3 (Very Different) Approaches to Angel Investing

The elusive golden key to funding.

For start-up entrepreneurs, is each source any better than the other when it comes to handing you the golden key?

Even though only 3% of businesses actually consider equity funding from business angels in the UK, three  different models of funding have emerged to try and bridge the gap between start-up entrepreneurs and business angels.

So what are they and what do they offer?

Most of us are familiar with is the panel of “Dragons” in the BBC’s Dragon’s Den. Dealing with an angel investor network, fund or the latest innovation, Crowd funding, isn’t really like that, it is a much more civilized affair and tempers will rarely if ever get frayed as they do on TV.  So dealing with networks, regional funds and ‘Internet crowds’ is a nice cosy experience where business angels of various levels of wealth will hand you some cash to get your business going with the minimum of fuss.

Now everyone knows what a business angel is, they’re the saviour of the UK economy as the banks remain tight with their funding. Business angel groups are out there waiting in the wings to dish out cash to get the UK’s businesses up and running. Nice thought, however the reality is somewhat less rosy.

If you think that getting funding for your business from business angels will be easier than getting it from the banks then look away now…

The trouble is these angel funds and networks are statistically more ruthless than the Dragons! If the success rate of the angel networks and funds was replicated on TV, Evan Davis would be in danger of repeating himself even more than he has to do already.

On TV the process is of course more magnified making it far more dramatic, but in the real world getting financing for your start-up can involve months of networking and preparation and even then you are far from guaranteed. Of those who consider equity funding only 3% of them will actually get it.

Regional funds and red tape

This likelihood of success in gaining business angel financing is statistically poor. The North West Fund, which is an umbrella for six individual specialist funds is the largest regional fund of its type in the UK expects to see only between 5 and 10% of businesses who apply getting the financing they need.

This is not surprising when you consider the amount of hurdles you will need to jump to firstly get your business plan considered and then meet the criteria which includes complications if your business is already getting funding from an EU source. But at least the North West Fund doesn’t charge any up-front fees.

Speed funding can be a hit and miss affair

Angels Den is a source of speed-funding charge a modest up-front fee of around £800 to get your business plan in shape and in-front of some business angels.

This approach centres on ‘speed funding’ which can be a hit and miss affair. However, the result of a large number of pitches at any given event means that depending on the event the average percentage of those entrepreneurs gaining finance this way is 43% by my calculations, which is a fantastic result compared to tradition business angel funding which might have a success rate closer to 3%.

What you also get, via Angels Den, is support through advice clinics and an opportunity to meet the investors face to face. This is something you are unlikely to get with the latest crowd sourced funding innovation launched this week….

Getting in with the Internet crowd

The Crowdcube model is about harnessing the power of the Internet crowd. But as anyone who works regularly online knows, this ‘crowd’ can be a fickle one. They will be made up of individuals who like the idea of investing but who don’t have the wealth angels investors do.

It will be very interesting to see how this concept plays out, will businesses be left on site for months on end why the owners go into online marketing overdrive to squeeze the finance they need from the crowd? And will those businesses who do get it find the vital support they would get from an angel network or fund?

So whether it’s fund, crowd or network it really depends on your motivation for seeking financing. Like everything else involved in early stage business, there are no easy answers.

Useful links

North West Fund
Angels DenCrowdcube

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