Before approaching a business angel (BA) for investment, you should consider whether other forms of finance could better meet your organisation's needs. For other sources of alternative funding, see equity finance.
Advantages of business angel financing
Six advantages of business angel investors:
- BAs are free to make investment decisions quickly
- no need for collateral - ie personal assets
- access to your investor's sector knowledge and contacts
- better discipline due to outside scrutiny
- access to BA mentoring or management skills
- no repayments or interest
Disadvantages of business angel financing
Four disadvantages of business angel investors:
- not suitable for investments below £5,000 or more than £150,000
- takes longer to find a suitable angel investor
- giving up a share of your business
- less structural support available from a BA than from an investing company
Venture capital funding
Venture capital companies make larger investments than BAs - typically starting at £250k - making them suitable for bigger companies with more complex plans.
The mindset of a VC is different to that of a BA. A VC is representing limited partners such as bank, insurance and pension funds and need to be aggressive in order to produce the best returns so they can raise their next fund.
They are likely to have a more formal relationship with the businesses they invest in and to build exit procedures into agreements. Due diligence for venture capital investments can also be more expensive for your business and take longer than with BA deal - see venture capital.