In this guide, we look at how scale-ups can maximise their chances of getting an angel investor onboard.
Don’t expect to achieve funding straight away. Angel investors want to make sure that they have the right team of fellow investors in place, and that takes time.
If you want to get an angel investor to back you, it’s about the quality of your product or service and the effectiveness of your pitch. If you can convince them to be as passionate and faithful in your product as you are, it can help you find an important business partner for years.
Here are the best ways to get an angel investor:
Build a quality team
According to the British Business Bank’s 2020 angel market report, the number one factor angel investors look at is the quality of the founding team. In fact, 91 per cent of angel investors think the skills and experience of the founding team is of the highest importance.
An earlier report found when it comes to carrying out due diligence on an investment opportunity, old adages – such as back the entrepreneur, not the idea, and run the numbers – ring true. Ninety per cent of business angels say interviewing founders is important, while 87 per cent feel cash flow is key.
A proven understanding of the market, with all the skills that entails, is also something that is attractive to investors, as is having a societal, environmental or local impact.
Put your own money where your mouth is
Research from the University of Edinburgh Business School and the University of Glasgow Adam Smith Business School in 2020 found 87 per cent of angel investors would find it too risky to back an entrepreneur who had not made a significant financial investment in their own venture. Showing faith is seen as important.
Those who are motivated by status are seen as a big risk to 70 per cent of angel investors but the pursuit of wealth was seen as a safe bet for 62 per cent.
Have a clear exit strategy
A clear exit strategy should be part of your investment proposition as this is where the angel investor will see how and when they can expect a return.
“It is good practice to provide examples of businesses that are similar to yours who have exited,” advises Oliver Woolley, of angel network group Envestors.
According to research by the UKBAA and British Business Bank, the most common ways businesses exit are:
- Trade sale 55%
- Sale to other shareholders (including management buy-outs) 10%
- Sale to a third party through a secondary sale process 10%
- Listing on a stock market 10%
- Other 15%
Spare them the details
Interestingly enough, according to a 2018 survey, detailed information about the product is seen as less of a priority for 52 per cent of angel investors and 36 per cent believe that due diligence carried out by a third-party accounting or consulting firm is important.
Professor Richard Harrison, who lead the study for the University of Edinburgh Business School, said: “What’s clear from our study is the vital importance angel investors place on the characteristics of the business founder – their ability to lead and prior experience – as well as a founder’s willingness to invest in the venture.
“The ‘jockey’ (entrepreneur) remains much more important than the ‘horse’ (the business), so potential entrepreneurs need to demonstrate their commitment, both financially and in their capacity for hard work. Signalling to business angels that they have the right motivations and entrepreneurial capabilities to make any investment work, should be a priority.”
Case study: Dr Berwyn Clarke, CEO of PBD Biotech, discusses how angel investment allowed his company to commercialise its products.
PBD Biotech, founded in 2017, has developed Actiphage, a rapid test for bovine TB – a disease devastating the dairy industry. One application of the test is its use by vets, as a blood test, to detect the presence or confirm the absence of the disease in order to manage it effectively.
The company was launched with funding from Nottingham University, the Eastern Agritech Fund (£60,000) and an SEIS angel investment round.
Why an angel round was the right fit
Angel investment was chosen as a successful route for PBD Biotech’s specialised products. This was because of the specialist local networks of individuals knowledgeable about the industry, and who understood the international opportunity offered by the technology. More recently, angel investment has been made alongside other sources, with £400,000 raised in the latest funding round.
There is an enormous need for a tool to better monitor and control TB and M. paratuberculosis (MAP) infections in livestock and other animals, and as such there is an enormous value attachment for an accurate test like Actiphage. In England alone, bovine TB costs taxpayers over £100 million every year.
Actiphage’s phage-based detection method is a very particular technology, which has a potentially global impact, and the route to delivery is clear. So, it ticks a lot of boxes for the right investors who understand the industry.
Earlier this year PBD Biotech opened a seed funding round that secured £400,000 from co-investment fund New Anglia Capital, regional investment groups and individual angel investors including farmers and vets.
The investment is to be used to continue the necessary field-based validation studies, build the commercial team and to scale up manufacturing capabilities.
Significant market interest has been developed from multiple sectors both within the UK and internationally, with major initiatives underway including France, Canada, USA, Mexico, Brazil and Argentina.
Business growth post-funding
In the last two years, financial backing has enabled PBD to commercialise its products and bring them to market.
Controlled trials have demonstrated the effectiveness of Actiphage. Its use by a Devon vet as part of a private TB eradication strategy helped clear a dairy herd of bovine TB for the first time in six years. In May 2018, the UK government accepted the phage-based technology for exceptional private use on TB-stricken cattle herds in England.
International trials are underway in Canada and France, with discussions in multiple regions including the USA, Dubai and South America. As a result of this funding round, PBD Biotech has established a Canadian subsidiary for distribution and, in the longer term, manufacturing.
“Angel investors bring more than money – they offer experience, skills, wider contacts and industry knowledge”
The latest backing from a co-investment fund and angel investors has allowed PBD Biotech to accelerate its go-to-market strategy, put more resources into manufacturing and lab development, conduct further validation trials as well as extend training capacity.
The funding has accelerated the company’s timeline, meaning we’re about six months ahead of where we were expecting to be. We now have a number of commercial opportunities all over the world that are ready to go. For an early-stage company this is an exciting position to be in.
The advantages of angel backing
Angel investors bring more than money – they offer experience, skills, wider contacts and industry knowledge – and this can be invaluable to an early-stage technology. Their knowledge is also used to conduct stringent due diligence into the company and this helps to de-risk the investment for other groups.
For technology companies, the right angel investors provide a good source of expertise and business acumen, which is invaluable if the company needs to pivot to address market opportunities.
In summary: to maximise your chances of angel backing:
- Show commitment – both motivational and financial
- Prove your market expertise
- Be in it for wealth generation
- Prove your leadership qualities
- Have an exit strategy
- Keep your pitch short
Looking for funding? Find the right finance for your business here