Table of contents
Table of contents
How does that saying go? If you want something you’ve never had, you’ve got to do something you’ve never done.
In this sense, if you’re looking for funding to take your business to the next level, you may need to think outside the proverbial box.
Well, an “angel” investor could be the answer to your prayers, giving you the helping hand you need and acting as a catalyst for exponential growth.
In this article we’ll explain what angel investment is, and things to consider first.
Starting with…
This is an investor who takes an equity stake in your business and, in return, gives you the funding you need to put your ideas into full effect. It basically means they own a chunk of your business (which also means they get a share of the future profits).
Along with funding, an angel investor will often give you more than ‘just’ money. If they’re looking for repayment and a future share of the profits, then it’s in their best interests to see you succeed, so you can also expect advice and knowledge based on their own experiences working in business (and your industry specifically).
This mentorship can sometimes prove to be the most valuable aspect of partnering with an investor. You’ll have a direct line to someone who’s been there and done it – and who wants to see you succeed.
Sometimes, groups of angel investors will work together for a business, though there’s almost always a “lead” angel who takes more of an active role. There are even crowdfunding platforms for angel investors to come together despite not knowing each other already.
Okay, so you have an idea of what an angel investor is, but what does it actually mean for your business if you choose to take one on? Like every business decision, there are pros and cons – which we’ll look at next.
Angel investors are able to act fast and reach decisions quickly (unlike banks, for example, which are required to fill out extensive paperwork before giving out a loan).
And then there’s the guidance and expertise you’ll have access to, which can ultimately prove invaluable in supercharging your business. At the same time, though…
The biggest downside for most is that you have to give up a percentage of ownership. What does this look like in practice, though? Well, it basically means you’ll share future profits with them, and may also have less control over major decisions.
Along these lines, you’ll have reduced autonomy in general, and a poorly structured deal could even result in you being forced out of your own business!
You’ll also experience a fair bit of pressure when you’re working with an angel, as they (understandably) expect a return on their investment.
To appease them, you may have to provide regular reports or updates, and this is where good bookkeeping software (*ahem* Pandle) comes in.
Just because you like the idea of taking on an investor, it doesn’t necessarily mean you’re in a position to. Any potential investor will want to see evidence of traction, such as early sales or a growing client base.
Financial stability is also high on the list of importance, along with some kind of reassurance that you know what you’re doing and won’t just squander their investment.
Again, you can demonstrate this by keeping accurate and up-to-date records of what’s happened in the business so far. You’ll be able to use this data to create detailed reports of your financial performance, and to provide more accurate forecasts.
Really weigh up whether you’re prepared to trade a share of your company (as well as the control that comes with it).
Lastly, it’s crucial to remember that an investment isn’t a loan.
The first thing to look out for is experience in your chosen field. Ideally you want someone who can offer specific, tailored advice, and who may also have useful connections (customers, partners, and potential future investors).
Generally speaking, though, you want someone with a proven track record, and sometimes most importantly, the commitment to help grow your business.
It’s also worth considering how involved they want to be, and whether or not this suits you. The money might not be worth it if you can’t stand the fact they exist.
Working with an investor isn’t for everyone, so there are lots of other options you might prefer. These include things like traditional loans, applying for business grants, or even bootstrapping. We go over these in more detail in a separate article.
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AAT Level 3 qualified, I’ve worked in the finance sector since 2017. When I'm not in Pandle HQ, you'll find me hiking and playing the drums.
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