UK: Want To Grow Your Business? The Funding´s Still There For The Taking

Last Updated: 3 October 2008

Entrepreneurs needing funding for their businesses may want to think again about business angels.

As summer gives way to autumn, the certainty of the changing seasons is accompanied by an uncertain and challenging economic outlook. When spring comes, will it bring with it the green shoots of recovery or will we still be suffering the almost daily shocks that are rattling our financial markets and undermining business confidence?

Preparing for the upturn

Although we don't know when it will happen, we can be sure that recovery will come eventually. So the priority for the UK's entrepreneurial and growth businesses is to survive the slowdown and, where possible, prepare for the upturn ahead. To achieve this, businesses will need access to sufficient cash to keep going and developing. For many, it will mean actively managing working capital and maintaining suitable facilities with their banks.

Given a level playing field, most businesses should be able to cut their cloth. Unfortunately, however, the signs still of credit, irrespective of its cost. This, of course, is a generalisation, but if the survivial of your business is going to rely on maintaining or increasing your bank facilities, you shouldn't leave anything to chance.

Filling the equity gap

Much has been said about the equity gap. Some believe there is no gap, just a lack of investment-ready companies for equity providers to invest in. There's some truth in this, but not much. The fact is, however well run or exciting a business, most equity providers won't entertain small investments of a few tens of thousands or even a few hundreds of thousands of pounds.

With the exception of a limited number of Venture Capital Trusts (VCTs), there's simply too much cost and uncertainty for institutional investors in smaller deals. The market is therefore effectively closed to smaller companies, leaving them to negotiate with their bankers or with assetbased lenders, or to raise money from family, friends or business angels.

The rise of the angels

Over recent years the business angel market has become something of an industry. Potential investors, typically high-net-worth individuals, can join angel networks or more formal investor networks, gaining access to opportunities on an individual or collective basis.

Angel networks such as London Business Angels or Keiretsu Forum, the international network whose new London office has recently been set up by Lord Beaverbrook, hold regular investor presentations to expose early stage opportunities. Investor networks such as Hotbed take a different approach, finding suitable development capital opportunities, agreeing a clear exit plan with management, structuring and executing the deal and offering participation to members, normally in investment units of Ł25,000. This provides investors with a flow of opportunities and an interesting portfolio approach.

What are the angels looking for?

Investing in smaller businesses is not for the faint-hearted and, unless pre-vetted by an investor network that has done its homework, seasoned investors will quickly discard most opportunities.

A poor business plan, low barriers to entry, unrealistic financial forecasts and (often) ridiculous valuation expectations are just a few of the factors that will quickly put an end to potential investment for these cashhungry businesses.

While the majority of businesses are simply not suited to external investment, there are still plenty that are. For those that are well organised, with a sensible plan and some idea of when and how investors are likely get their money back, the angel and investment networks represent an underexploited opportunity.

There are three key reasons for this.

  1. Members of angel and investor networks are, in the main, serious individuals who want to find sensible investment opportunities. They pay fees to belong to their networks and do not want to waste their time.
  2. There are often significant tax benefits for investors. If the business qualifies under the Enterprise Investment Scheme (EIS) regime, investors may be able to claim income tax relief and obtain relief from capital gains tax (CGT) on a future sale of their shares. There may also be potential inheritance tax advantages.
  3. Many angels may be happy to work part time on the business, giving valuable advice, providing knowledge, experience and connections, and helping the management team to fast track their growth.

Those who need and deserve funding should go and look. It's there for the taking.

Useful contacts

British Business Angels Association:


Keiretsu Forum:

London Business Angels:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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