Business Angels

In 1977, the late Ian McGlinn provided The Body Shop founder Anita Roddick with the money to open her second shop, after banks had turned down her application for a loan. His support earned him a then half share in her fledgling business.

The company quickly became an international brand, floating in 1984 and making McGlinn’s stake worth some £4m. But by holding on and selling his shareholding in 2006, the former garage business owner saw his original £4,000 investment grow to a staggering £146m.

Thanks to his partner suggesting he used some spare cash from his Littlehampton garage operation to invest in Roddick’s business, McGlinn became a business angel.

This is an individual who provides their own money as capital for a business start-up, usually in exchange for a share in the venture.

The term originates from Broadway, where it was used to describe wealthy people who provided money for theatre productions.

These days, business angels in the UK invest anything from a few thousand to millions of pounds, with popular investment sectors including healthcare, biotech, software, retail and IT services.

To offset the risks of losing their money or seeing their investment diluted by future investment rounds, professional angel investors demand a very high rate of return. Typically, they ask for 10 or more times their original investment within, say, five years through a defined exit strategy such as a sale to another company or an initial public offering.

For the founder of a start-up business, there is only one thing better than finding someone willing to invest in your venture – and that’s convincing a celebrity to get involved.

The celebrity business angel, who can back a start-up with his or her brand as well as money, is in hot demand. There are even blog articles about how to attract actor Ashton Kutcher, who has invested in several US and Berlin-based start-ups.

Recent developments in angel investment make it easier for ordinary people to invest some of their money in fledgling businesses, too.

You can test your wings with as little as £10 by equity crowd-funding, which involves pooling your seed money with that of other investors through websites such as CrowdCube and Seedrs.

Norm Peterson, the chief executive of Growthfunders, a North-East based crowd-funding platform is coming into our office, on the evening of September 18, to give some further background on this new wave of finance. The event is aimed at Entrepreneurs and small business owners who are interested in new and innovative ways to raise capital and investors who like to back exciting start-ups. Should this be of any interest, please don’t hesitate to contact me and I will gladly forward on further details.

It is critically important to note, while becoming even an entry-level business angel investor sounds glamorous, your money could be more at risk than for many other, more regulated forms of investment. You could potentially lose all of your outlay on a high-tech pie-in-the-sky idea, so it’s best to only use money you have to spare.

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.

Gary Welford, assistant investment manager, gary.welford@brewin.co.uk