How to secure angel investment

Richard Prime secured angel funding for his company Sonovate. Here are some tips from him on going about it.

Despite the economic recovery, UK banks remain disconnected to the point that they are stifling the growth of SMEs – the very businesses driving the recovery in the first place. Traditional banks remain risk-averse, inflexible, and restrictive and they have maintained their stranglehold on business ambitions for far too long. Even schemes like Funding for Lending, established by the Treasury and the Bank of England to encourage banks to make loans to small companies has been branded a failure after figures have shown a £2 billion decline in lending in 2014.

Luckily for business owners, another type of investment – driven in large part by the £72 billion tech revolution in the UK economy – has come to the fore. Angel investors have all the benefits of a bank loan with the added bonuses of sector expertise, a willingness to take risks, and flexibility. They’re individuals who are putting their personal money into a small business and they are often willing to give up their time, introduce you to contacts and offer strategic advice; a godsend for a small business owner.

As such, businesses including Zoopla, Lovefilm and mine are increasingly bypassing the banks and flocking to the angels to secure the investment we need. Our first angel investor Paul Birch, founder of Bebo is a case in point; he believed in our business model and was willing to invest £4 million to help us realise it. We would never have had that support from a traditional bank. So how do you go about raising this type of investment? Here’s my advice.

Have confidence in your business model

In all likelihood you will face rejection, and it will hurt. It’s a normal part of putting your business on the line for funding so that you can help it grow. At our company, we were turned down for funding by three of the UK’s largest banks because, despite repeatedly passing due diligence, they didn’t take the time to understand our business model. If this happens to you, it’s vital that you don’t lose heart, keep going. Keep reminding yourself that the next investor could easily be the one who invests in your company, and that it’s your business model that will attract his or her attention. If you don’t have complete confidence in your plan, why should an investor support you? A great example of someone who never gave up is Nick Hungerford, CEO of Nutmeg. Nick was turned down for funding a huge 45 times before going on to secure funding from angel investor Tim Draper and just look at the success he’s enjoyed!

Know your business inside out

Confidence in your business model will help you get your foot in the door, but it’s a detailed knowledge of your business that will lead to a signed contract. That includes the company history, growth plans, financials, operating requirements, and precisely what you want to use the investment for. We’ve all cringed at pitches on Dragon’s Den going horribly wrong because the CEO didn’t know the company’s financials – don’t make the same mistake. Potential investors expect more than just the top-level information: they want to know everything about your business. The second you start to sound unsure of anything you’re proposing, you’ll be on shaky ground. The only way to stay on terra firma is to prepare detailed answers for any question you might be asked.

Don’t be afraid to pivot

Even the best business model can be improved when it’s put into practice. Often it turns out that one specific area of your idea has more potential than you initially imagined. That’s what we discovered at Sonovate: we changed our offering from a ‘solution in a box’ containing everything that recruiters needed to run their business to focus solely on providing finance and supporting back-office technology for recruiters placing contractors. That was by far our most popular feature with customers; it was the one thing we offered that no one else did.

We were very fortunate in that Paul and our board recognised that we were the ones that held the talent and we would drive it through the business whatever direction it took. So, with the support of Paul, the board and the team at Sonovate we were empowered to pivot the business and achieve even greater levels of success. We aren’t the only ones who have achieved success this way, did you know that Nokia started as a Finnish paper mill before manufacturing rubber products and eventually electronics? That Nintendo used to count playing cards and rice, yes rice, among its offerings?

There are many alternatives to the banks for businesses looking for finance. Angel investors can bring more to your business than just cash; they can have a transformative effect resulting in unprecedented growth. Your job is to convince them that your business is worthy of their attention.

Richard Prime is founder of Sonovate.

Further reading on angel investment

Richard Prime

Richard Prime

Richard Prime is CEO of Sonovate.

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