Angels Den Blog

Investors are a rare bunch; they have made money and now contemplate losing it again.

They take a risk for which they demand a reward higher than they can get elsewhere.

This might sound blindingly obvious, but it is worth going back to basics when considering how to get into the mind of an investor.

They could make 5% putting their money in a bank. If your proposition were making less than that, not only would an investor think twice, so should you!

A number of businesses would be better off selling up and plonking the cash into a deposit account, and all for less stress.

At the other end of the scale, there are “home runs,” as they are called in investment circles. These allow investors to make many times their original investment. These occur in about 1 in 10 carefully managed investments.

They are the Holy Grail.

Investors want you to make huge returns, to hit a home run, for them.

Only Family, Friends and Fools would settle for making say 10%, when there are bigger opportunities out there.

It is your job to set out your case in the best possible manner, so that investors believe that you have such potential.

Back to basics again.

Step One.

Write a Business Plan, there is a lot of trendy talk about how I made it big without needing a plan. This is nonsense.

The plan is for you and the one certainty about your plan is that it will be wrong, but if you have no idea how to measure success, how will you know if have arrived?

We see applicants all day long, who are working so hard at their business.

Are they doing well….they do not know, but they are doing 1000 things every day, so it must all be on track…Right?

Perhaps, but “perhaps” is not enough to attract an investor.

An investor wants a defined return, if you cannot break down the critical paths to reaching your target or the component costs of every one of your elements in the business and illustrate that you understand the importance of cash flow, then no one should invest in you.

Your business plan is a living document; when you go wrong, examine your assumptions change them and reflect this across the rest of the plan.

Be realistic in your assumptions. My personal rule of thumb when reviewing plans is to half the sales, delay them by 2 months and double costs. If the cash flow still looks slightly reasonable then it is worth carrying on.

Step two – find an investor

1. If you have security that you can pledge as security against a loan, then your bank is a good place to start. They love business plans.

They have become famously risk averse, but can give you great free advice about setting up and most have CD’s with useful information.

2. Friends and Family is the usual route for seed funding.

They will not make you jump through hoops like Banks and are normally cheaper than other options but it does add extra pressure to business decisions. Will Aunt Maisy lose her house?

There is also the fear of putting all of your eggs in one basket.

3. Angel Networks are to found up and down the land. See www.bbaa.org.uk for a full list of networks. These are usually based around specific geographical regions and then sometimes specialise in certain sectors.

They can give you great advice and once you have managed to get past the gatekeeper, who is there

Where do you find investors, do they really spend all day sitting on leather chairs in a London warehouse, snarling and sneering.

The good news is that some of them do and they have inspired not only more Great British innovation but also many more Great British Angels, who feel that they could do it a lot better.

Image © DerrickT