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Ask yourself one question... do I feel lucky?

It is quite common for me to send out an executive summary to an investor or investment group only for them to say something like, “Yes, I know of this company. Are they still looking? We took a look at this last year and told them to come back once they have a little more traction. Have they got any sales yet/did they get the product out?”

You don’t have unlimited ability to approach the market place. Think and act as though you only have one chance and that means don’t ‘knock out’ a business plan or executive summary with the notion that the business is best explained in a conversation. It might well be true but if your business plan does not set up your shop clearly and succinctly you may not be given the opportunity to have that phone call or meeting about your business proposal.

Remember, your first shot is your best shot. You may be lucky and subsequently squeeze an investor out of nowhere but by and large, once you are in the investor domain (landscape), your name and company often get discussed (perhaps at an investment network) and in some cases investors have already come across you as your executive summary might have been emailed from one angel colleague to another.

What are the implications if you don’t succeed?

Coming up short of the funds at the end of this process can make you seriously question whether you really have a business on your hands worth pursuing and that folding it might be a very real consideration.

If you are fortunate and have the time, money to live on and inclination, you could possibly regroup and reconfigure by asking for less, changing to a different revenue model or chasing a different target audience, etc.

Or, if you can wait for the slower sales trajectory and decide instead to dig your heels in deeper, roll up your selves and resolve to grow slower via organic revenues, then maybe you can skip the ‘seed’ round and go on a year or so later to a VC or super angel A-Round (£1-4m ish). This should allow you to keep more equity for a longer period than if you’d also done the seed round first. Sometimes this is not a poor second option. It is worth noting though that businesses with some sort of traction or validation (in terms of established turnover or a decent audience size), usually come with a higher investor desirability. You may therefore find that if you tried again in 12-18 months with some ‘proof points’ ticked off, you may bring in that investment capital and expertise.

Are there any additional fundraising options?

“Options for what?” Should be your first question because fundraising is a process and not just a question of someone opening their contact book to investors.

My view is that investment readiness (IR – very often means preparing your written and numerical data) and fund-raising (FR – the activity of linking business to investment source with a view to discussing a deal’s potential) are two different specialisms but this is a whole other subject that I have blogged on elsewhere.

I have a colleague who feels that between the IR and FR comes something called being ‘Deal Ready’ and I would agree with him. The problem is that the investment ready and fundraising get mixed together in the fog of the angel investment networks. These networks are a genuine route for companies to chase the skirts of business angels, some fine deals are done in these environments but there can also be an awful lot of spillage.

So, back to the point: some options you may want to consider can be found in the British Business Angels Association (BBAA) website. Look at their Directory for either Angel Networks or Professional Service Providers. If your opportunity is deemed of good quality and potential investor desirability, then you may get a fundraiser such as myself to work on success fee only.

If you’re not quite ready and prossibly in the 95+% group, then be prepared to spend to get yourself into shape.

And finally. Don’t underestimate investor feedback!

It’s not much fun if you find yourself in the 95+% bracket of business trudging round the networks hoping to spark some interest.

And the reason you are  in the 95+% group?

Well, something is probably wrong. It could just be that investors don’t feel that excited enough by the opportunity or its returns. It could be that they think you have overdressed the proposition and don’t give straight answers. As above… “a million and one reasons.” An investor’s “this one is not for me because …” feedback is very valuable. “Not one for me” feedback from 5 investors is immensely invaluable. If they all say similar things, then your lack of cash on the table is probably to be found somewhere in their feedback.

Aristos Peters

Post author, Aristos Peters is a strategic advisor who undertakes fundraising, strategic growth development and NED advisory roles within early-stage companies looking to work up the steps of the investment ladder towards an exit. He works closely with angel investors, High-net-worth individuals With experience especially within the areas of digital, online, technology and media. His background prior to operating in the equity finance sector has been in b2b business development, sales and marketing/brand communications.

He is currently putting together a business angel investment syndicate / accelerator, The Big Bang Syndicate and blogs at:  http://weklik.wordpress.com/

Want to know if your business plan is suitable for funding? Then why not take our quick and easy investment readiness survey and see if you can answer these key Business Angel questions…. http://goo.gl/2VJLX

Mike Weaver CEO of Beer and Partners

Beer and Partners CEO Mike Weaver has a strong belief in business angels’ ability to help stimulate economic recovery. However, Mike also believes there are no guarantees of success in angel funding and business angels should be prepared for a significant number of their investments to go “pear shaped” before they find a “star”.

What’s different about Beer and Partners’ approach compared to other business angel networks?

First of all we work for the entrepreneur seeking funding, although we have a very clear duty of care to the investors.

We are very focused upon quality, and vet every company that we take on thoroughly, so that any prospective investment opportunities that we present to investors are in our view, investable. In any one year we look at over 3,000 business plans, take on around 100 of these as clients and succeed in raising funding for around 50% of those companies. Whilst that is only one in two, it should be recognised that the industry average is closer to one in five.

