Building your round
Securing the investment you need for your business will very rarely come from just one source. Angel investors typically invest between £10,000 and £50,000 in to a business so if you are looking to close a sizeable round of investment, you will need to engage multiple investors to do so.
Investors nearly always co-invest with other investors and, indeed, more formal groups (syndicates) that do this regularly operate throughout the UK. Even with the support of a syndicate of investors, you still may need to secure investment from multiple sources to successfully close your round.
Potential sources of early-stage equity finance include:
- Individual investors
- Ad-hoc syndicates
- Formal syndicates
- Co-investment funds
- Equity crowdfunding platforms
It is your round of funding you are working to close, so it is therefore down to you to manage the investment process, including negotiations across all the funding sources with which you successfully engage.
Individual investors are everywhere, indeed the UKBAA represents about 18,000 via our member organisations. They are the root source of early-stage equity funding and invest in a round either independently or as part of a group.
You’ll find potential investors in many places: your personal network, at networking and investment events and via angel networks.
Managing multiple individual investors and their interest in your business can be very time consuming, there’s a reason this process is often referred to as ‘herding cats’. Each investor may have their own idea of the right valuation and may want different terms or warranties. It’s often advised to coral these investors around a ‘lead’ investor by forming an ad-hoc syndicate.
Often, investors form an ad-hoc syndicate around a specific deal. But getting the investors to all agree on the same terms can still be challenging without a lead angel. A lead angel acts as the interface with the entrepreneur/management team in co-ordinating the due diligence and agreeing the final negotiations and would then generally act for the syndicate in following the deal.
It can sometimes be your responsibility to find a lead angel. Ideal candidates for this role are angels who are investing a sizeable amount, bring sector expertise, have experience in angel investing and are happy to be pro-active in working with the business.
Investors involved in such a syndicate still take their own shares and will still sign their own shareholder agreement with you and you will still have a responsibility towards them as shareholders in your business.
Much like an ad-hoc syndicate, formal syndicates invest together into a deal and also have a lead investor managing the process and representing the other investors involved. The main difference between an ad-hoc syndicate and a formal syndicate is that a formal syndicate has a permanent structure and is often easier to find because they’re out in the public domain. Indeed, our member directory contains many such syndicates that you are free to approach for investment.
There are also a number of co-investment funds available to investors to help close an investment round.
The £100m Angel CoFund was launched in November 2011 and is specifically designed to invest alongside business angel syndicates from across England. The fund is a private-sector body with clear objectives to boost the quality and quantity of business angel investing in England, and to support long-term, high-quality jobs in growing companies.
The CoFund only invests alongside investments made by business angel syndicates with an experienced lead investor, and cannot consider proposals from individual investors or from the entrepreneurs themselves. It is not a VC fund and is very much a “big angel” seeking to invest on the same terms the syndicate have agreed.
The London Co-Investment Fund was set up in early 2015 and is funded by the Mayor of London for £25m to co-invest in seed rounds of between £250k and £1m. It is managed by Funding London working with Capital Enterprise. The fund allocates a pool of co-investment to designated funding partners and seeks to invest in high-growth tech, science and digital startups that are based in Greater London.
The London Co-Investment Fund invests exclusively in funding rounds led by our competitively-selected co-investment partners and all investment related decisions are made by the partners. For every £1 that the fund invests, the partners are obligated to directly invest £2.9 or secure the same from their investors.
Equity crowdfunding platforms
In a recent survey conducted by the UKBAA, 45% of angel investors stated that they invest on or via crowdfunding platforms. Indeed, many of the crowdfunding platforms will be reluctant to list your business without the backing of some angel investors already in place.
Crowdfunding should be considered as part of your funding round and not as its entirety. Crowdfunding rounds can have an impact on your shareholder list and the way you can raise follow-on funding too, so it’s important to make sure you have the full backing of your angel investors before adding your round to a platform.
Just like the angel groups, you can find crowdfunding platforms in our member directory.