Sunday, July 6, 2008

Business Angels should be a first point of call

Small businesses looking for funding would often consult with their accountant or nearest business professional on where to find angel funding only after they have been declined by the bank. Its important for entrepreneurs to realise that business angels should not be a last resort for business funding but rather one of the first ports of call. Business angels provide so much more than just capital and the expertise and experience that often comes with a business angel may be invaluable to the entrepreneur and his/her new business.

Ernst & Young is on the record in saying that their research shows that small firms do not want hands-on investors. This just seals the fact that researchable data belongs to the upper echelon and what small business does on the street is only known to them.

Clearly, the emerging facility of business angel capital has excited many companies that are actually struggling with management and growth problems, and losing money because of those problems.

Ben Botes, Director - Business Development, Investors Network South Africa says that whilst there are those in the business angels community who do offer last resort financial support, they are invariably bargain hunters capitalising on distress.
“They will cover the risk of the situation by exacting a high price for their capital,” Cooper observes.

Business Professionals would understand that positioning a business angel investor in their client’s firm could make that firm a more attractive bank loan proposition. The mix of debt and equity may be more appropriate for some growing firms, particularly because business angels’ funds do not usually require a monthly repayment. The presence of an appropriately skilled angel investor will also sure up the management team.

Where a small business is having cash flow problems, Business Professionals will often suggest restraints like cost cutting rather than expansive solutions like looking for a private investor. Cost cutting will not enable smart firms to capture the growth possibilities on offer today.
"Business Professionals are often wary of identifying an investor; you don't want to take the responsibility of matching within your own client base. Perception in the past was to keep funding solutions in house, many of us now realise that is a bad tactic - cost of technology blows them out of the water. They need extra funds and a private investor is an excellent solution." Jenny Wyatt, CPA Wyatt Alexander & Co.

Given that a typical angel investment is less than R250,000 the business angel prefers the business investment to be nearby so that the costs of being involved in the business are kept to a minimum."

A firm’s accountant should be able to assess the capability of the client and be able to suggest what other skills will be required to manage the growth. A skills audit or investment ready analysis could target the areas of weakness which can be filled with a business angel's skills, manpower, contacts and capital.
The other serious issue to be considered here is succession planning. As forty percent of people will never marry the "family business" will quickly be just part of a multifaceted business landscape.

Thank you to the contribution to this article from Christine Kaine, founder of Business Angels Pty Ltd, based in Victoria

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