21 Questions for Angel Networks

The recently published first government report on the UK business angel market concluded that “angels are increasingly ‘the only game in town’ for businesses seeking smaller amounts of equity finance”.  The report revealed that the angel investment market is growing at an unprecedented rate, with more investors registering with business angel networks than ever before.

The British Business Angels Association recognises that there are now 24 registered business angel networks in the UK in August 2010. The services provided by business angel networks in the UK vary significantly and with so many different to choose from, it can be hard to asses the quality of a network.

Small Business News published 20 questions that the entrepreneur should ask of any angel network before making a decision to trust them with his/her fund raising and these are worth considering. Capital Brokers has added one extra.

About investors

How many investors are in your network?

Where did those investors come from?

What sort of information do you hold about them?

Do you know how many have expressed an interest in my sector?

Do you know how many would be interested in my stage of                                             development?

What is the typical profile of your investors?

 About the deal

Is there any exclusivity or can I go to other networks?

What happens if I find the funding myself whilst working with you?

 About the process

How do you actually get my business in front of investors?

Do you produce any marketing materials for me?

Do you help me prepare by business plan?

Do you come to investor meetings?

Do you help with negotiations and valuations?

How long does the whole process take?

Is there a time limit on the help that you give me?

Track record

How many companies do you act for per annum?

How many completions do you achieve per annum?

What do you class as completion?

What are your total funds raised per annum?

What is the average deal size?

Are you registered with the FSA to broke equity funding?

So when you are looking for funding, talk to a few business angel networks and compare their answers to these questions. The UK’s and  EU’s most successful business angel network Beer & Partners has raised in excess of £17million for small businesses in the last two years alone taking on promising businesses from all over UK as their clients, and then presenting those businesses to their network of over 1,700 business angels, and 300 institutional investors.

Recession or Slump?

Business in need of funding

Could we be starting another Great Depression? By any measure, our current economic suffering does not approach what this and other nations endured from 1929 through to1939 and the war.

In the depths of the Depression, 25% of the population was out of work. Stock indexes had fallen 89%. For those who had homes and mortgages foreclosures soared. During the Depression, savers watched their money evaporate in bank failures, because then deposits weren’t insured and governments did not intervene. Things were so bad and bankers so unpopular that bank robbers, such as Bonnie and Clyde, became folk heroes in the States.

Few people would deny, that the current economic climate bears disturbing similarities to the start of the Slump

The banking system was crippled in the slump by bad loans and speculation. In 1929, the bad loans were made to stock-market speculators; most recently, the bad loans were made to homeowners and investors in mortgage-backed securities. In 1929 and 1930, the Fed actually raised interest rates, draining liquidity from the USA system, deciding that that was best way to stamp out speculation. In contrast in this recession the central banks have dropped interest rates to their lowest levels in most histories.

Banks stopped lending in 1929 to prudently (they said) avoid further losses, which slowed the economy even further. By the mid-1930s, more than 5,000 banks, world wide, had collapsed. Today, central governments have pumped money into the banking system under the condition that they carry on lending. However, banks have slowed lending to avoid losses, and because of this the credit markets have nearly ground to a halt.

The $700 billion bailout bill in the USA and the UK Government taking massive holdings in the clearing banks to the rate of £3,000 per household  early this year, show that the First World governments are willing to intervene in the financial system to keep it afloat.

Despite these swift unique steps to correct matters the amounts are small compared with the costs to get the west out of the 1929 -1939 slump and peanuts compared with the expenditure on the war. Perhaps we still have a long way to go. The key lies with the banking system, which perhaps rightly, is not filled with entrepreneurial flair but unless they start to take risks a 1929 repeat is not a possibility but a certainty.

For those that are not confident in writing reports why not look at Raise Business Finance a site offering free guidance?

Writing a Financial Proposal

Producing a Financial Proposal

To be successful a Financial Proposal to a bank or funder must cater for contingency and the most important event that should be allowed for is a rise in interest rates.

A new buzz phrase in finance is “quantitative easing” and the Bank of England’s application of this new operation is the reduction in interest rates which are now at rock bottom. Simultaneously, the Government has introduced the Enterprise Finance Guarantee Scheme (EGS), which will support up to £1.3bn of new lending by banks to eligible SME’s..

The problem with most plans is they do not allow for rising interest rates.

The UK is running massive public deficits. The OECD estimates that the UK’s government budget deficit will be 9.3% of GDP this year and 10.5% in the subsequent twelve months. This is significantly higher than historic average deficits of ‘only’ 3%. However, “increased taxes will recover the situation” politicians claim.

What is at the heart of the deficits? Dwindling tax revenues.

Income tax and national insurance (which accounts accounting for almost 50% of total tax receipts) will contract due to rapidly rising unemployment and stagnant wages. VAT, is falling (and this is the next largest revenue contributor) driven by lower consumer spending plus the 2.5% cut. The next largest contributor is corporation tax and some 25% of this revenue came from the largely insolvent financial sector.

So what’s left? Interest rates.

As inflation gallops back into the economy and with no other resources available the Government is bound to raise interest rates. We marvel at the current “low” but will we be flabbergasted by the future “highs” – because they will come.

When you write a financial proposition it should contain a SWOT analysis. One of the main Threats of 2010 and 2011 will be the rise in interest rates. All lenders are concerned with affordability – that is will you be able to fund the debt? To be successful the contingency that you should cater for in bold letters is an interest as high as that of the Thatcher years. A company that has thought through this problem will increase its chance of success.

All Capital Brokers’ Financial Proposals now allow for this contingency and the impression of its consultants are that all the banks taking part in the EGS expect provision to be made for this certainty.

Help in writing a financial  proposal is to be found at http://www.raise-business-finance.co.uk or by contacting Capital Brokers direct.