| Contrary to what you are seeing in the press with | | | | staggering, but expect to make them many - many |
| the credit crunch and looming recession there is | | | | more millions than your side - that is if you even get |
| simply too much money in the World at the moment; | | | | that far. A great many other original creators have |
| too much capital seeking too few investment | | | | been squeezed out long before the 'D-day - big pay |
| opportunities. Remember the 1930s depression | | | | day'. |
| created more Millionaires than in any other era (ever) | | | | Angel investment therefore represents an invaluable |
| and now will be no different. A large amount of high | | | | source of alternative funding. And one that is far |
| net worth individuals are seeking to diversify their | | | | more attractive and realistic for a start-up |
| portfolios away from traditional investments as a | | | | entrepreneur. Benefits for both the Entrepreneur and |
| defensive hedge against stock market volatility. | | | | the Angel can be great provided of course that the |
| Historically and in times of recession the two best | | | | expectations are well drafted and thought out from |
| investment classes that have outperformed | | | | day one and the funding agreement is structured to |
| traditional markets have been commodities and | | | | meet the demands of both sides. |
| private equity. So if there is so much capital available | | | | The main difference between a business angel and a |
| in the world today, why is it so difficult to locate the | | | | venture capitalist is that VC funding will come with |
| capital you need? | | | | legal agreements that will be inevitably always be |
| The most probable answer to your question is that | | | | Venture capitalist biased with terms that almost are |
| the amounts you are seeking are way too small to | | | | utterly unfair and unjust, whereas, Angel investment |
| tempt Venture Capitalists or Hedge fund managers. | | | | will be far more flexible. It's not uncommon for some |
| After all it is relative. If a VC has tens of millions of | | | | Angels to even shy away from using corporate |
| pounds to invest into private equity why invest into | | | | solicitors when drafting agreements for funding. The |
| 100 or 200 start-up companies? Who could possibly | | | | reason being that if a high net worth individual should |
| manage and foresee all of these investments and | | | | choose to invest in 8 - 10 companies, the total legal |
| entrepreneurs? Its hard enough to manage one | | | | bill could turn out to be over £50,000.00 |
| sometimes! So relatively speaking, investing in you | | | | (assuming a lean estimation of £5K per |
| would most-likely prove cost-prohibitive for them | | | | company which is low!) - money that could be used |
| even though arguably they would receive more value | | | | to fund crucial working capital or further expansion. |
| overall. | | | | Executive Summary |
| The Hunt - VCs vs Angels | | | | Receiving successful venture capital funding can |
| Venture Capital firms are one way to raise a serious | | | | provide a lot more than just money to the start-up. |
| amount of capital but as you may imagine there are | | | | They can bring a wealth of managerial talent and |
| pitfalls. The main one being loss of equity far beyond | | | | experience that can advise you on external growth |
| the 51% mark. Further the final vote on 'the right of | | | | and how to jump over major pitfalls. |
| sale' will also most probably be a mandatory right for | | | | This professional advice can be a massive boost for |
| them. Since VCs main motivation is 'ROISAP' (return | | | | a young company looking for every competitive |
| on investment soon as possible) VCs will always have | | | | edge. Another major benefit of VC Capital is that |
| a frantic desire to flip every deal as quickly as | | | | their network of contacts could end up making all the |
| possible. And they will not care where that return | | | | difference in a successful exit (or not). |
| comes from, yourself or an outside party as long as | | | | But always remember what being funded by a VC |
| they receive a massive bonus for the risk and skill | | | | actually means. After they have invested millions into |
| for what they have invested. | | | | it and regardless of whether or not they actually hold |
| More appealing to an entrepreneur starting-up is to | | | | a controlling interest in your company they will be in |
| seek a business angel investor interested in the line | | | | control of your organization and will have a lot of |
| of work you are involved in as they will either take | | | | power over how the company runs and how they |
| an equity position and some level of debt (or typically | | | | will get their money out. You will be forced to go |
| a combination of the two) in exchange for their | | | | down directions that you may not be too happy |
| investment. They will also take a seat on your board | | | | with. |
| of directors, which they will use as a platform to | | | | The Plan |
| monitor their investment and to provide invaluable | | | | More often then not, it's best for an entrepreneur to |
| advice. Sometimes they can actually take an active | | | | start up on their own or with the help of an Angel |
| role in the organization and get it kick started into | | | | Investor (or syndicate if the investment requirement |
| high gear. This freedom can afford an organization | | | | is too large to be funded by one individual). After |
| the ability to swiftly hire key employees and develop | | | | running and evolving the business, the next best |
| its business model to the point where it is ready to | | | | course of action is turn to VCs when you believe |
| seek larger scale, second-round financing at a much | | | | you are ready to take your company to the next |
| more reasonable cost-to-equity due to the proven | | | | level and will need a serious amount of capital to do |
| track record within the organization. | | | | so. Before even considering approaching a VC, you |
| Other benefits to the entrepreneur include access to | | | | will have to demonstrate that you have a degree of |
| the expertise and business networks that the angel | | | | success in your past, which is where the first round |
| investors may be involved with. In addition to this, | | | | of your funding and management of your cash flow |
| the growing trend of angel investor syndicating | | | | will come in handy. |
| means that an individual entrepreneur can raise | | | | When you do decide to approach venture capitalists |
| significant capital (significantly above the | | | | and if by some miracle should they agree to back |
| £500K mark) in a single financing deal without | | | | you, then it will be crucial on your part to seek-out |
| the need to negotiate separately with each investor. | | | | the best legal advice that you can afford for the |
| Health Warning: | | | | ensuing negotiations. One sentence or even a phrase |
| Venture capital money is not for the faint-hearted. | | | | within the initial contract can determine your success |
| Too often, it is only for the desperate - unless your | | | | or failure. VCs are consummate professionals, and |
| desire is to build a business with an exit strategy in | | | | you will have to become one before playing in their |
| mind from day 1. There is nothing wrong with such a | | | | league. |
| goal in the short term, as the returns can be | | | | |