A Short Guide to Business Angels

 By: John Switzer Haagensen
Entrepreneurs and business start-ups have a profound effect on the economy. Through their entrepreneurship, sweat and long hours, new jobs and wealth locally and nationally can be rebuilt which in a time of economic recovery certainly is desirable. Entrepreneur's ideas are however often successfully helped on their way through the financial and professional assistance of Business Angels.

So what is a Business Angel?

Business Angels are by definition so called high net worth individuals who invests in profitable businesses or ideas, either on their own or as a part of an investment syndicate. They do not only provide financial support but often make their own skills, experiences and business contacts, available to their chosen investment.

Business Angels therefore often chose investment opportunities in industries and sectors where they have previous experience end expertise. This enables them to become a valuable resource for the business as well as increasing the chance of a successful outcome of their investment.

As with any other investor Business Angels makes investments to increase profit. However anthropological reasons such as ensuring entrepreneurial success locally and nationally and in general putting something back into society is also a key motivator for most Business Angels.

Business Angels should be an important source of funding for new and expanding businesses and certainly a source to consider given the valuable knowledge that often follows an Angel Investment.

Who will benefit from Business Angels?

Business Angels invest in the region of •£10.000 up to •£750.000 but sometimes more depending on the investment opportunity. UK private investors account for •£800 million and •£1 billion of the start-up funding available. Private investors will often invest the larger amounts as part of a syndicate in order to spread the risk of the investment being made. Syndicates can be founded through personal contacts or through Business Angel Networks.

Business Angels invest as previously mentioned in most industries and sectors and in all stages of a business development. Business Angels are the main and largest source of early stage capital in UK.

Requirements of the Business Angels:

Private investors and Business Angels want to ensure that the risk from investing is at a minimum and therefore they will look into the following in detail before investing:

- Business Angels invest in people as well as the business and therefore pay rigorous attention to the expertise and track record of the management and team.
- The growth potential of the business and the market of which it operates.
- The competitiveness of the business compared to the established competitors - what is the unique selling point that will make it stand out from competitors?
- The likelihood of a successful working relationship between the investor and the entrepreneur - what skills does the business need compared to the actual skills of the business angel.
- How much have the entrepreneur invested and does it show sufficient financial commitment to the idea.

It is a two way relationship and the entrepreneur and business must ensure that they are compatible with the Business Angel. They should similarly consider if a good working relationship can be established and that the Business Angels skills match the businesses requirements?

In addition it is highly recommendable that the entrepreneur seeks independent legal advice prior to signing a deal.
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