Can My Business Attract Angel Capital ?

Not all businesses need venture capital or angel capital, nor are they attractive from an investor's point of view. Business angels and venture capital firms are generally looking to invest in ambitious entrepreneurial companies with high growth prospects, which want to attract outside investor's in order to realise their potential.

Many small companies are "life-style" businesses whose main purpose is to provide a good standard of living and job satisfaction for their owners. These businesses are not, however, suitable for venture capital investment as they are unlikely to provide the potential growth and thus the financial returns to make them of interest to an external investor.

Entrepreneurial businesses can be distinguished from other small businesses by their aspirations and potential for growth, rather than by their current size. Such businesses are aiming to grow to a significant size. As a rule of thumb, unless a business can offer the prospect of significant turnover growth within five years, it is unlikely to be of interest to a venture capital investor whether a business angel or a venture capital firm. All investors, particularly in early stage ventures, will be looking for the potential to make a significant multiple of their original capital investment.

What kinds of businesses need angels? Typically they are small high-tech, health services, retailing and personal services companies that are too risky for bank loans and not at an advanced stage for venture capital. They may need seed money to develop an invention or concept, finance development or bring their product or service to market.

So before looking for business angel capital or venture capital, you must be able to give positive answers to the following questions:

• Does my business have the potential to achieve significant turnover and profits growth over the next three to five years?
• Am I prepared to turn this growth potential into reality by raising finance on terms which may reduce my share of the equity in the business?
• Am I able to demonstrate to potential investors that my business has a unique selling point (USP) or commercial edge that distinguishes its product and/ or service from that f my competitors?
• Can I demonstrate exactly why business angel capital is being sought and what will it be used for?
• Do I have a good business plan that clearly demonstrates my understanding of the business as well as the fact that the business proposition has been well thought out?
• Are my financials in order - private and business affairs are clearly separated?
• Can I help the business angel achieve a return on investment? Can I propose an exit route (which may involve selling the company or buying back the shares)?
• Am I prepared to accept input, possibly in the form of a non-executive director, into the management of my company?