Business angels spread their wings

One of the biggest challenges facing smaller businesses is raising funds. Whether finance is needed to start up or expand, the business climate in the UK can often seem hostile. But help may be on the way. Last week saw a revamp of the Local Investment Networking Company (LINC) into the National Business Angels Network […]

One of the biggest challenges facing smaller businesses is raising funds. Whether finance is needed to start up or expand, the business climate in the UK can often seem hostile.

But help may be on the way. Last week saw a revamp of the Local Investment Networking Company (LINC) into the National Business Angels Network (NBAN). The new body will aid small firms by enlisting the help of all the clearing banks and setting up a web site. The network also has backing from the Department of Trade and Industry (DTI).

The network operates a bit like a dating agency, bringing investors and companies seeking backing together and helping them find out if they are suited. It is spearheaded by chairman Michael Snyder, a senior partner at chartered accountant Kingston Smith. Snyder, who was head of LINC, has wide experience of the problems small- and medium-sized firms face in raising funds, and of the difficulties faced by this type of agency.

‘There have been lots of little business angel networks, which have had very mixed success in the UK,’ he says. This disjointed approach has not worked well compared to similar schemes in the US. The new network will address the problem by acting as a co-ordinating agency. ‘It’s not just about money, it’s about mentoring,’ Snyder says. ‘We have got to increase the overall volume of business angel activity in the UK, and we can only do this by stopping fragmentation.’

An estimated £500m a year is invested by business angels. The money has tended to come from wealthy self-made business people who rarely put more than £50,000 into one company, and typically reject seven out of eight proposals.

Although business angels sometimes put money into start-ups, they prefer to take a stake in growing companies, which are less of a gamble. Even so, of the businesses backed, around a third have failed.

NBAN also has support from the Corporation of London. ‘Everyone has put sponsorship money in, and something in kind,’ Snyder says. ‘For example, the Corporation of London has given funding for our headquarters.’

He will not be drawn on the amount of money supporters have provided, but points out that all the sponsors are on the NBAN board.

It was important to get the banks involved, as they are often the first port of call for businesses seeking finance. ‘Bank managers will now be educated to funnel clients through to the NBAN. With increased activity, we have more of a chance of getting the concept through to the man in the street,’ Snyder says.

The DTI involvement reflects the Government’s concern to encourage entrepreneurs and to help more smaller companies to find finance.

‘I have acted for a number of engineers and manufacturers over the years,’ Snyder says. ‘Where owner-managed businesses are concerned, I have noticed that investors with a good feel for the sector find it hard to keep away.

‘The network is a great opportunity for people with expertise and some funds to help companies grow.’

There are no specific business angel organisations catering for engineering and manufacturing. But companies from the engineering/manufacturing sector, including high-tech ones, represent around 40% of the total number of companies on the NBAN register.

To become a business angel, an investor must pay a fee of £85 plus VAT. They can access companies looking for funds through a web site, a bulletin, an agent or by making direct contact.

For a company to join, it must pay £100 plus VAT and have drawn up a business plan. There is a limit to how long companies can stay on the register.

‘We are an introduction service, not marriage brokers the individual organisations do that part,’ Snyder explains.

So what do the participants gain? Only investors with money to spare should get involved, Snyder cautions. They can get tax relief and make a lot of money but they can lose it too.

Many backers enjoy helping to run a business about 80% of investors take an active role, advising in areas like marketing, accountancy, finance and networking.

As well as being a potential source of funds, NBAN gives the entrepreneur someone from outside to act as an expert and a friend: this is a valuable asset, Snyder believes.

He does not have any specific targets for the network. ‘We will know by the number of deals being done when it is a success.’