Using business angel investment to grow our business - Pitchbooking
What do business angels do?
How business angels operate and how they choose the businesses they invest in.
Business angel (BA) investment is a form of venture capital funding where private individuals invest in companies in exchange for a share of their equity. Most BAs invest between £10,000 and £500,000.
How BAs invest
BAs invest in start-ups or young businesses needing to fund activities such as product development or market expansion.
Many investments offer potentially high returns but also involve high risks. A BA investment can often result in the total loss of the amount invested, while other investments may provide a 10x + return depending on the success of the business.
This has led to the introduction of the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). EIS and SEIS are the two best tax schemes for investors in the world and they can dramatically reduce the risk involved for BAs.
BAs can make investment decisions quickly but will still need to see that you have a good business plan before they commit. Many specialise in particular industries, making them a potentially valuable source of expert knowledge and even mentoring.
Government match funding
The government provides some funds to match BA investments, such as those provided in Northern Ireland by techstart NI (ERDF) and Co-Fund NI ll (ERDF).
- techstart NI (ERDF) provide funding support for entrepreneurs, seed and early stage SMEs and university spin-outs
- Co-Fund NI have a £47.3 million equity fund that co-invests alongside business angels and other private investors
The Angel Co Fund operates on a similar basis to Co-Fund NI ll (ERDF), where it will allow angels to complete a funding round.
Finding a business angel
BAs may not make investments regularly and it could take you several months to find a suitable investor.
You can look for a BA through networks such as UK Business Angels Association (UKBAA), Halo Business Angel Network (HBAN) and European Business Angels Network (EBAN).
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Advantages and disadvantages of business angel funding
Investment from a business angel could help your business but it’s also important to consider any disadvantages of using an angel investor.
Before approaching a business angel (BA) for investment, you should consider whether other forms of finance could better meet your organisation's needs. For other sources of alternative funding, see equity finance.
Advantages of business angel financing
Six advantages of business angel investors:
- BAs are free to make investment decisions quickly
- no need for collateral ie personal assets
- access to your investor's sector knowledge and contacts
- better discipline due to outside scrutiny
- access to BA mentoring or management skills
- no repayments or interest
Disadvantages of business angel financing
Four disadvantages of business angel investors:
- not suitable for investments below £10,000 or more than £500,000
- takes longer to find a suitable angel investor
- giving up a share of your business
- less structural support available from a BA than from an investing company
Venture capital funding
Venture capital companies make larger investments than BAs making them suitable for bigger companies with more complex plans.
The mindset of a VC is different to that of a BA. A VC is representing limited partners such as bank, insurance and pension funds and need to be aggressive in order to produce the best returns so they can raise their next fund.
They are likely to have a more formal relationship with the businesses they invest in and to build exit procedures into agreements. Due diligence for venture capital investments can also be more expensive for your business and take longer than with BA deal - see venture capital.
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How to secure business angel investment
Preparing your business to apply for business angel funding.
Before you apply for business angel (BA) investment, you should make a shortlist of potential investors you feel would be a good match with your company.
Making your business investment ready
Your business should be investment ready before you apply for funding. This means preparing a thoroughly researched business case, including a realistic valuation of your company's worth.
You should provide:
- audited accounts for the past two years
- evidence of current performance
- profit-and-loss forecast for next year
- business bank statements for the past six months
- profiles of each partner or director in your business
Pitching to business angels
Business angels are more likely to be interested in your proposal if they:
- understand the product or service
- have worked in the same industry
- are confident your business is well managed
- feel they can bring added value to your business
- are not being asked for a huge investment, or repeated investments
When pitching your business plan to a BA you should cover:
- the benefits they would gain by investing
- details of the investment required
- terms of the proposed deal - eg share of control, skills you offer and timescale of investment
- the ability of your management team to implement the plan
Read more on how to prepare your pitch to secure finance.
Finalising the BA investment deal
It can take several months to finalise BA deals legally and for funds to be transferred. You should also allow for additional finance to cover legal fees and bank charges.
Legal elements of BA deals include:
- shareholders' agreement - relationship between the shareholders
- subscription or investment agreement - terms of the share subscription
- service agreement - eg employment contracts with managers or directors
- other contracts - with more junior employees, suppliers, or customers
- disclosure letter - details of any warranties or assurances agreed between the parties
- memorandum - list of company's powers and the amount of share capital
- articles of association - company's internal regulations
- share options - eg giving tax-advantaged share options to new or existing employees under the government's Enterprise Management Incentive (EMI) scheme
For more information see secure equity investment.