Why are we operating at this level of success?  It has always been the case with us that only the better propositions get funded, and in a tough economic environment it is even more about quality. Putting unqualified investment opportunities in front of our investors would just result in them dismissing the better ones, buried within the mass.

So quality of opportunity is most important. Secondly, we have the heavier hitters amongst the business angel community. Average investment through our network is £100k (range £25k-£1m) compared with the industry norm of £20k.

We have 1,700 HNW investors registered with us, looking to make direct investments into companies.  Around 10% invest at arm’s length, 10% become involved at an operational or board level, but most wish to leverage their investment with their knowledge, knowhow, and contacts, and look for news flow or the opportunity to advise and mentor new entrepreneurs.

There is a trend away from investing through poorly performing VCTs and SIPP funds towards direct investment, where an investor can see feel and touch their investment and relate to the entrepreneur directly.

Many entrepreneurs dislike having to pay a fee for introductions, can you explain the value of submitting a business plan to an angel investor network?

Raising funding is not for the faint hearted. It’s a tough process requiring resilience, changes to business plans, meetings, and often a reality check on the valuation of the business.
We find that an upfront fee ensures that we get committed serious clients who want to raise money and take their company forward. We believe that this is a major factor in enabling our level of success raising funds to be more than double the industry average. Those not prepared to invest in this process are, more often than not, those who do not take the process seriously, decline professional advice and fail to attract funding…and a 50% chance of raising the funding is also a 50% failure rate, where we work even harder – but fail.

Is it better for a business angel to join a network rather than go it alone?

For choice of investment opportunities yes, but the invisible market is probably as large. It is however a regulated sector, and there are FSA regulations and money laundering legalisation about what you can and can’t do, which we cover for both our investors and clients. Strangely, under current regulation it’s the fund seeker who can be breaking the law and exposing themselves to serious financial penalties by making a direct, unauthorised approach to an investor.

Why would I choose to become a business angel rather than invest my money in other assets?

It’s not either or.  Business angel investing can be high risk/high return and should form part of an investment portfolio, say 5-10%. It’s also important to have a spread of risk.

How long on average do your members take to exit their investments?

Every client starts off planning an exit within 3 years via an IPO, but most experienced investors expect exit through a trade sale in 4-6 years. We did recently however, have an investor who injected £1m into a company in November 2008 and exited in March 2010 for £2.1m.

Not all investors exit. If they make 10 investments they should budget for 5 or 6 to go pear shaped, 3 or 4 to be living dead and just one to be the star returning sufficient to make a large profit on the 10 investments overall.

What is the success rate of businesses who receive funding through Beer and Partners?

An analysis of the companies funded by Beer since 2005 reveals that only 25% have failed to date and only 3% have been stars so far. However we believe that the rest are still maturing and will exit rather than too many becoming living dead where the investor doesn’t lose his money but cannot cash in easily.

Pitching has become prevalent through web based matching services and speed investing seminars. These are good insofar as entrepreneurs get valuable feedback from investors and advisors, but don’t (we believe) have a great level of success in actually raising funds. The audience often tends to include service providers networking their own services rather than investing which is why they sometimes get bad press.

We provide a more focused and tailored matchmaking service. The pitch is to us, to see if we can get comfortable with the likelihood of raising funding for the entrepreneur. We don’t charge for this or for the initial review of the business plan and only charge from the moment that we are convinced that it should attract funds and the entrepreneur is happy to go forward. Having said that we don’t always get it right and I can never decide if my worst nightmare is taking on an inappropriate client or turning away the next Cobra beer!

With bank lending continuing to be restricted, are you seeing a rise in the number of businesses seeking help from business angels and networks like yours?

Yes, but still very hard to find the good ones. We are however surprised that companies who have seen their bank facilities removed or severely reduced over the last two years have preferred to contract rather than consider angel funding as a substitute.

It is still sinking in that the days of cheap bank debt are long gone and we are lobbying for HMRC to amend and update EIS to allow relief on convertible loans or long term debt to companies rather than just for equity investments.

What options can your network offer start-ups seeking funding?

In addition to our full service to start ups we run an investment Fair 3 times a year in London – the next one being held on 9 November at Mark Mason Hall in St James’s London.

This is NOT speed funding- the strap line is Face to Face Finance. We typically have 30 entrepreneurs presenting on the day and over 130 investors coming along. The format is quite simple and effective with investors spending as much or as little time with the entrepreneur as they wish and establishing an initial interest in investing. Very little investment is committed on the day but the November 2009 fair generated funding for £2.1m to 9 of the companies presenting on the day.

What does the future hold for Beer and Partners?

