This article outlines what it takes to get Angel Investment
Angel investors use their money to help your early-stage business grow. As well as finance, you'll benefit from your Angel's knowledge and experience too.
Are you ready for Angel Investment?
- Are you a pre-revenue, pre-profit or profitable early stage business?
- Is your annual turnover less than £5m?
- Are you seeking between £15,000 to £500,000
- Is your business growing or has clear plans to grow?
- Are you willing to hand over a share of your business?
- Are you willing to work with an Angel for three to eight years?
Get your house in order
Not many businesses pitch to one Angel and get a yes straight away. You'll speak to different Angels with different questions. So preparation is key.
- Know your finances: Turnover, profit, sales, growth, and their forecasts
- Know how much finance you need: "About 40k." wont cut it
- Know how you'll use the finance: "To grow." is a bit vague
- Know what impact the finance will make on your business: "We'll grow faster." isn't enough
Finding the right Angel
- Ask your professional network.
- Go to pitch events.
- Search angel directories.
- Speak to a business that have worked with an Angel.
Life's a pitch: How to pitch to an Angel
You need to nail your pitch, so learn it inside out. But what do Angels look for in a pitch?
- Tell a story - facts and figures don't get many people excited
- Be passionate - show how committed you are to your business
- Be honest and open - transparency is key when it comes to numbers and financials
- Be clear in your needs and ambitions - you need to know exactly how much you need, how you'll use it and the impact it will have on your business
- Be prepared to provide evidence - Angels will want to see proof that what you're saying is true
- Try to make a connection - Angels invest in you as much as your business. If they don't connect with you, they're unlikely to invest
We have compiled this list with Jenny Tooth, CEO at UK Business Angels Association (UKBAA) and Angel Investor.
Living with an Angel
Once you've found your Angel and a deal has been struck, it usually takes around six months to get your finance.
You and your Angel
Angel Investment isn't just financial, it's more involved than that. You get:
- Finance
- Knowledge and Experience
- A shareholder
- An Ambassador
- Networking
Did you know? Angels typically stay with a company for 3-5 years!
Reference to any organisation, business and event on this page does not constitute an endorsem*nt or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circ*mstances and, where appropriate, seek professional or specialist advice or support.
FAQs
Angel investing is a good option for startups to raise large amounts of capital without being constrained by the requirements that go along with taking out a loan. The main disadvantage, however, is the fact that it requires trading off a certain amount of ownership in the company.
How much money do you need to be an angel investor? ›
Many angel investors are accredited investors, which is a designation that requires a minimum net worth of $1 million, at least $200,000 in annual individual income or at least $300,000 in annual joint income (see the Securities and Exchange Commission website for details).
What do you say to an angel investor? ›
Pitch: If the alignment fits, craft a compelling pitch for the investor. Your pitch is the golden key to your fundraising efforts. It needs to convey the essence and potential of your business. Talk about the problems your company solves in the marketplace.
How long does it take to get angel investment? ›
Getting an Angel on board doesn't happen overnight, so prepare to network and do your research. Take time to prepare your pitch. It usually takes about six months from your first approach to the angel to get finance.
Do most angel investors lose money? ›
50%-70% of individual angel investments result in a loss of some capital, according to the most authoritative academic data; the same is true for VC deals. and in any dataset there will be “unlucky” investors in the left hand tail of the distribution and some “lucky” ones in the right hand tail.
What are the drawbacks of angel investor? ›
The primary disadvantage of the business angel funding model is that business owners commonly give away between 10% and 50% of their business start-up in exchange for capital. After investing their money in a business start-up, most business angels take a proactive approach to running the business.
What percentage should an angel investor get? ›
It's typically between around 10% and 25% but it can be as much as 40% or more. Angel investment is most suitable if your business has growth potential, and you're willing to give up part ownership in return for investment.
Do you have to be wealthy to be an angel investor? ›
Most angel investors are relatively wealthy individuals who are looking for a higher rate of return than can be found in more traditional investment opportunities.
What is a good return for an angel investor? ›
While it varies depending on the individual investor, the average return for an angel investor is thought to be around 20%. Of course, there are always exceptions to this rule and some angel investors have made a lot more (or a lot less) money from their investments.
Do I have to pay an angel investor back? ›
Angel investments are less risky than business loans. If your startup fails, angel investors won't expect you to repay the funds they gave you. On the other hand, you'll still have to pay back the loans you took out, which can be a major financial burden.
Over 25% of angel investors were in the age group of 25-30 years in 2021, compared to a negligible proportion in the previous years, as per an analysis of over 7,000 startups by early-stage investor LetsVenture.
How do angel investors get their money back? ›
Angels get their payback through an exit that lets them liquidate their stake and potentially make a profit that's based on the percentage of the business they own. Generally, investors will pre-plan the details of the exit when negotiating the term sheet before they invest in the startup.
What is the success rate of angel investing? ›
Angel Insights Blog
Over half of early-stage investments typically fail to return any capital, with the top 10% usually returning 85-90% of all the cash proceeds.
Can you make money from angel investing? ›
The effective internal rate of return for a successful portfolio for angel investors is about 22%, according to one study. 4 This may look good to investors and too expensive to entrepreneurs, but other sources of financing are not usually available for such business ventures.
What are some risks of angel investment? ›
Early stage investing is an inherently risky way to invest. The list of high level risks is long and includes financing risk, technical risk, and market risk. As angel investors, you need to be aware of the key risks you are taking with your investment.
What is the con of angel investor? ›
Con: There will be Strings Attached
As you hand equity over in your business as a portion of the deal, you essentially are giving away a portion of your future net earnings. The percentage of ownership the angel investor requests usually depends on how much they are investing.
