Angel networks seek to introduce entrepreneurial businesses to angel investors who will buy shares to fund the company’s growth.
This keeps the balance sheet strong and improves credit ratings. Investors look to buy shares in growth businesses but do so knowing that this is one of the most risky types of investment – so investors’ expectations are high. They invest in good management, clearly defined products, services and concepts with genuine prospects of a successful exit.
All investments are made for financial reasons. But there are also secondary motives; taking an active part in the entrepreneurial process, the enjoyment from being part of the success of a good investment and the sense of putting something back in.
There’s one big proviso for all angel investment: it’s risky. If you can’t afford to lose it, don’t risk it. If you’re a UK taxpayer, then tax breaks even on total losses can ease the pain a lot. Typical angel investments – from one person, but they may work in syndication – are from £20,000 to £200,000. Some angel networks offer smaller ‘entry-level’ deals, but these are only available to syndicates, to ensure the total investment is worthwhile and justifies the due diligence and legal preparation. Almost without exception, the investment is for equity, but in a few cases, convertible loans are possible: starting as an interest-yielding loan, and turning into a pre-determined equity share.