How to get money from the UK’s Angel CoFund

by Dr Richard Hargreaves


When you make a decision to invest in an unquoted company, it is unlikely that you will be the sole investor.

In which case one crucial issue is where is the rest of the money to come from?  And this is where the UK CoFund can help UK based business angels and businesses.

Most smaller ventures are solely backed by angels.  Below £2m of money raised the business angels are the most important source of equity capital in the UK having eclipsed venture capital funding some years ago.  And the banks are not a significant source of funds.

Despite the very attractive tax incentives available to angels through the Enterprise Investment Scheme (EIS), it remains hard to pull a syndicate of business angels together.  For example, a company needing £1m would need 40 angels investing an average of £25,000 each and this is not easy to organise.

Recognising the economic importance of young businesses and to help overcome these challenges, the UK government launched the £50m Business Angel Co Investment Fund (the Angel CoFund) in late 2011. Its role is to facilitate investment by angel syndicates by investing alongside them.

I have had five deals approved by the CoFund so I do have some knowledge of how the fund works. Its management team is professional, personable and pragmatic. Importantly, in the deals I have handled, their investment has fitted in well with the investment structures which were already in place. In short I recommend the fund as an investment partner.

The principal features of the CoFund

  • It invests between £100K and £1m in SMEs alongside syndicates of business angels in companies in England (Scotland and Wales have their own schemes).
  • Companies must not be in the 25% most wealthy wards.  There is a postcode check on the CoFund’s website. This test is not as demanding as it sounds as there are three factors taken into account (Employment, Income and Education) and the address must fail on all three tests.
  • The upper limit of investment is 49% of any investment round
  • The total investment needs to properly fund the business.
  • The investment needs to be a new investment for the syndicate but existing investors can invest at the same time.
  • The CoFund will broadly invest on the same terms as the syndicate including the structure and price of any investment.
  • Once invested the CoFund can make follow-on investments.

You can see fuller details on the CoFund’s website.

The investment process

Most investments made by the CoFund have been organised by an angels network or syndicate organiser.  In such cases the organiser presents the case alongside the lead angel and that is how I work – though there is nothing to stop a syndicate going it alone.

  • Before doing anything else you must check the postcode.  It is far from instinctive whether an address passes the test or not. If the company is a complete startup it can easily chose an address that passes the test.
  • Then a lead angel is needed. The CoFund sees itself as investing alongside smart money and it does not try to second guess it. This makes the lead angel crucial to the process. In my experience he needs to have an intimate understanding of the company’s market why the company should succeed.  I see my role as syndicator as handling the whole process for the syndicate which lead angels don’t usually want to do.
  • Next a short application form is submitted (available from the CoFund website).  This gives brief details of the company and includes the investment structure and amount requested from the CoFund.
  • The CoFund will want to see the lead angel’s CV and to interview him on the phone.  They will focus on whether he understands the business, has done appropriate due diligence, his proposed investment and what his downstream role might be.  They will expect the amount to be invested to be significant from his point of view and they will expect a broad alignment of interest – for example, a paid role at annual rate equivalent to the amount invested is not likely to be acceptable.
  • Now for the hard bit.  The CoFund will ask for a draft paper to their investment committee using their template.  This paper is quite challenging for somebody who has never done it before.  Once submitted it comes back covered in red ink and questions and may need to go through several drafts.
  • By now a date will have been set for the investment committee meeting and the presenters will be prepped by telephone.  The meeting itself will be telephonic but very structured and will last for around 45 minutes.  You will know who are the members of the committee – probably four people.  They are all outsiders who are themselves angels or investment professionals.  The meeting will be friendly but challenging.
  • The decision is communicated by telephone and an offer letter follows shortly.  The legal process is straightforward if the syndicate is organised and has appropriate paperwork – company articles and a shareholders agreement.
  • Downstream the CoFund will ask to receive board papers and expect to discuss progress with the lead angle or syndicate organiser form time to time.

The whole process is challenging but professional and friendly.  Good luck!

Dr Richard Hargreaves is the author of ‘How To Become A Business Angel: Practical advice for aspiring investors in unquoted companies’, published by Harriman House. 

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