strong.
The majority of Business Angels make investments are made for financial reasons. However, there are also other motives for investment, for example, taking an active part in the entrepreneurial process, and the enjoyment from being part of the success of a good investment and the sense of putting something back in.
Business angels are an important but still under-utilised source of money for new and growing businesses. A typical business angel makes one or two investments in a three-year period, either individually or by linking up with others to form a syndicate. But, some business angels invest more frequently.
Is Business Angel Investing For You?
Business angels invest, between £10,000 and £750,000 in an investment. Where larger amounts are invested in a business, this maybe as part of a syndicate organised through personal contacts or a business angel network. The lead investor is sometimes referred to as the "archangel". Investments are usually made in return for a share in the business.
Business Angels are looking for more than just returns on their investments. As well as investing money they also invest expertise. Business Angels tend to be ex-entrepreneurs themselves who are able to bring their know-how and experience to the businesses they invest in. From this many business angels get a sense of giving something back.
Business angels invest across most industry sectors and stages of business development, but especially in early and expansion stage businesses. Most prefer to invest in companies within 100 miles of where they live or work. Investors in technology companies tend to be more prepared to travel longer distances.
Things to consider before becoming a business angel?
Obtain experienced legal advice for assessing documentation, structuring the deal and drawing up agreements.
Obtain help from an accountant experienced in assessing business plans, exercising dilligence as well as personal corporate tax advice. You should also discuss certification either as a High Net Worth or Sophisticated Investor under the Financial Services and Markets Act 2000. This could help to gain access investment proposals. Plan how you intend to achieve a return on your investment, for example from dividends, fees and capital gains. Find out about the entrepreneur and management team's background and record. Establish whether the entrepreneur, fellow directors or any of the management team have been bankrupt or been a director of an insolvent company and the facts behind this. Consider investing alongside an experienced angel. Some networks may put you in touch with an experienced angel who might invest in the business you are considering. Be patient. It takes more time than many business angels anticipate to find the right company. Finally, do not invest without considering how to exit.
Can I get Tax Relief?The Enterprise Investment Scheme (EIS) can be valuable to those who find an investment. For an investment over £500 in eligible shares, tax relief is given at 20% up to a maximum investment of £200,000 in any tax year. EIS investments are exempt from capital gains tax if held for three years. In addition it is possible to defer payment of tax on an existing capital gain by setting it against an EIS investment. This Help sheet gives further information on EIS tax relief. What is the next step in seeking Business Angels? If you have read all of the above information and decided that you would like to become a Business Angels you will now have to take the next step. As a trade association we do not specifically provide contact to Business Angels however our Members do. All of our members are business angel networks or groups who have signed our best practice code of conduct. We recommend you take a look through our business angel directory and choose the business angel intermediary that is the most suitable for you, based on geographic location or the intermediary’s particular specialisation. If you have any questions or queries please do not hesitate to contact us at info@bbaa.org.uk
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