This article, exploring angel investment, is the first in a series of themed blog posts where we unpick the often complex areas around fundraising and getting investment in your business, and spotlight a few of the organisations and experts who offer guidance and support in this area.
We especially want to thank Piper for the expertise they have shared to support the Hatch community raise funds for their businesses.
The challenges for underrepresented founders
Founders from a range of underrepresented groups report funding as a key challenge to the success and growth of their business. This can be for a range of reasons, all the way from not being aware of the opportunities that exist, through to facing discrimination and prejudice.
Only 1% of UK venture capital goes to businesses with all-female teams, nearly half of ethnic minority aspiring entrepreneurs appear to have stopped developing their business idea because of difficulties getting finance compared with only 25% White British, and half of the 7.7million working disabled people in the UK reported they have faced barriers when applying for financial support.
There has been progress in this area in recent years with funds and resources being created to specifically support those who are most often locked out of opportunities to access funding, but ensuring that the right people are aware of the support available to them still remains a challenge.
Angel investment is a valuable resource, particularly for underrepresented founders, as it is accessible to all (unlike friends and family rounds that require an existing network of high net-worth individuals), and it also comes with expert support and mentoring.
What is angel investment?
An angel investor is someone who invests their own money in a small business in exchange for a minority stake (usually between 10% and 25%). Angels tend to have valuable entrepreneurial experience that they bring to the relationship alongside the funding that they offer, and can provide mentoring, support, and opportunities for founders to expand their network.
They tend to take an active role in developing the business, working alongside the founder to promote growth, which is why developing a strong relationship is key, and the values, priorities, and motivation of the angel should be considered alongside the funding that they can provide.
Benefits, compared to other funding routes, can include:
- Strong personal relationships
- Quicker to close on investment without lengthy internal processes
- You retain control of the business
- Expert mentoring and access to networks
As Leon explains in this clip there are two main routes to finding angel investors that are right for your start up: use your networks and use freely available company information. If you have been part of any founder networks, such as your Hatch cohort, then you will likely know someone who has already raised from angels.
Ask them how they found their investors and whether they would recommend them. You could also try contacting the founders of businesses at a similar stage to you on LinkedIn to ask for introductions: a warm introduction, no matter how small, can go a long way toward advancing the relationship.
As for freely available company information, Companies House allows you to search share registers of other companies to find their angel investors, it is a good place to find angels who are relevant to what you’re building. Once you know their names, some angels list their portfolios and what they’re interested in on LinkedIn and some have their own websites.
Similarly, this list has been compiled by Beauhurst and looks at some of the most active funds over the last ten years.
So, is angel investment for you?
Do you want purely financial investment? Do you want investment alongside an investor who can offer you advice and guidance on your journey? Are you after a partnership with your investor or fundraiser, where they will be more hands on in your business?
“Just be really clear about what it is you’re looking for. And I know for a lot of founders, it can be very daunting thinking about taking on investment, particularly when you’ve had complete control over the business. And then if you take on investment, then you have to give up some equity in that business.
“Think really long and hard about how much you’re prepared to give away and what you’re giving that up for, because it can actually be very beneficial.” – Jax Unsworth, Associate Partner, Piper Private Equity.
There are a lot of things to consider, and a lot of routes available to you. Think about where your business is currently at, and what the next steps are going to be, and make the most of any networks you have to seek out advice from those who have already been through the process. You can also access a 1:1 consultation via Hatch to talk this through with an expert.
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Advice and resources on sustaining investor relationships for underrepresented founders of small businesses in the UK.