Business Advice

Angel Investment Explained

09/06/09

In the current financial climate, credit is becoming increasingly hard to come by and debt finance, which was once an attractive option, is now an expensive burden. Businesses left struggling to find working capital or replacement to bank debt can instead turn to the rising prominence of angel investment as a viable alternative. But what are the characteristics of this funding option?

Angel investment usually involves an affluent individual offering a business capital in return for a stake in the company. Unlike many other forms of investment, angel investment offers the investors' ability to not only to commit financial resources...

...but also to provide guidance and advice on a more practical level. This allows the start-up or early stage business to benefit from both the increased funding and the investor's expertise. According to a survey conducted by Newcastle Business School the vast majority of angel investors (70%) have previously founded and owned a small business so are well-positioned to add considerable value. In addition, 40% of them consider the investment of their general management expertise and experience equally as important as their money.

The level of involvement varies with each investor, with many taking a structured approach to spending time with the investee, often meeting on a regular basis rather than confining their involvement to crisis situations. The motivation to become a business angel also varies between different investors. Some are motivated by financial considerations, but many also regard it as an enjoyable business related activity away from the pressures of a 9 to 5 job.

When dealing with this type of investment, sometimes the returns for investors may seem too high. However, unfortunately many companies do not survive, which means investors sometimes lose their money. Therefore, they have to make high returns on winning investments to cover... continued on page two >

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