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How to find business angel networks
Finding a business angel investor using a business angel network.
You can find individual business angel (BA) investors, or syndicates, through BA networks in the UK and Europe.
BA networks include:
- Halo Business Angel Network (HBAN)
- UK Business Angels Association (UKBAA)
- European Business Angel Network (EBAN)
BA networks help companies find an investor who is right for their funding needs. They also give investors details of companies they might want to invest in.
HBAN
HBAN is the all island representative body for business angels on the island of Ireland with a specific remit to establish business angel syndicates.
In addition to regional and sectoral syndicates, the network supports a number of all island vertical syndicates in the food and med tech space and hence companies in Northern Ireland can apply to pitch for funding to these networks.
Through HBAN 2.0, there is now a focus on the leverage of cutting-edge technology and end-to-end digitisation to streamline the investment process for angels and start-ups. Read more on HBAN 2.0.
Find out more about HBAN's work throughout Ireland.
UKBAA
The UKBAA is a trade association for BA investors, promoting early stage investment in UK companies by bringing together investors and companies looking for funding.
BAs, venture capital networks, and associate organisations such as solicitors and accountants pay membership fees to join the BBAA but the service is free for companies seeking investment.
Find out more about sourcing a BA investor with UKBAA.
EBAN
EBAN is the European Trade Association for BA investment and seed funds. The organisation comprises over 250 BA networks and around 20,000 individual investors.
The organisation offers membership packages to individual BAs, BA networks and other associated organisations.
Find out about EBAN BA investment networks.
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Business angels
Using business angel investment to grow our business - Pitchbooking
How Pitchbooking has successfully grown through business angel investment.
Pitchbooking is an online system that aims to simplify the process for customers booking sports facilities, and for organisations managing the amenities and booking process. The platform is used by over 1,000 sports facilities in over 100 locations across the UK.
Founded by childhood friends, Fearghal Campbell, Chris McCann and Shea O'Hagan, the idea came out of a need to solve their problem. Booking and paying for a casual game of 5-a side football in their hometown of Lurgan was a bigger ordeal than it should have been.
Pitchbooking allows customers to browse the availability of facilities and book spaces online while aiming to eliminate the administrative burden for sport facilities managers by giving them the tools to manage bookings and payments.
Fearghal explains how the company has grown through business angel investment.
Starting the business
"We have always been amazed at how much money is spent on building and maintaining sports facilities in the UK and Ireland, but the processes for booking and paying to use them are so time-consuming. So, we created Pitchbooking to solve this problem."
"In the initial stages, as a fledgling tech company, Invest NI was a source of financial and advisory support in helping us to establish the business."
Decide on the help you need and connect with investors
"We had a strong vision of what our product could do for sports facilities across the country, and an aggressive plan of how quickly we could get there. Approximately nine months following our product launch, and with positive feedback from our customers, we decided that business angel investment was needed to realise this growth."
"We were able to get in touch with potential investors through introductions from connections - reaching out to the local networks and even some cold emailing and LinkedIn approaches to angels, who we believed would be suitable for us."
"We found that warm introductions were superior to cold outreach. The chance of a reply multiplies when you have someone to make an introduction for you. Putting in the time to find a mutual connection, and asking them to make the introduction, is well worth the effort."
Prepare your business for investment
"We are a software as well as a service business, so understanding our cost to acquire a new paying customer plus their life-time value to us was important to potential investors. I believe the fact that we were so diligent and well prepared with our numbers impressed our investors."
"When we presented to potential investors, we explained why the challenge we aimed to address was such a significant issue, and why we are the team to solve it. We highlighted how lucrative it would be to the company that gets it right. We also covered our product and customer traction."
"It takes longer than you would think to finalise a deal, months not days, and this appears to be the consensus with our peer group too."
Capitalise on the investment and support you receive
"Officially, we speak with our investors quarterly, but we will turn to them when we need advice on a challenge or an opportunity. Our investors are varied in their experience - some are from the world of tech start-ups, others have a background in sports facility management. So we turn to the individual we think can give the best input on the particular situation."
"We would not have had the financial or advisory backing to grow without our team of investors. In simple terms, we would not have been able to capitalise on key business opportunities without investor backing."
Communicate effectively
"It's important to remember to keep your investors updated regularly on how the company is progressing. It's often one of the first tasks that slide off the to-do list when things get busy, but they are a part of your company and are there to help."
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