Luke Johnson’s investment earlier this year in Beer & Partners has not only raised our profile but that of the industry as a whole and the increased profile is enabling us to attract the better companies seeking funding and additional investors.

The expected demise of the Regional Development Agencies (who have been our largest competitors in the industry) and resulting lack of availability for new companies should result in additional new businesses coming our way.

The economic climate will remain difficult for some time to come, but every recession proves to be the launch pad for a whole new wave of businesses starting up and needing funding,  enabling them to become the powerhouses of the future. We hope to remain an important part of that, taking pride and pleasure through securing funding for promising companies to develop.

In 1999 there were 48 Business Angel Networks- now BBAA have only 22 registered, and removing group entities means that there are 16 real players in this market. We are fortunately thriving –and we believe it is because of our ethos of concentrating only on the best.

The global financial crisis and the resulting recession made a deep impact on seed funding

New venture funding is the lowest it’s been for a decade according to Nesta’s July report; Venture Capital Now and After the Dotcom Crash and that’s not all…

The BBAA’s glittering annual awards dinner and conference took place last Wednesday providing an  opportunity for business angels to meet up and share their experiences over the past 12 months. I wonder how many of those attending had read Nesta’s report on VC funding. Ok so we haven’t really witnessed the end of seed stage funding, but there has certainly been a huge decline.

The findings of this latest report which follows Nesta’s business angel report last year will likely have provided a sobering topic of conversation. What is interesting about this latest report is that it takes us back to the Dot Com crash of 2000 and compares it with 2009. It makes three alarming conclusions :

•    Fundraising in 2009 is the lowest in the past decade.
•    The situation now would be far worse without public funding.
•    It is taking longer for investors to see returns on their investment.

You could say this is all about VC investments and not really indicative of the likely performance of investments made by business angels. You might also think that it is understandable given the scale of the financial crisis and a deep global recession that there would be a temporary loss of appetite for risk – considering the millions rather than thousands VCs tend to invest.

But this report suggests something more than a temporary blip. It highlights a longer term decline in the performance of VC investments made in the past decade. It is worth remembering that 2009 was the start of recovery when most countries were beginning to move out of recession. Yet fundraising was also lower than it was in the last recession.

What is also alarming is that it was investment in seed and start-ups which suffered most between 2007-2009 dropping by 58 per cent. And this is an area that would be of concern angel investors who use their own money to help those early stage businesses.

Looking at these figures there appears to have been a marked loss of confidence amongst VCs and a dramatically reduced appetite for the risks involved in early-stage investing. So will business angels be filling in those funding gaps? Possibly, but rather than dive in and exploit all those growth businesses the VCs are missing out on it might be worth finding out why VCs have seemingly abandoned seed stage businesses.

Correct me if I’m wrong but I’m guessing the biggest reason lies in the time taken to exit. I recently read with interest a blog which talked about angels finally getting in on the act with all those seed stage businesses, however it won’t be a simple as a VCs out, business angels in scenario.

Owners of those businesses shouldn’t get their hopes up. The reason VCs are pulling out of investing in seed stage businesses is down to the time it takes to exit. Typically the patient investor would want to see a nice return on their cash and an exit in three or four years.

What this report tells us is that exit is more than likely going to come in seven years or more. Seven years is far too long. While not all exits will take this long, clearly there will need to be a considerable commitment. The landscape appears to have changed dramatically in the 10 years since 2000 when it took on average three years less to exit a company in the UK.

More worrying still is that the report says there is greater uncertainty now about the time taken to exit and there are likely to be more funding rounds now before flotation than ever before.  So more money is being pumped in than ever before and it takes longer to get your money back out again, if you make any at all and that is far from guaranteed according to last year’s report. This doesn’t sound attractive. The impact on those promising growth companies that should be helping to boost economies should also be considered.

On this evidence things can only get better and at that glittering awards ceremony in Manchester there was much to celebrate, but this latest report from Nesta certainly provides some food for thought.

Less than 5 per cent of the UK’s angel investors are female and Women into Investing is a series of training events and investment opportunities to increase their numbers.

The organisers believe that breaking down the barriers in male dominated investment communities will increase the flow of equity to ambitious businesses as well as giving female investors the potential for substantial returns.

Women into Investing is launching at The Roof Gardens, Kensington, London on the 9th June from 12 till 2.30pm. Attendees will learn about the background to business angel investing and hear first-hand accounts from experienced female investors.

The FSE and the BBAA’s joint initiative will also include a member-led female investor club later in the year.  Sally Goodsell, CEO of FSE said: “I have always believed that business angels are the lifeblood of early stage businesses, investing some £800m-£1bn annually across the UK in growing young companies.

However, despite the high number of successful women in the UK, with women accounting for nearly half the millionaires in Britain, currently only about five per cent of business angels in the UK are women. We want to change this figure for the better which is why we have joined forces with the BBAA to engage more women in this interesting and potentially highly rewarding activity.

