Mark Lyttleton is a business angel with more than 30 years of experience investing in both private and public markets. This article will outline the support business angels provide to early stage companies, identifying the qualities needed to be a successful angel investor.
Typically a high-net-worth individual who has amassed a great deal of business acumen and experience – having already successfully built and scaled their own enterprise – an angel investor provides financial support for entrepreneurs and early-stage business, usually receiving a stake in the company in return for their investment.
Also known as an angel funder, private investor or seed investor, an angel investor may offer a single lump sum investment or ongoing injections of capital to support a company through the challenging early stages of trading. For many start-up companies today, angel investment is a primary source of funding.
Since investing in an early-stage, unproven company is relatively high risk, these types of investments usually do not represent more than 10-25% of a business angel’s investment portfolio, depending on the level of diversification. While some investors focus solely on investment opportunities within their own particular niche, others prefer to venture beyond that remit to focus on other industries and themes, enjoying the challenge of mingling in new circles and learning new things. This diversification also provides a degree of protection should an industry that is in high demand today suddenly cool tomorrow, with valuations falling as a result.
Patience is incredibly important for any business angel, as deals often take longer to deliver than anticipated at the outset. Companies invariably go through stages of ebb and flow, with everything going well one minute before an unexpected stumbling block arises the next, be it a product failing to gain traction or the departure of a key member of staff. It is important for business angels to keep in mind that founders and management teams are not robots; they are real people, with real emotions and life events, leaving them vulnerable to being driven off track from time to time. As with any type of investment, knee-jerk portfolio changes can be a big risk to investors. To be successful, business angels need to maintain a long-term approach rather than hitting the sell button the moment the market lurches or an unanticipated problem crops up.
Successful angel investors are committed to the businesses they invest in. They work closely with founders, providing constructive feedback and maintaining channels of communication. Rather than simply seeking a quick profit, great business angels engage with and encourage entrepreneurs, exhibiting empathy and helping to poise a fledgling start-up for growth.
Angels with significant entrepreneurial and start-up experience who are prepared to spend time with founding teams are particularly valuable from the entrepreneur’s perspective, helping them to identify challenges and potential solutions while providing the benefit of their business acumen, experience and expertise.
A great business angel is a consummate networker. Introducing founders to advisors, strategic partners, board members and potential acquirers can make all the difference to an early-stage enterprise, providing the business with access to the contacts it needs to ramp up a gear, scale and flourish.
