Do you need an angel in your business? Modwenna Rees-Mogg considers what makes the perfect angel

Modwenna Rees-Mogg

Modwenna Rees-Mogg is founder of, the leading information provider and commentator on the business angel market in the UK.

When you examine many of the most successful businesses in recent years, it is remarkable how many of the founders have been supported in their early days by the presence of an angel investor in their shareholder base.  From Ian McGlinn who backed Anita Roddick at The Body Shop to Maurice Pinto who recently took at £29m cheque off the table in return for the shares he owned as a result of backing Innocent Drinks as a start up in the late 1990s, examples abound across the entrepreneurial world.

If you are an ambitious entrepreneur and do not yet have an angel in your business, maybe now is the time to start considering whether you should have one.

The trend in recent years has been to encourage entrepreneurs to seek angel investment has led on the fact that, apparently, neither banks nor venture capitalists want to fund start-ups and early stage businesses which need cash to grow.  Angels by default became the only option for ambitious businesses needing investment.  Of course, the devil is always in the detail and it is worth dispelling some myths about this, not least because just about the worst reason to opt for angel investment is because there is a perception that there is no other choice on the table.

Even at the worst of the credit crunch banks were lending to businesses, but their reputation in this area has been marred by the fact that the terms on which they offered the money were often unacceptable to the borrowers – excessively high interest rates, demands for personal guarantees and requiring generous charges on assets owned by the directors/shareholders. Now times are better the banks have a lot of work to do to make the case for traditional bank borrowing.

For venture capitalists, again the general picture becomes blurred in the specifics.  In recent decades there have always been specialist vc funds which would invest in start ups – the challenge for entrepreneurs was finding one that was willing to invest in a start up in their particular sector.  That was hard as most funds were focused on backing extremely high growth potential tech start ups.

And many other VCs had put a number of rules into their investment criteria that some entrepreneurs found difficult to comprehend.  Just having a great idea was never and still is not enough (except for the very few) to attract backing from individuals who are assessing the chances of not only getting their money back but also making a real return which justifies the risk of investing the money in the first place.  The businesses that VCs will back have to fly over a bar that includes evidence of proof of concept (having built something), market demand (having some customers in place) and having a team in place that shows signs of being able to cope with the known unknowns and unknown unknowns when they come along, as they inevitably will.

The USPs of angel investors compared with banks and VCs are manifold, but perhaps the least important is the fact that they have a cheque book to call on in the first instance.  Smart entrepreneurs have never looked for dumb angel money (those investors who do not properly understand what they are investing in) for the simple reason that dumb money will not necessarily be around when a crisis hits and when there is a need to seek further investment to get over a cash crunch or to fund additional opportunities.  Even in a successful business, dumb money (in the form of a string of passive investors) can bring its own very unique set of problems from excessive demands on management time in terms of investor relations and challenges such as investors resisting an exit opportunity because the timing does not suit them (a real problem if a company is funded by money under the Enterprise Investment Scheme and its ilk which have requirements that the investors stay in the company for at least three years).

The best reason for seeking and finding angel investment is that you get, in addition to the money, a smart and experienced individual who will be able to help the business in numerous ways. Understanding this will help a fundraising entrepreneur to negotiate a deal that works for both parties.

I have already tried to encourage you to avoid taking investment in your business from people who do not “get it”.  They will be the ones whose involvement you will not welcome.  And when it come to the perfect angel you need to think about the following things

  1. Do you want your angel to take a non-executive or executive role in the business?

Having an angel with market knowledge, expertise in building a business very rapidly and/or a black book of customer, supplier and other contacts is invaluable.  Working out the mechanism by which they share that knowledge with you is the tricky bit.  Some angels actively refuse to take a formal role in the business (not least for the reason that they do not want to be in the firing line if things go wrong in the future), but will help informally. Others are happy to take a role which may vary from non executive to executive Chairman through to an operational role such as Finance Director.  Whatever the nature of the role, the important things to get straight are how much time the individual will commit to helping the business, what the nature of that help will be and lastly how it will be valued.  Will it be “free” i.e. given because the angel is already a shareholder or will there be a cost associated with it – e.g. expenses, a director’s fee or even charged on a time spent basis.  It is vital that you have an up-front discussion about this early on (and preferably before the investment is made) and that you formally document any specific arrangements you put in place, so that everything starts off on the right foot.  And you will also have to allow in any arrangements, the ability for things to change – for the investor to get less or more involved in the future as the business grows and changes.

