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The vital role of angel investors during COVID-19

We spoke with Jenny Tooth OBE, founder of the UK Business Angels Association, about the role that angel investors have been playing during COVID-19, and the resources available for businesses looking for early-stage investment over the coming months.

The UK Business Angels Association (UKBAA) is the trade body for angel and early-stage investment. Supporting entrepreneurs and investors across the whole of the UK – including the devolved regions – it aims to help build and connect the ecosystem to make sure UK entrepreneurs can access the investment they need at those early stages of growth.

The UKBAA unites a community of around 18,000 business angels nationwide, from large groups of investors to smaller syndicates of like-minded people coming together. A great resource for anyone looking for early-stage investment, it has a number of online platforms among its membership, such as CrowdCube, Seedrs and Syndicate Room. It also includes 30 early-stage venture capitalists (VCs) – who often co-invest alongside angels – and 30 accelerators too.

What is an angel investor?

Angel investors are individuals who invest their own money, providing financial backing to entrepreneurs and early-stage businesses. The capital that angels provide can be a single injection of funds or ongoing financial backing via a series of investments. Find out more about angel finance.

UKBAA Graphic

You can view the clickable infographic in full here.

COVID-19 and the impact on early-stage investment

The coronavirus has made this a particularly challenging time for early-stage investment. Investors depend on wealth from a number of different sources, including property, their own business interests, and stocks and shares. The impact of the pandemic on all of these factors, and the uncertainty COVID-19 has caused, means we’ve definitely seen a pullback on investing, as many investors avoid taking on unnecessary risk at present.

Business angels build a portfolio over time, investing in a number of entrepreneurs and so spreading their bets and their risks. Consequently, when the pandemic hit, the angels had to focus on helping those companies in their current portfolio to pivot their businesses, and on bringing forward investment that they had earmarked before COVID-19 but not yet allocated.

Because of this, business angels have had much less capacity to support new entrepreneurs, and many have chosen instead to invest their time and money in their existing portfolios. However, now there are signs that angels are recovering their appetite and exploring new opportunities for investment, this is a good time for your business to prepare its funding strategy.

Seeking investment in a virtual world

Like the rest of the business world, angel investors have encountered significant challenges in the move to virtual meetings and working from home. The pitching process has changed considerably as a result.

There has always been a general assumption that entrepreneurs must deliver their pitches to the investors in person. That way, the investors can get to know them and properly carry out their own due diligence. Virtual meetings make this learning process more difficult and force investors into making decisions at a distance.

However, in practical terms, this means it no longer really matters where an investor or entrepreneur is based geographically.

Jenny adds: “We have seen London-based angels looking at companies based in the North, and vice versa. I strongly believe that with the opportunity to pitch in an online environment, this will start to erode some of the regional barriers to investment, and that is exciting for the UK and for our economy”.

For more information on recovery in the North, see our recent article, “Financing recovery for Northern SMEs”.

Looking beyond the pandemic

Business angels are very interested in products, services and innovations that have addressed the social and environmental challenges around COVID-19 and changing consumer demand during the pandemic, whether in healthcare, HR or online education, for example.

Angels are also looking for businesses that they feel can be very resilient right now, at a time when there is a market opportunity for companies that are able to change how they operate. There continues to be a focus on biotech, agritech and on general-purpose technologies such as artificial intelligence, data compression, and the internet of things (IoT) – innovations that can help us move towards smarter and more sustainable ways of living in the future.

Jenny has a tip for entrepreneurs who are currently seeking investment. “If you’re approaching an investor for the first time since COVID-19, it’s important to show that you have a strong market opportunity that you can grow and build in a post-COVID environment, and, should there be a second peak, that you have the resilience and revenue model to keep going.”

Changing your pitch

With geographical constraints removed, entrepreneurs have access to a wider range of potential investors. However, making a pitch online can be challenging when it comes to making a personal connection or “reading” an audience.

Entrepreneurs must also consider the need to stimulate real engagement on these calls. For investors, online pitches can feel repetitive and unoriginal if the people delivering them aren’t sufficiently creative with their presentation.

As an entrepreneur or early-stage business, there are a few things you can do to give your online pitch the best chance of being successful:

  1. Demonstrate that you have a business model that works in these times – show that you’re still able to acquire new customers, that there’s still a market online for your product or service, and that you remain capable of making sales.
  2. Show flexibility – perhaps you’ve taken advantage of the government support measures to help your business and ensure that it can still grow.
  3. Share the ways in which you’ve continued to grow – talk about how you’ve developed your product or service, perhaps through finding new applications for it, or by discovering target audiences in other locations.

Attracting new angel investment will be quite competitive

If you’re considering seeking new investment right now, you have plenty of competition. As a result, it will be important to not only make sure you’ve developed an attractive proposition, but to reassess how much money you actually need to raise and whether you can do this in stages.

The more realistic the amount you request, the more likely it is that investors will provide the funding. You can then demonstrate how you’ve used funding from earlier rounds, before asking for more. By doing this, you build trust with investors and foster a good working relationship over time.

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