Britain’s investor population is world-leading, but with Brexit around the corner, the nation’s SMEs are at risk of stalling without vital growth finance. With investment into businesses falling by 1.5% from Q1 to Q3 of 2018, now is the time for leaders in the investment community to come forward.
Despite institutional business investment falling, in 2018, the number of new businesses registered in the UK grew by 6% compared to 2016, the year that Britain voted to leave the EU. Contrary to the falling investment rate, entrepreneurs still feel confident in the business environment. Scaling businesses are also experiencing a positive business outlook, with the rise of technology, alternative finance and marketing tools. So how can scale-ups get better and go beyond simple funding and thrive in a post-Brexit environment?
In many ways, scale-up investment can be the most difficult time to secure investment. Although a small business leader may have successfully established a small-scale venture, often the full potential of the business is yet to be proven. However, given the right product and market fit, the subsequent growth (especially for tech companies) can be explosive. Angel investors, particularly alumni investors, are experts in their field who can not only provide financial support, but also bring the experience and knowledge required. This can be more valuable to the growing success of a business than funding alone. Angels can actively take a role on the board and support the business, or may act passively as part of a group with a lead angel taking this role on their behalf.
Generally, investment comes from a number of angels, not just one. More commonly, investment will come from a syndicate of several angels. The advantage that syndicates have is a resource of skills, contacts, and knowledge from several experienced sectorally recognised experts that business leaders can tap into. Ideally, there should be a lead Angel who could be very experienced in the industry or market focus of the business.
Angels can help in a wide range of areas, from advice in planning the business development and growth path, to support with key aspects of the business such as financial management or HR as well as product development. Many angels can help access to customers, buyers or international markets, drawing on their own industry contacts and general introductions. Angel investors also support access to further funding rounds and can also mobilise funding from other angels and sources of capital, including interfacing with Venture Capital funds as and when the business needs further growth finance.
Many Angels have been entrepreneurs themselves or helped to build successful businesses and know the stresses and strains of being an entrepreneur. Angels do not take large amounts of equity and don’t take complex preferential shares and are much more aligned with the entrepreneur, not forcing change. Angels offer ‘patient money’ and do not seek to force a quick exit. Further to this, Angels are renowned for their flexibility and are adaptable to change, matching the dynamism of scaling businesses, allowing them to be nimble and fast in order to react to changing events.
Many angels have already been through a number of economic cycles themselves in their own business or as investors, so often know the challenges and how to survive the turbulence of changing global economic factors. Many have also invested in times of economic strain, such as the financial crash of 2008, and know that during these times, some of the most innovative and disruptive businesses can be launched. For example, Facebook and Twitter were launched out of the dot com crash. During the financial crisis of 2008-2012, so many new great Fintech start-ups were launched in the UK. These include Transfer Wise, Monzo, and Revolut. These are now Unicorns i.e a startup company with a value of over $1 billion.
It can be challenging at times to get the most out of the relationship with angel investors, but if the business gets it right, it can be a dynamic and highly positive experience. For scaling businesses negotiating a potentially difficult market, such as Britain leaving the European Union, a positive relationship with an Angel investor may make the difference between failure and survival for many promising young businesses in 2019.
Jenny Tooth OBE is chief executive officer of UK Business Angels Association