Angels can be found through networks that they are associated with, like Beer and Partners who have over 1,800 registered and active investors in their database plus investing companies with over £2.4bn available. However, in the case of the really successful networks an SME must be introduced by an “Associate” who will mentor the company and its proposition so that it presents itself in the best possible light.

Business angels, like everyone else in these difficult times, are very cautious. Out of 10 investments that they make, 5 fail to make the grade at the end of three years, 3 break even and 2 are high worth stars. It is of course the 2 stars that they look for and particularly so now. This emphasises the importance of expert assistance in presenting your case. Besides editing your business plan and Associate, who will always come from an expert background, will study your company and constructively groom you and your staff before presenting it to potential investors.

For SMEs that want to approach the market themselves or who want to understand exactly what is involved in raising funding, Capital Brokers offer one day workshops where delegates are shown how to interest potential investors, how to value their company and what to offer in exchange for funding as well as how to write that all important financial proposal.

May you live in Interesting Times is a Chinese curse not a blessing. Interesting Times might be hard for SMEs but there is money available for the right companies it is only a case of getting the offer right.

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.

Market research. If you have claimed, for example, that your company is currently turning over £500,000 per annum and will turn over £2m next year and £12m the year after you need to show in detail the market research that you have done to support this proposition. This is especially so with early stage companies where ‘blue skies tomorrow’ claims are often no more than assumptions. Avoid this pitfall by always including supporting data and detailed research arranged logically and cogently.

Intellectual property.  Make sure that your IP is protected; it can often add a further 20% to 30% on a corporate valuation. If you can get a patent on a product then always apply for one and protect with copyright if this is an option that is also available to you. If your system or idea can be easily copied then investors are unlikely to put their hands in their pockets.

Financials. Well kept and up to date books are a must. Initially, monthly management reports will be essential until the investor is happy that you are meeting or exceeding sales projections. If you are unable to provide these regularly and on time you may well have created circumstances that will see your application founder. . Similarly, it is essential to produce well thought through forecasts of cash requirements and profitability; showing when funds will be required and where they will be spent together with the expected returns. A single page of figures will rarely get you to first base.

Product test. In start up and early stage businesses, especially where the product is manufactured or is a service involving say software, it is imperative to show that the product or service has been tested. Evidence of field trials should be included and highlighted. Good, proven testing will build confidence in any investor.

Directors.  A strong management team adds value to the project and experience and backgrounds will be scrutinised by investors since these are the people that will handle their money. In writing CVs to include in the project document don’t let modesty hinder your words but on the other hand never include fiction. Always bear in mind that if you lack key personnel and investor may well be able to provide it.

Personal investment.  Bringing your product to the point in time where you are asking for outside funding will have involved the investment of funds from family, friends and your own resources. Show the total amount and how and where it has been used. If you have committed sums of money as well as time it always inspires confidence.

Use of investment.  Know exactly how much you need and where it will be spent. It is not uncommon for an investor to make available a line of credit with a bank or finance house. How much you will draw down against it and when you will do it must be described. The absolute no-no is to use investment to refund what you have committed or to inflate your earnings.

These seven points are by no means a comprehensive list but they cover some of the main topics that are often not as well structured as they might be. When Capital Brokers groom applicants for funding these are often the areas which need detailed attention. We are living in risk-averse times and these are areas that will indicate whether a business will survive or fail. If you have a financial proposal going forward and want an opinion on it or need help in its structure we will be delighted to constructively critique it and we make no charge for this service.

So when a business cannot be rescued what then?

Then it becomes necessary to realise assets and pay creditors as much as possible. Life doesn’t end with a company liquidation, it is necessary to look to the future, A future where credit will again be necessary.    One of the worries in this situation for the directors is whether all assets of the company or outstanding and owed invoices will be realised and set against monies owed. If this is followed through conscientiously the company may well have paid enough of its debts for the directors to be well received with a new company.

The introduction of the Insolvency Act in 1986 provided unsecured creditors of insolvent companies and individuals, with far greater powers of redress than ever before.  The new legislation was also designed to have certain transactions overturned, if necessary, and assets to be restored to the failed company, a fact either often not recognised or not bothered with by the liquidator.

Unfortunately, the powers of recovery in the Act are seldom used to their full effect perhaps because the appointed insolvency practitioner, responsible for the liquidation, does not have sufficient funds or resources to take the matter further. More probably he or she doesn’t simply doesn’t bother once the winding up process is under way, after all that’s what they’re really paid for. Why create extra work especially if it is of no benefit to the directors?