2.   How much do you want your angel to know about the day to day business     operations?

Of course, if your angel is taking an executive role in the business you will have an obligation and they have a right to expect to have full transparency in the business.  In the early days of an investment the right angel will be invaluable in as much that the more you tell them, the more they will be able to help and guide you into making the right commercial choices – whether in business planning, executive hiring, business processes and even finding the most high quality customers and suppliers to work with.  If they are non executive or do not have a role in the company other than as a shareholder, you need to work out with them the rules of engagement in terms of investor relations.  Will you have weekly or monthly board meetings – will they attend and be involved or just have observer status at these meetings (ie when they attend but do not say or do anything to do with the business)?  How will you report information to them that does not need require decision making, perhaps a regular shareholder report or a newsletter or will you invite them to a shareholder meeting from time to time.  Getting this straight and then sticking to your investor relations agreement in terms of reporting will make a big difference in how your investors think of you as time moves on and will potentially save you a lot of hassle in the future.  You also need to think how will you respond to spontaneous enquiries by your angel – will this be the job of the CEO perhaps?  How quickly will you respond by?  How will you resolve areas of conflict?

3.    Are you expecting your angel to be your champion or fan?

As a rule angels are good natured people, they will willingly introduce you to their contacts etc without making a financial or emotional claim on you or the business, but remember that you need to treat these contacts with the respect they deserve – if you “let down” your investor with his or her contact, do not expect to be given any more.  What you really want from your angel is for him or her to become your undying champion or fan – that means looking after them to the very best of your ability.  Ideally you want to put them in a position where they have a halo effect on themselves because they are invested in you.  This will drive them into becoming your most loyal fan, telling everyone why they should be doing business with you.  Ideally you also want the angel to be someone who will be so highly regarded that when you need to raise further investment they add value to the business, not detract from it.

4.     If there is going to be more than one angel in the shareholder base, who will be the lead investor?

The smartest entrepreneurs recognise that managing several individual relationships with different angels can be impossibly challenging.  So it is important as soon as possible to encourage your angel investors to sort out who will act as the formal or informal “lead” investor.  This individual (probably) should not be a person taking an executive or non executive role in the company as this can lead to conflicts of interest further down the line.

5.  And last, but not least, how much money do you want?

There are so many anecdotes, informal rules and even books giving advice on how much investment a company should take from an angel or a group of angels, but if you follow these ones you will not go far wrong.

    • Your investor/s will probably buy a stake of 25-35% in your business each time they invest regardless of how much money you want to raise.  They do this because it is a significant enough stake that you will care about them, but not enough to stop you thinking you are still the owner of the business.  So when you are fundraising it is sensible to make a good case for the maximum amount of money possible!
    • Never ask for too little money as it will put off investors more than asking for too much as they will think you do not understand how much it costs to build a business.  If you are trying to raise less than £250,000 I would wonder if angel investment really is appropriate for you – try looking for grants or why not give crowdfunding a go?
    • The money will have ties – you will have to sign a shareholders’ agreement which will give you rights and obligations.  Make sure you read this very thoroughly and take your own advice about it as it will include provisions to remove you from the business if things don’t work out. If the provisions are very onerous, you might like to think about asking for additional investment so you have some more financial flexibility to
    • There are generous tax breaks for investors under the Enterprise Investment Scheme and the Seed Enterprise investment Scheme, but remember that these tax breaks are compensation from the government to the investor for taking a risk in investing in you.  They do NOT make the investment less risky per se, so you cannot argue that they should invest more or invest at a higher valuation just because they are entitled to these tax breaks.

If you want to follow in the footsteps of the UK’s and indeed the US’s greatest businesses – from Microsoft, to Apple, Google, PayPal and beyond –  and not just build a great business, but build a multi million global leading business, it is worth looking for your perfect angel investor/s immediately and getting the relationship right from day one.







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Dicksons is a family butchers based in South Tyneside that was founded by the current MD’s father in 1953. The founder died suddenly, leaving his widow to run the business with the help of her two teenage children. Since then the business has grown steadily and now has 20 shops across the north east, employing over 200 people.

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