Business angels

A business angel is an individual who invests their own money in a business in return for a share of the enterprise (part-ownership) and a slice of its profits. They are usually experienced business people who back start-ups and small businesses.

Advantages for the owner

• Advice and mentoring: the owner gains guidance from someone with business experience, as well as the money.
• Quick finance with no repayments: the money can arrive quickly, and because the angel is buying a share there is no interest or repayment schedule to meet. A large amount may be available.
• Backing for risky ideas: an angel may fund a risky business that other sources, such as a bank, would refuse.

For example, a small mobile bike repair service needs £8,000 for tools, a van and a website. A business angel could provide the money quickly and also advise on pricing and finding customers. The service may look risky because it is new, but an angel may still invest.

Disadvantages for the owner

• Less control: the angel now has a say, so the owner may lose control over core decision-making.
• A share of the profits: the owner has to hand over part-ownership and a slice of future profits.
• Possible conflict: differing visions may cause conflict, because the angel expects input into how the enterprise is run and may want it to go in a different direction.

An angel's money is never a gift or a loan: it is an investment bought with part-ownership, and that is where these drawbacks come from. If the angel wants a second repair van in a nearby town while the owner prefers to stay small, the two visions can clash.