Good reasons for the use of Business Angel investment

Wednesday, March 30, 2016 11:30

One of the key bits of information that Business Angels or Investors into a venture will want to see is how the funds are going to be used.

I’ve seen every possible use given, from the perfectly sensible – “product development”, to the unlikely to succeed – “no one will lend to me any more and I need money to pay my rent, then I can get a business going”.

For some time I communicated with a chap who needed funds to train as a commercial pilot, he would then pay back the funds with significant interest out of his subsequent earnings. Sounded risky, relying on his ability to pass the exams and training, but he was a pleasant and determined guy, I hope it worked out for him.

So what ticks the box for Investors? Generally this can be anything that helps to grow the business:

  • Additional market research
  • Product development
  • Manufacturing facilities or equipment
  • Marketing of the product or service
  • Recruitment of staff
  • Working capital

Within this you do need to explain why you feel this will expand the business and some explanations are more attractive than others. Throwing money at marketing a new business that has never been operational is risky, but bringing to market an exciting new product or service from an already established business could be a winner. Taking on more staff to meet a high demand is good, whereas taking on staff to simply start an unproven idea is not so attractive.

Note that Investors are not interested in reducing debts or to pay yourself a high salary.

Surprisingly, many of the business plans and requests for funding that we see have excellent write ups of the opportunity, but completely miss out describing how the Investment will be used. Not only should that be very clear, but it should be part of the financial spreadsheets, showing when tranches of investment come in to balance the operational costs.

If it isn’t clear how the investment will be used in your proposal, but you have been fortunate in securing a meeting with an Investor, be prepared – they will ask!

 

 

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