Women are in a great position to bring both their financial capacity, business skills and experience to support the growth and success of innovating SMEs, offering the potential for significant returns.”

Finance South East has a unique business model. Whilst its funds are managed on a commercial basis to meet investor requirements FSE is a not-for-profit entity that does not distribute surpluses. The organisation has offices in Camberley and Ipswich, and works across the South East of England and surrounding areas. The team has won many awards for its innovative approach to funding SMEs.

Beating the Business Angel Investment Odds?

We are living in risk-averse times and “Cash combined with courage in a crisis is priceless” according to Warren Buffet.

But when does courage cross the line into gambling territory? Or to put it another way what if you had say, £50,000 to invest, and someone said you have a 20% chance of a return on it, would those odds appeal?

With a failure rate in the region of 80% if you look deeper into the stats, the odds are pretty well stacked against any kind of successful outcome. But there are ways to lessen those odds and increase your chances of success by following the advice of experienced business angels.

The latest instalment of the BBAA angel investor evenings held in Manchester provided an opportunity

to listen to the advice of seasoned business angels who have been there, made the mistakes and learned from them.

56% of exits failed to make a return according to the Robert E Wiltbank’s 2009 report on angel investment, a figure based on a sample of UK Angel investors – more than 50% of whom had yet to reach for the exit! Hardly a USP, and an unacceptable risk for those seeking a decent return on their investment.

The panel of seasoned business angels briefly removed their halos to provide insight into why indeed would anyone want to be business angel let alone in a crisis!

Robert Heise an angel investor with over 40 years of  business and technical experience to call upon described being a business angel as an “onerous task” but one that can be worthwhile with the right approach.

His pointed out that to get the most out of your experience as a business angel, you need to be altruistic to some extent. Investing in an early stage enterprise is also a two-way process which is unlikely to bring a successful outcome without a large degree of cooperation between the management team and the investor. When things get tough, which they inevitably will, be sure that you know the management team well enough to weather the storm.

A business angel should also be prepared to act as both teacher and mentor to the company they invest in, by bringing expertise in areas such as sales or the technical side of the business to the table. There is little point in simply writing a cheque and stepping back (a point I will return to later). Active involvement leads more often than not to better outcomes and more profitable exits.

Aside from increasing the chances of success, active involvement, from the point of view of the investors themselves, can also be more rewarding; providing a sense of achievement as well as an opportunity to have some degree of control over the direction of the business. .

Unlike other asset classes, investing in an early stage venture brings with it an opportunity to shape, create and drive forward ideas which brings a greater sense of satisfaction for your average business angel.

While it may provide a rewarding venture for some investors, the panel put forward some good reasons not to become an angel:

•    Angel investing will not bring a regular source of income.

•    An early stage business will generally take years to begin showing real profits with the average exit feasible in just under four years.

So what about those who are thinking of becoming a business angel, have money but no time to devote to the business they invest in?

The experienced angel investor practices ‘business be awareness’ which means you should have at least some active involvement in the business you invest in; this may only be a place on the board even if you simply choose to observe.

This will at least ensure your cash is being put to good use and tip the odds in your favour. It is no coincidence that, statistically, businesses where a business angel has taken an active role are more likely to achieve a profitable exit. If you only have money to offer without time or expertise then angel investing probably isn’t for you.

For those who still believe angel investing is for them, it can be an extremely rewarding and profitable experience as long as you’re prepared to exercise patience choose your management carefully and, importantly, get involved!  That way you can beat the odds against a profitable exit.

Quoting new research from Nesta, Mogwenna Rees-Mogg stated that a ’56% failure rate for Business Angel investing is not good enough’.

This means that for every £1 invested by UK Business Angels, 56p will be lost out right and the remaining 44p will have to grow considerably to make up for the loss and return the business angel with a sufficient return to justify both the money and the time invested.

Discussing the Nesta research in more detail, the panel members expressed the view that it is likely that perhaps 10 or 20% of Business Angels do considerably better than the remaining 80 to 90% and therefore, in order for angel investing sector to grow, more investors need more support, training and help to make better investments.

John Huston, Chairman of the US equivalent to BBAA, Angel Capital Association, confirmed that the results of the Nesta survey into UK business angel success rates mirrors the experience in the USA.

The event is sponsored by Advantage West Midlands, the redevelopment agency for the West Midlands.

It will include both an opportunity to recognise key contributions made to this growth sector during the year at the annual awards dinner as well as create a platform for discussion about how this new sector should grow during the conference session on Thursday.

Many business angel networks and agencies have seen an increase in activity in 2009 as a result of high net worths looking for greater influence over how their money is invested as well as more business start-ups turning to business angels to provide initial funding.

However, converting interest into actual funds invested; and, funds invested into business success is where the industry still needs to prove its mettle.

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