If the UK a return to prosperity it is likely to be on the back of a vibrant SME business sector. The banks are now talking about a committee to encourage lending to SMEs but they know that every business manager and credit control team in each high street branch are terrified of taking any risk. Fortunately, the people with the skills to make successful investments in SMEs do not work for high street banks. The area that can make a real contribution to the solution are business angels.
What is known about angels in the UK?
In the year ending 2009, 233 businesses received funding of £44.9m from high net worth individuals registered with networks as business angels. Within the 24 networks that are currently active there are 5,500 registered business angels. The biggest of these networks, Beer and Partners had a 52% success rate in presenting propositions compared with 28% for the remaining networks.
What is needed to be successful?
It is vital to have a funding proposition based on a sound business and marketing plan. The stereotype produced by organisations like Business Link is unlikely to get to first base. For the entrepreneur it will be necessary to have a specialist brokerage provide full project management. This will involve a detailed analysis of the existing business plan and the enterprise itself to establish that it is investor-ready; advice on writing the financial proposition that will be presented to the network and tactical support in the form the presentation will take. Fewer than 1 in 10 unmanaged propositions get to the presentation stage.
What sectors are most attractive to angels?
All sectors are attractive depending on the investors’ interest and geographical location. However, sectors receiving the most support in 2009 were: information technology, Internet and communications technology, software and telecoms, as well as medical, pharmaceutical and healthcare, all of which accounted for 65% of investments.
What services do angel networks provide to SMEs?
Almost all produce newsletters and information bulletins which are sent out to members of the angel network who might be interested in specific propositions. These communications usually include summaries of the enterprises seeking investment. Angels that are interested are sent full business, marketing and sales plans of the organisation and the network arranges discussion between the angel and the SME to establish if a deal can be struck.
Half of the angel networks run investor forums and fairs as well as investment ready schemes for entrepreneurs. Most networks will advise those seeking investment on the structure and form of their presentations and investment propositions and provide advice on the due diligence process. One of the more crucial facilities is the provision of investment readiness training for SMEs.
Who will fund SMEs in the short term?
The bank chiefs are making encouraging noises but this may be to hold off government action. However, trends in the supply of SME finance in the UK clearly imply that business angels are the main suppliers of small amounts of equity finance; a situation increasingly relevant as the number of early stage venture capital funds contracts.
How would an SME begin to approach angel investors?
Usually through associates of the angel network itself. However, some of the brokers include: Strategy Consulting Limited, Beer and Young, Capital Brokers and so on.
The entrepreneur seeking funding should keep in mind that SMEs and angel investors are made for each other. Start-ups and early stage businesses require money and most angel investors want new investment opportunities. Angels want a good return on capital invested either through dividends and/or the sale of their shares back to the original owners and they know they will find it in these early stage businesses.
Whatever, the banking chiefs decide the angel market will continue to provide funding for SMEs whilst bankers, frightened for their jobs, will continue to find ‘no’ a good decision.