Consequently, the vast majority of outstanding monies and potential recovery claims are not pursued; money that could be realised by an expert insolvency practitioner who is prepared to ensure that corporate debt is paid. For this reason in insolvency situations Capital Brokers recommend DFW when corporate recovery is not possible. The insolvency practitioner used by them is prepared to do the extra work on behalf of debtor companies to recover monies owed to them. This is something that can be extremely important for failed entrepreneurs who are starting again, after all a supplier that has been paid will give credit, a supplier owed unrecovered money will think twice in extending credit to the same directors.

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.

The article can be found by following this link. The interview describes what they as angel investors look for in businesses and where they find problems; not surprisingly perhaps, one of the major areas was with people relationships. The biggest people issues, they found, involved shareholders through their interaction with one another together with their individual and collective relationship with the management team. The day may not be far away when directors and stakeholders may have to submit to a personality assessment before receiving funding, however this has no part in their evaluations at the moment.

In the interview she discussed the issues of follow on funding and how this is dealt with together with the types of businesses that Simon and Michael Blakey prefer. Both are very important considerations and demonstrate the importance of knowing what will interest an investor before asking for investment.

For anyone considering approaching the angel market place this is not just a compulsive read but an invaluable one.

Is your company is struggling but you know it can be viable? Did you know that there are two points where even a failing company can be refunded and set on the road to success? However legal advisors or insolvency practitioners will normally outline four options:

winding the company up;

company voluntary arrangement;

trading the company on while an attempt is made to sell the business; or

pre-pack administration.

Clearly, winding-up is the most drastic solution and is one where business reputations and large sums of money are irrevocably lost. Trading-on is only possible where there are funds to cover the cost of the wage bills and other associated costs of running the business and this is the first point where help can be at hand. If the reasons for the business failure have been analysed and new strategy and marketing, methods put in place to rectify the situation it will be possible to get angel funding. If you have learnt from your mistakes and you have a new, feasible direction then investors can be found.

Where those funds are not available and there is no possibility of trading the company on while it is in administration, your insolvency practitioner might recommend a pre-pack administration.

What is this? A pre-pack is a deal for the sale of an insolvent company’s business and assets. The “in principle” deal is usually worked out before an insolvency practitioner is appointed, and is then ordinarily executed rapidly once the appointment is made. One of the advantages is the preservation of jobs. In 92% of pre-pack cases all of the employees were transferred to the new company. This compares with 65% in a business sale. The benefits to the economy and the staff concerned are self evident.

The disadvantage of a pre pack is essentially to the creditors. The average returns to unsecured creditors in pre-packs are thought to be about 1%.  Secured creditors fare considerably better getting an average return of 42% compared to 28% in an asset stripping sale of a distressed business. Because pre-packs happen very quickly, there is less opportunity for news of financial difficulty to affect the confidence of staff and customers. This means your insolvency practitioners are in a position to try and get the best price for the business and thus a higher return for the creditors.

If your business is facing huge problems and legal threats, a pre-pack becomes a powerful, legal way of selling the business on to a third party, a so called “Newcompany.” This is the second point in time when a once ailing company can be funded. To get this your company will need a business plan for the Newcompany which must include detailed profit and loss forecasts, cashflow forecasts and balance sheet forecasts and sound reasons why it will succeed. This plan must show the working capital needed and give the administrator evidence that the Newcompany is viable.  You will need finance to fund the acquisition of the old assets and business and there are many specialist lenders who can provide this. Some angel syndicates will also help fund the pre-pack as part of a “buy and build” strategy. It’s a case of having the business confidence to see the deal through and knowing which professionals to depend on and who to trust.

The answer is don’t delay. Look for an advisor that will provide a full range of services to effect a successful restructuring or turnaround.

Whether a business needs to redress underperformance, enhance stakeholder value or resolve a crisis, the professionals you chose must have a proactive and innovative approach to problem solving and be able to effectively negotiate with suppliers and customers. This can include re-negotiating terms with the bank and other major creditors; replacing existing financial arrangements like factoring, confidential invoice discounting or leasing with more appropriate arrangements.

