Securing investment to grow a business is something many entrepreneurs have to do. If you haven’t done it before it can be a frustrating, nerve-wracking, stressful process, but many young businesses have taken flight thanks to the support of business angels.
Mike Rutterford from Archangel, one of Scotland’s first angel syndicates, shared his thoughts and advice at a recent Supper Club, explaining not only that they provide cold hard cash, but commercial acumen too.
This blog shares the highlights of Mike’s talk.
What’s the angel community like in Scotland?
Scotland is actually the most developed country in business angel investment outside USA. In the UK, 20% of EIS claims come from Scotland despite the fact we only account for 8% of the UK population. We bat above our average.
Mike stressed that the importance of SE and the Seed Fund and Co-investment Funds is not to be underestimated. They are great facilitators to the angel investment process.
How does angel investment work? And how does Archangel invest?
There’s a clear difference between angel investors and VCs, and it’s important to understand this. Mike explained the key characteristics of a business angel as opposed to a VC:
• money comes out of their own pocket as opposed to a fund
• they are not compelled to invest or recycle money in a set time
• and they are not under pressure to do deals
Angels can make decisions quickly, and they invest in “plain vanilla” ordinary shares alongside the founders / executives (not fancy deal terms like VC’s and banks).
Probably most importantly, they invest effort as well as money (more actively involved than a VC) and they lend for terms of 8 to 10 years as opposed to 2 to 5 by the VCs.
Archangels (AA) was set up to have fun, to help young entrepreneurs, and “to make a shed load of money”.
The 5 founding members of AA are the main board members and have control over the syndicate. Board members put in a minimum of £20k each to any investment they wish to pursue, providing an initial £100k, and this then endorses the investment to the other 120 members of the syndicate. Typical investments are c. £500k.
Asked how AA is doing, Mike revealed a 1 failure to 1 still active ratio, i.e 50% still in the game. He says
failure usually comes within the first 2 years.
What do angel investors look for in a business?
Mike says angels are much more selective in what they look at now. They focus on the people, the management team, and their ambitions and abilities to deliver on the business plan.
The key is in spotting the failures early and getting out, and the main reasons for failure are: bad management, lack of sales, and lack of capital.
If you want to know more about angel investment, here are some useful links.
The Supper Club was a huge success, here are some of the comments from attendees:
“It was good to better understand the decision Angel Investor’s take to invest in companies. Also to see what they are looking for in a company and in the companies management team”
“Very revealing insight into how Business Angels operate and the key sectors they like to invest in”
“Mike’s a very knowledgeable Angel investor and businessman with lots of great advice gained from years of investing in both successful and unsuccessful ventures. But we got much more than just Mike’s views as we had three other Arch Angel founders there too!”
“Most of the attendees had no idea what angel investors did, or how they did it. Some had very narrow agendas some, like me, were along for the experience. I think everyone got something from it.”