Business angels
By Peter Switzer
I’ve heard about these business angels who can lend small businesses money. What do they require? High-growth businesses, regardless of their stage of development, usually require some form of outside finance. This often comes from "business angels".
Private equity investment is often overlooked by business owners because securing the right investor for the business has traditionally been time consuming and difficult. The thought of an "outsider" owning part of a business has also been a hurdle.
Benefits of third party equity
Despite these concerns, key benefits of introducing third-party equity include:
- Access to capital in excess of available security.
- No debt servicing obligation (no regular principal and interest repayments).
- Potential to introduce valuable management talent into the business.
Early stage and expanding companies are achieving first-round funding to fuel innovation or commercialise their product from business angels. Businesses angels are high net-worth individuals seeking to provide experience in addition to capital to assist companies. They are either successful entrepreneurs themselves or senior executives from corporate sector. They bring benefits such as business connections, industry experience and management expertise, in addition to capital. Traditionally, they invest from $50,000 to $2,000,000 per business, filling the gap between founder funds and venture capital. Usually they take a minority stake in the ` company and a board seat. Any business seeking capital must have their house in order to improve their chance of success.
Be investment ready
Typically, an investment-ready company has:
- A workable business plan and realistic financial forecasts
- A market growth strategy
- An investment proposal
- A business valuation
- Up-to-date financial and management accounts
- A clear business model
- A capable management team.
A word of warning – many small operators don't work well with anyone who has a part ownership in their business and that’s why this kind of funding arrangement is not for the faint-hearted.
