Raising Capital - Angel Investors

Welcome to our new series on Raising Capital! In this series, we’ll explore different sources of capital and why you might choose one over another depending on your purpose!

Raising Capital from Angel Investors

The first thing to say is that your equity is probably the most valuable asset in your businesses – so guard it preciously. If you’re able to bootstrap your business and grow it organically, then that’s great but most people need a helping hand somewhere along the way.

Raising money for your business is probably the most stressful thing that you’re going to do. In many cases the first place that businesses look for this is with angel investors – but where do you start and how do you spot the difference between angels and demons?

More than Cash

Finding angel investors who bring more than just cash to the party is really important. Their skills, experiences and connections can be really valuable as the business grows and develops. At the end of the day they have an incentive to help you grow as it will make their investment more valuable, so this should be a win/win relationship. It’s also for this reason that you’ll ideally find angels who have invested in businesses which are similar or in your sector in the past as they’re more likely to be able to help and support you.

Where do I Find an Angel?

Bluntly, many people just search LinkedIn for investors with a passion for their sector and that’s a perfectly valid things to do. It can be a bit of a thankless task reaching out to people cold, so always try and find a warmer way in. We did say this was stressful so be ready for a few knockbacks along the way.

Another source of angels is through angel groups. These are increasing in numbers and some of them have a geographical as well as a sectoral bias. For example NorthInvest - NorthInvest does what it says on the tin and focusses on companies in the north of England. Other groups such as Growthdeck: Your personal VC has a broader investor base of private investors.

Allied to this, you’ll find various platforms out there where you can post your deal such as Investment Platform & Startup Networking Ecosystem | Connectd (fees may apply).

Incentives to Invest

The UK has some very attractive incentives available to investors depending on the stage of the company. There are conditions to meet, but the SEIS and EIS tax reliefs in the UK make it much more attractive for UK investors to invest into UK companies whereas these incentives are not available for example to US investors. The result is that it much easier to get earlier stage companies funded by angels because the financial risk to angels of things going wrong are significantly reduced.

You’ll hear a few different terms used other than straight equity. The most common others are:

• Advanced Subscription Agreement – this is where an investor subscribes for future shares at a discounted price. Although you’re essentially discounting your future share price for these investors, you’re also not having to set the valuation of the company at this point which can be hard if you’re still at an early stage. The tax reliefs above may still apply, but you will need to ideally complete a larger fundraising round within 12 months for the reliefs to be available; and

• Convertible Loan Notes – these are debt instruments which can be converted into equity later at a discounted rate. As these are debt instruments, the tax reliefs above generally are generally not available so these are invariably less attractive to angels and more common in the US.

You’ll hear a few others mentioned, so do your research because a deal is far more than just about the valuation. Don’t take shortcuts here. Take professional advice as the wrong deal on the wrong terms can undermine all your hard work!!

The right angel will make a massive difference to you and your business. Take your time in getting to know each other and give yourself plenty of runway before you need the investment. The best time to talk to potential investors is when you don’t actually need the money so get out there and build those angel connections and develop your brilliant investor pipeline.