Business Angels are, by definition, individuals and it is unwise to try to categorise them. But in a sweeping generalisation, they could be described as falling into two camps. First, there are “passive” Investors who usually invest in smaller amounts, in largish groups (syndicates), in lower risk businesses and take a hands-off stance. Secondly, there are “active” Investors who invest significant sums (often well into six figures), frequently acting alone, becoming involved in higher risk situations and taking a hands-on role in the companies in which they invest.
The latter group includes individuals who are interested – one might even say relish the challenge – of investing in, and working with, companies which are facing difficulties, but which are capable of being rescued. From the Investor’s point of view, these riskier businesses are potentially highly rewarding when he or she can apply their management skills to effect positive change. In the case of Beer & Partners, some 60% of its investor members express interest in making recovery investments and almost all will seek a role in managing the turnaround.
Who are these people?
One thing is clear – Angels they are not! A common profile is of a successful entrepreneur who has built a sound business which has been profitably sold or listed. They therefore have the cash and the time to invest in helping a company to change direction and manage the process which is necessary to effect its recovery. They often possess strong self-belief and are prepared to back their judgement with their own case, in the expectation of earning a high reward to offset their risk.
What do they bring?
They bring extensive management experience, often in the same or an allied sector. They may themselves have faced difficulties or a similar nature in an earlier stage in their own business life and have learnt the hard way. They bring contacts – industrial, commercial and financial – and they add credibility to the outside world.
Why do they do it?
Primarily, to make a financial gain from the investment of their time and talents. They enjoy the “buzz” of involvement in a potential recovery and the sheer challenge often turns them on.
What can they achieve?
Quite literally, the saving of a company from going under with the consequent saving of jobs, the satisfaction of creditors and the saving of the reputations of the directors and management. Add to this a return for the existing shareholders who may have faced a total write-off, and everyone wins. And, importantly, they make a significant return on their own investment for the risk they have taken.
All Business Angels have worked hard to achieve the financial success that enables them to have the funds to invest in other businesses – so they are not going to squander money and waste their time on a no-hope business that is failing. Where, however, they see an opportunity that can be rescued by the application of their business acumen and the judicious investment of their own funds, then there are people out there ready to take the risk and back their own judgement.