Enterprise Nation

Excerpts are taken from an interview with Angels Den co-founder, Lois Cook, in which she talks about the benefits of turning to angels for funding. 

What is an angel investor?
An angel investor is someone who gives a chunk of money to a company in return for a share of that company. They are usually private individuals, come in all shapes and sizes, and from all walks of life.

How much money do they typically invest?
Single angels generally invest between five and a few hundred thousand pounds. Once they get together in informal groups or syndicates the upper limit can be millions of pounds.

Do they lend to home based businesses?
Of course! In fact many Angels work from home themselves, keeping overheads low and managing their investment portfolio.

What are the key things Angels look for, before they invest?
They’ll be looking to work with someone they like and trust. They need to know there is the potential for them to make money so the business has to be able to grow fast and allow them to sell their shares after a few years. They’ll need to see at least a brief business plan and financial forecasts and on larger investments will have legal and accountancy professionals check out your business in reasonable depth.

What should a home business look out for when choosing the perfect Angel?
It’s a bit like finding a life partner, you can create an ideal checklist but in the end you find you sometimes click with someone quite unlikely. Ideally they should share your business values and finding someone who has useful contacts and expertise can be useful, but with their investment you can generally hire those in.

Try having them along to your Board meetings (yes, you’ll need to have them!) before they invest and see if they contribute to your business or drive you up the wall with their ideas. Your partnership with an Angel can last longer than a marriage so it’s worth making sure you like working with them. Don’t be afraid to say no to someone you don’t like - there could be a great fit just round the corner.

How does an owner calculate the percentage of their company they offer, in return for investment?
It’s extremely difficult to work out how much a fledgling business is worth. It’s highly subjective and in the end comes down to how much someone is prepared to invest in you.
If you want the scientific approach you can project your profit, find the Profit Earnings Ratio for your sector and multiply the tow out (or get your accountant do it!). Then once you’ve valued it you divide the amount you need by the value and that is the proportion of the company you should offer.

Angels generally want between 5 and 30% of a business. The more enlightened ones will provide the money required to properly fund the business in return for a share that leaves the entrepreneur with a good majority to keep them motivated.

However it’s all down to negotiation and how many offers you get. Don’t look at the shares offered on Dragons Den as these are heavily biased to the Angel, compared with real deals, reflecting the celebrity status of the Dragons.

Lois Cook is the co-founder of Angels Den.