Funding is one of the biggest challenges that start-up and scale-up businesses face, particularly in economically conservative periods where high street banks are pulling up the financial drawbridge.
In addition to working capital, having investment for innovation, investment and cash flow are fundamental for taking advantage of growth opportunities as they arise.
An angel investor who understands your vision, has a vested interest in its long-term success and can provide the funding as well as non-executive guidance that can benefit a dynamic young team, is one of the best ways to help your business thrive.
In this article we explore what angel investors are, the benefits of working with them and how to go about finding them, to help you decide whether it's the right path for you.
What is an angel investor?
Angel investors are typically high net worth, experienced individuals who put their own money into a small business early on. They usually invest in a company’s incubator phase in exchange for a minority stake (usually between 10% and 25%), so they are paid for their contribution in the form of equity.
Angel investors are usually people who are successful in their own right - perhaps they started and run/ran their own company, or have been a director, and now they choose to finance small ventures with a view to helping them grow. As a result, in addition to providing money, they will often also invest their time in your business as well, offering advice, support and guidance to help you grow. That can be an invaluable asset for young businesses, equivalent to having a non-executive director on board.
What makes angel investors different to other types of investors (angel investors vs venture capitalists), is that they typically invest smaller amounts of money, and will have a portfolio of investments in different organisations. They are generally familiar with the risk that goes with early-stage businesses, but have weighed that up against the opportunity for high rewards down the line. They will generally look to have a conversation with you to discuss what their remuneration might look like over time, and will probably have a clear idea of what they want.
Types of Angel investors
Angel investors are not defined by different categories, but when you're looking for the right person to support your business, you may wish to look for a certain background, type of experience or personality. For example, you might want to work with someone whose business background is in the sector you're in, although it’s not a prerequisite. Other ways of defining an angel investor type, which may help you decide what would work best for you and your company, are as follows:
Niche angel investor
As the name suggests, a niche angel investor is someone who only invests in a specific area - probably a space they know a lot about and have a lot of experience in. For example, they might be a specialist in agricultural tech investments.
Syndicate angel investor
An angel syndicate is a private group of accredited investors who agree to put money into your business together rather than on their own.
Generalised / agnostic angel investor
A generalised or agnostic angel investor is someone who invests in various different types of business rather than one specific space. Usually they will spread their risk by putting smaller amounts into a cross section of industries.
Lead investors
If you have more than one investor then a lead investor will typically be the person who puts the largest amount of money in and will play a greater role in providing mentorship to you and your team.
Co-investors
Again, if you have multiple investors, then co-investors are those who come in after the lead investor, contributing smaller amounts and most likely playing a less significant role when it comes to offering mentorship and advice.
Benefits of having an angel investor on board
Having an angel investor on board your start-up can provide powerful benefits, not just in terms of finance, but valuable leadership support as well.
We all know that there's no knowledge like that gained through experience, and active investors are proactively interested in helping your company to be a success. Unlike paying a consultant, this is someone who is putting their own time and money in to give you their hard-earned professional experience.
Another benefit of angel investors is that they know people - they're investing in a portfolio of other companies, they know other industry leaders and experts in their field. They also have a network of individuals and organisations that they may be able to introduce you to if they deem it appropriate. As a result they can help you to make connections that you wouldn't otherwise have to support your goals, whether that's further investment from other people, or introducing you to people with skills or capabilities that you need either as a partner or team member.
How to find an angel investor
Unlike venture capitalists, banks or other funding routes, angel investors tend not to advertise their offering because it would leave them open to too many unsolicited approaches. That makes it difficult for founders to find them.
Angel investment is usually the product of building strong, trusting relationships - unlike Dragons' Den, it's not usually a question of just turning up with a pitch deck and hoping to make a good impression. That said, there are both formal and informal ways to start introducing yourself to potential angel investors.
Developing a personal network
The first thing to do is to build your network - you never know who you will end up talking to or being introduced to. This goes for all aspects of business development, but by attending networking events, speaking to people, listening to people and asking advice, you will often find that within six degrees of separation, there is an interested angel investor. On balance, people are happy to help point you in the right direction if you present a good opportunity, so keep an open mind.
