Posted on 05/07/18
In business, angels can be hard to find. Yet, as almost every business owner will tell you, they are sometimes needed. Most businesses have challenges at times because of supply chain or cash flow issues, or because of a need to grow with no clear path to achieve it. Getting to that stage in business where growth is not only desirable, but is actually necessary, can be one of the most difficult situations for any entrepreneur.
For many SMEs, funding is a common problem. When debt isn’t an option, the only way to obtain a much-needed injection of capital, is to look for investment. But where do you begin?
In business there are two types of investment, ‘Passive’ and ‘Active’. Passive investment usually involves many investors, each of whom pledge a small amount and usually never meet the business they are investing in. The Kickstarter phenomenon is a good example of this type of investment model. Hundreds, sometimes thousands of investors pledge a set amount and in return they get a specific return. This is usually a product that the business is launching, along with extras, as the amount of investment increases.
Passive investment works, but it isn’t perfect. In order to encourage people to invest in your business, you must give them a lot of information about what you do, your products, services and other business details. This means that for a very small amount of money, competitors, as well as genuine investors can get a very full picture.
Active investment involves fewer people, who invest larger amounts. In addition, they will be more present in the business, giving support and mentoring. It’s in their interest to help the business to develop, because their share of the profits depends on its success.
Finding the right investor(s) for your business can be difficult though. Getting the right information, in front of the right people can be almost impossible when you’re an SME with little experience of seeking funding.
At The Business Village, we have a tenant who understands these issues. Martin Avison has worked with businesses seeking investment for many years. He appreciates that the big banks aren’t in the business of providing risk capital. There is a need for businesses to not only have the funding to grow, but also to have the benefit of support and mentoring, in order to reach their full potential. With SMEs, the banks have no interest in owning equity in a business, so for them, lending money is all about serviceability – the Banks are not in the business of providing support and mentoring. This leaves a huge problem for business owners who desperately need to find investment, in order to develop and grow their business.
In response to this gap, Martin founded Angel Groups in Yorkshire, an organisation designed to bring individual investors – the Angels – together with the businesses that are in need of funding and support.
The mission of Angel Groups is to help business owners to be properly prepared, have a great pitch ready and to have the greatest possible chance of success in securing investment. Martin and his team work closely with businesses to ensure they have everything in place, before they get to the Angels. Martin firmly believes that the business team is the most important element. “The people in a business are the key. We’re always looking for businesses that have a great team. In fact, a Grade A team and a Grade B product works, but a fantastic product with a poor team won’t make the cut. People invest in people.”
Angel Groups works with businesses to help them better understand the investment landscape. They make sure business owners know exactly what to expect and how working with an investor will affect their business. It’s also important for them to fully understand the impact of diluting their stake in the business and giving some of that capital to someone else.
Martin currently owns and runs five angel groups across the Yorkshire region and the plan is to increase this to 64 groups, run by 32 franchises across the breadth of England.
So, whilst the businesses get funding and support, what do the Angels get?
When a business they have invested in succeeds, the Angels get a return. But that’s not all. In order to encourage business investment, the Government runs two parallel schemes for investors:
The Seed Enterprise Investment Scheme (SEIS)
Applies to businesses who have been trading less than two years and who need less than £150,000 in investment. Investment can be made in one company, or across several, but the investor can own no more than a 30% stake in any of the companies they invest in. As a tax incentive, the investor can receive up to 50% tax relief, in the following year.
The Enterprise Investment Scheme (EIS)
Applies to investments of more than £150,000 in businesses that have been trading for more than two years, but less than seven years. The incentive for the investor is 30% in tax relief, on a maximum of £1,000,000 of investment in one tax year.
There are also capital gains benefits with both schemes. For individuals with available cash, these schemes make it very attractive for them to invest in businesses and help them to grow. This is so appealing to investors that recent research, published by the British Business Bank, states that 87% of angel investors invest because of the scheme.
The benefit for investors in becoming part of the Angel Groups platform, is that they can use this structure as a ‘filter’. There’s no public awareness of their intention to invest, so they avoid speculative advances and time wasted on proposals that are not viable. The team at Angel Groups get to know its Angels well, building a profile of what business interests they have and finding out what makes them tick. This means that they can accurately match an Angel with the types of business they’ll be most interested in getting involved with.
Angel Groups is looking for both businesses who want to attract investment and more Angels who have funds available, and want to invest in local, high/potential growth businesses, whilst also offering access to support and networks. More information can be found on the website at: https://www.angelgroups.co.uk.
Martin Avison firmly believes he has the best job in the world. As he says, “Angel Investors can make dreams a reality.”