Rich people who want to help a new business can sometimes find people who are willing to invest their money in exchange for money. "Business angels" is the name for these people. The name comes from the fact that they invest when no one else will. Small businesses often have trouble getting the money they need to start up. Large investment companies and traditional lenders are often unwilling to take on the risk that comes with starting a small business. This need is met by business angels. They really are angels to the new business owner because they save the day when he or she has no money to invest.
Most of the time, business angels will put money into businesses that need between GBP10,000 and GBP250,000. The average first investment made by an angel investor is around GBP75,000. They will choose to put their money into businesses with good business plans and the chance of getting a high return on their money. Business angels are picky about the businesses they invest in because they are taking on a lot of risk.
Why would a business angel want to put money into a new business with a high risk? At the end of the business relationship, they want to make money. In exchange for their investment, business angels get a share of the business's equity. With this kind of financing, the business angel gets a piece of the business. They may sometimes still have some say in how the business is run.
How will a business angel get his or her money back? When the business starts making money, it is often paid back through dividends. Due to the high risk involved, the percentage the business angel gets is usually higher than with a traditional loan or other form of financing. But the business owner usually doesn't mind this high percentage because there aren't many other investors who are willing to put money in.
If the business fails, business angels will want to know how to get out. This exit strategy needs to be clear when a new business goes to a business angel with a plan and a request for money. A trade sale is one way to get out of a business. The investor is paid back with the money made from selling the item. A new business can also give a possible business angel an idea of how to get out by explaining how a shareholder buyout works. The business angel wants to make sure that the business has a way to pay back the money even if it fails.
Most of the time, business angels give more than just money to a new business. They also give advice and share what they have learned. Even though many new business owners don't like to give a business angel a lot of control over their business, the experience and knowledge they gain is very valuable. The business angel has made a lot of money, so he has shown that he can do well in business. This kind of knowledge is very helpful for a new business owner.
Business angels want to get a lot of money back from their investments. Because of this cost, most businesses look for other ways to invest and get started before they ask business angels for help. If you want to start a new business but have no other way to get money, an angel investor may be your best bet. Before going to a business angel, you might want to try getting money from traditional lenders, friends, and family, since these options cost much less. If, on the other hand, you can't find any other way for your business to make money, it's time to ask for help from a business angel!
