When you’re starting a new business, one of the biggest challenges is finding funding. With the economy in it’s current state, banks are reluctant to lend, and the need for a financial safety net for weathering bad times and helping you get established with a regular clientele is more important than ever.
Another source of funding are so-called ‘Angel Investors’: serial investment experts who provide large injections of funding for your business. This can seem like a gift from the gods, and precisely what you need to help you over a rocky period, or get your business off the starting blocks, but there are definitely issues to be aware of you.
Firstly, an Angel Investor often expects to receive a high level of influence within your organisation as a result of their investment. This can be an advantage: it gives you access to someone highly experienced with businesses in your position, who may well have useful input for you. You also have to be aware that you remain in charge of your business. It’s a prudent move to have your business solicitors draw up a shareholder agreement that limits the authority any investor can exert over business.
You may also find that Angel Investor are more aggressive in looking for growth and payouts than a bank would be: they are individuals making a large individual investment and they do expect to be rewarded for it. If you feel you might need a nudge to be more ambitious and reach your full potential, partnering with a bullish investor might be the best option for you. If you prefer to grow slowly, moving forward only when you are personally happy with your progress, a loan from a traditional is a better fit for your model: this is the behaviour banks like to see and reward, whereas most Angel Investors would find this frustratingly slow.
The most important piece of advice to take from this is to be upfront and make sure all parties understand each other. If you’ve had a frank discussion and both know what the others would want from a partnership, you can make an informed decision about whether this is the right investor to partner with, and avoid unpleasant surprises later when you find an investor has unforeseen expectations about your business, and the pay-back they are seeing from their investment.
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