Thursday, March 24, 2011

How I raised angel finance: EPISODE 1

Finding a business angel to invest in your business will often be a time intensive process with much preparation by you as the entrepreneur and due diligence by the business angel to ensure that the business plan is really investable and of course that  the current state of affairs is clearly understood. Today there are a number of industry bodies and networks available that will help you find the small business finance that you are looking for. Although banks have slowly started to lend again the fact is that they are mostly still fairly risk averse and as an entrepreneur you will often be left to find alternative sources for business funding to get your business up and running or fund the next stage of business growth.

So as and entrepreneur myself I realise that the how to of how to take care of activities such as funding a business angel is best heard from the horses mouth. In this first case study on how I found startup finance, we hear from entrepreneur Richard Palmer from d3o lab. Robert sourced his first round of angel finance almost a decade ago now and here shares his stories in hindsight.

What I did
Examine the business' needs

"We developed our product, d3o, to a stage where it had great potential as a highly lucrative technology. However, we needed to get additional finance into the business to manufacture, sell and promote the product. In identifying our preferred funding route we thought carefully about our priorities, such as the amount of funding we required, any security we may need to provide and the amount of day-to-day involvement investors would require. Business angels tend not to require security and, having decided that we needed a substantial investment without having to cede too much day-to-day control, we decided that business angel funding was ideal for our business."
Refine our business plan's presentation

"We had already prepared a business plan, but we refined it by including sections detailing how the business angel finance would develop the business and what involvement potential investors might have. We also spent time on the plan's presentation - ensuring it was focused and professional - to demonstrate our commitment. This stage was vital. A tailored business plan clarifies what the benefits of the investment are for both parties and specifically what the funds will be used for - and what they will achieve."
Secure the funds

"Armed with our business plan, we contacted the British Business Angels Association who introduced us to several business angels. As a small but growing business our choice of angel was based largely on the sort of practical assistance they were offering. We then pitched our proposal to a shortlist of investors and tried to show them the benefits of their involvement - both for them and for us.

"One investor - David Richards - decided to invest after our first meeting with him. To secure the funds, we negotiated issues such as our respective responsibilities and growth targets. Finally, our legal adviser helped to negotiate the investment terms, such as our financial forecasts, which helped our investor complete his due diligence checks and agree the deal."

What I'd do differently
View investment as an ongoing process

"When I was initially pitching for investment, I was trying too hard to make the business cash-positive in one single stage. Had I appreciated that the business would develop and grow in value so quickly, I would have outlined my longer-term investment requirements more strategically."
Allocate more time to the project

"It takes a long time to secure any form of finance and it's no different in the case of business angel finance. If we had known at the start just how much time and effort it takes, I would have spent more time preparing an investment strategy at the outset."

Going forward it is of course important to realise that every financing round is different and of course every business angel is different. Still, its useful to consider the process that others have been through to prepare yourself  and your business plan for what is to come and what you are up against before you can start with the real work of running your business.

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