Professional networking and pitching events
On a more formal note, there are professional networking and pitching events across the country, where founders can proactively gain introductions to angel investors and have conversations around potential funding.
SEIS qualified start-ups
For investors, it's particularly helpful if start-ups qualify for the Seed Enterprise Investment Scheme (SEIS) as these investments have several tax breaks, including Capital Gains Tax exemption. So it’s worth considering if you’re looking for investment. To qualify for SEIS, a company must:
- Be less than three years old
- Have fewer than 25 employees
- Have gross assets of less than £350,000
- Can receive no more than £250,000 funding through the SEIS
Joining Connectd
In any scenario, it's important that founders don't seek investment until they're ready to pitch. That includes having a very clear one line 'elevator pitch' to explain to someone briefly what you do in a short conversation, as well as having all your figures, collateral and plans in place for formal presentations or if someone wants to know more at any given moment.
This is where Connectd really supports start-up founders, with products and services that will prepare you properly for conversations with potential investors. The platform also provides access to a ready-made network of potential investors to connect with through smart match technology, in a space where you can nurture conversations and professional relationships to find the best partnership to suit all parties.
Angel Investment Success Stories
Starting a business is a challenge - if it wasn't, then everyone would do it. Having the right funding and infrastructure in place gives you a huge advantage. An angel investor can be a powerful part of that infrastructure, helping to guide you, challenge your thinking and qualify your decisions in ways that you wouldn't have been able to do on your own. At Connectd, we have seen angel investors play a pivotal role in the success of start-up organisations through our platform. Here are just a couple of our success stories:
Seeking pre-seed investment for a sustainable shopping platform
Sustainable shopping platform, Canopey, came to Connectd in search of investors, and succeeded in generating funding, while the platform also helped them to track their progress, growth and data. Having seen the business on Connectd an investor got in touch with the team.
Co-Founder, Thomas Panton, says: "They committed £25k to our pre-seed investment round and have already brought extra value-add to the table!"
Funding for an AI e-commerce innovator
Aisle 3® aggregates multiple websites into a single page so shoppers can purchase products from any retailer at a single checkout. First-time founder, Thomas Vosper, has used Connectd for multiple funding rounds since the company began in 2020.
Three years on, he says: "We have found several investors from Connectd. In fact, one of our very first investors in our first ever range around has subsequently followed on investing in the business two or three times now."
Top tips to find angel investors for your start-up
As mentioned, the most important thing you can do when looking for an angel investor is be prepared. Know your numbers, your one-line explanation for what you do, where you're planning to go, why and how.
When you're talking to people you want to know this information like the back of your hand, and if they ask you to send something over, you want to be able to do it quickly and efficiently - not as though you cobbled it together in response to their request.
That knowledge and preparation will lay the foundation for productive conversations with interested parties. Once you have it, it's not just about finding any investor, but how to find angel investors that are right for your start-up. We suggest you start with the following:
- Nurture your existing network and try to build it further by attending networking events. Perhaps set a goal of one or two events per month - it will soon add up. Once you've been to an event, make sure to do the basics - follow up with people without being pushy, and stay in touch - you never know where conversations will lead.
- Take the time to think about what you want from an investor so you're clear in your own head about your goals. Do you want advice or do you want financial investment?
- Be clear about the level of equity you want to offer an investor as well as what you can ultimately afford to offer.
- Make sure you and your business are investor ready. Broadly speaking, that means you know what you're doing, how you're doing it and you've either started or are ready to go. You should have a solid business plan, a clear value proposition, a realistic financial forecast, and a compelling pitch deck. You should also have a clear understanding of what you want to use investment money for, and where you feel you may benefit from guidance and support.
Connectd can help you get everything in place to talk to investors with confidence, reach out to them through our ready-made network, and access resources, support and networking events. Our platform's smart match technology means that the information that you provide about your business will enable investors to know whether your business is the right opportunity for them, thereby making the process that much easier and more likely to succeed, for everyone involved.
Are you a founder looking to find out how Connectd could help you get investor ready and find the right angel investor for your business? Discover more about how the platform works here