It is vital that you choose your adviser wisely; a full assessment of your business will be required that will lead to the rapid production of a new business plan. Only then can approaches be made to financiers with a view to refunding the business and ensure your continued survival as a business.

The dynamics of finance vary depending on the profile of the business and the type of funding being sought.  The adviser will have a key role to play between the business owner and the potential lender. The role of the advisor is important to achieving mutual understanding between borrower and lender and especially so when requesting further funding from the existing lender.

Companies in a distressed state can take comfort in the knowledge that many investors take a pragmatic view of restructured businesses and regard them as new starts. Surprisingly this often applies when an existing CVA or pre packaged administration is in place.

However, the best laid plans often go adrift. What if, despite everyone’s best efforts, a rescue solution cannot be achieved? In that case it is important for you and your creditors to have the right formal insolvency option that will preserve the value of the business. If formal insolvency becomes inevitable the advisor must recommend the most appropriate procedure for that specific business which may include one of the following:

personal insolvency;

informal moratorium;

company voluntary arrangement; or

administration.

Selecting the right one is not a case of chance but of assessing your needs and the needs of stakeholders and can be the difference from having sufficient funds to start again or bring totally penniless. The choice is with the individual but getting the right adviser who has the right support will be pivotal in rescuing a defunct business

So how can enterprising SMEs help themselves? What about angel investors? They’re still around and still investing in start up and early stage businesses but they have become very selective. Of course they will always cherry pick and the businesses they pick are those that project good dividends and a profitable exit with minimum risk.

Entrepreneurs and the angel investors are made for each other. Start-ups and early stage businesses require money and most angel investors are on the lookout for new opportunities. They want a decent return in five years or less either through dividends and/or the sale of their shares. Meeting this requirement the entrepreneur gets his funding and the angel investor eventually rides off into the sunset profit in hand ready to fund the next venture.

So how do you catch their eye? With a sound business structure that can successfully bring new ideas and innovations into the market place. The first part of that structure is not just sound management but trustworthy management. Warren Buffet, a very well known and successful investor documented some of the requirements he has for investing:

1. The company should be soundly managed. His tests of good management include:

Share buyback  strategy

Good use of retained earnings

Staying within the corporate expertise.

2. The company should demonstrated earning capacity with a likelihood that this will continue. Tests of earning capacity include:

Company growth

Dealing with inflation

Capital expenditure

Earnings

Brand names or patents

3. The company should have consistent high returns.

Returns on equity

Returns on capital

4. The company should have a prudent approach to debt

5. The company business should not be complex.

If you meet these requirements, have valued your company, know how much funding you need, how you will spend it and what ROI you expect you are ready to present to funders. An organisation like TVIN might be your low cost entry to the arena. TVIN links investors to companies with high growth potential and who are seeking business development funds from £150,000 to £750,000. A little more expensively Beer and Partners is a leading source of venture capital and business angel investment for growing SME businesses in the UK. However, before you link with any of these take advice on your state of readiness from you business finance broker who can ensure you are in the right shape to make your presentation.

The intention is to enable clients to free themselves from their unsecured liabilities by selling their debts. Debts are purchased directly from the creditor companies. Then, with a single payment all rights, benefits and liabilities associated with the debt are, it is alleged, transferred to the purchaser.

Debts that become eligible are on Credit Cards, Bank Overdrafts and Unsecured Loans, Store Cards and some Car Loans. However, this is not a case of the company negotiating with the lenders to reduce the sum to an acceptable level, in other words the total borrowing may go down and interest is often frozen. Rather the loan goes up and new interest is reimposed. For example:

On a total borrowing of £10,000 a fee of £450 is applied for administration and a transfer fee of 10% is applied. The loan this becomes £11,450 before anything else is paid off or an increase of 14.5%. On business agreements this could be as high as 19.5% before anything is repaid. The Internet buzzes with postings by individuals who have transferred their loans and found they have made payments to the new company but their debt still stands with the original lender.

It may be that some of these companies actually do secure the loans and charge a lower rate of interest than the massive credit card rates, thus making it highly attractive even with the additional costs. However, it is strongly recommended that anyone considering using this service gets independent legal advice, especially as nothing under contract law takes away the liability under contract unless specifically agreed by both parties and it is hard to see how a creditor will provide such consent.

Be safe, a solicitor may charge for an opinion but his/her fee is unlikely to exceed the administration fees of these organisations. Be doubly safe and look at other ways of reducing business debt.