Accessing Further Finance:
As the business grows, you should be aware that you may need to provide further follow-on investment to enable the business to move to the next stage of growth. You should plan this into your investment strategy for your portfolio from the outset so that you can decide if you want to follow your investment. Deciding on how much further finance is needed will normally be done with the management team as part of your ongoing relationship with your investee business and this may be angel or VC equity, but could be other sources of finance.
Accessing Bank finance:
For most entrepreneurs at the seed and start-up phase, seeking to fast grow their business, bank finance in the form of loans is not suitable until they are able to generate regular revenues to repay the debt. Providing equity investing, taking shares with a view to gaining a return or dividends on successful growth, without requiring regular repayment, can therefore be a better source to incentivise and support growth at this stage in the business.
Nevertheless, as the business grows and become profitable, angel investors may wish to assist their portfolio businesses to access bank finance through such schemes as the Enterprise Finance Guarantee scheme, for more information, CLICK HERE. Many banks will be interested in supporting businesses that have received angel investment having been supported with equity and sound business advice. CLICK HERE to be directed to the BBA web-site.
Accessing VC Finance:
Angel investors may also wish to access Venture Capital finance to support the fast growth of their business as the business requires larger amounts of equity to achieve its potential. For details of VC Funds, CLICK HERE for be directed to the BVCA website
This may include co-investing with a VC fund to bring further investment into the company. Or you may choose to seek an exit at this time, depending on the terms of the investment. There are a number of VC schemes designed to support high growth businesses that may be interested in co-investing alongside angel investors, including the Enterprise Capital Funds, as well as VC Funds dedicated to specific Regions around the UK. For details CLICK HERE to be directed to the Capital for Enterprise website.
The Business Growth Fund
This new £2.5bn Fund, which is a Venture Capital Fund, was established by five of the major banks in 2011. BGF offers equity investment of £2m to £10m in high growth potential businesses and is interested in making investments in businesses that have been successfully nurtured by Business Angels. BGF Fund has Regional Offices around the UK offices where you can make contact. CLICK HERE to be directed to the BGF website.
Achieving Exit
An exit is the process by which Angels may (hopefully!) realise a positive capital gain by selling their shares in the investee company for a higher value than their initial investment. The three main types of exit event are as follows:
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The sale of the entire issued share capital to a third party as a trade sale - this is the most common exit, although occasionally by way of a “buy-out”, where the investee company is acquired by an entity funded by a private equity investor, a bank and/or a management team
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The buy-back of the Angel’s shares by the company itself from its own resources, or perhaps by a fellow investor or by the entrepreneur
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The flotation of the company on a public market, such as the Alternative Investment Market (AIM), by way of an initial public offering
Achieving a successful exit requires making a strategy right from the outset of your investment and working closely with the management team so that your interests are aligned. It generally requires a good deal of patience and can take several years. However you can assist the process through both strategic advice to the management team and helping to make contacts and supporting negotiation discussions, with regular reviews of exit plans and overcoming tensions between your as the investor and the team about he optimum timing and approach to achieving exit.
Remember your money may be tied up over several years before an exit can be achieved and this is why Angel finance is called “Patient Capital”!
You should always take advice from legal or financial experts who are experienced and skilled in these transactions so that the prospects of achieving the desired financial return from the exit are maximised and ongoing risks minimised.
