Business Angels – they ain’t!

There are only two problems with the term ‘Business Angels’.

The first is that it is not about ‘business’: it concerns ‘investment’.

The second is that few are ‘angels’: they are mostly avaricious, time wasting, +50 year old males who love the sound of their own voice. Their aim is to use the sweat and application of younger business people to make themselves even more money.

In recent times the BBC programme ‘Dragon’s Den’ has glorified the concept as media hungry personalities play-act rehearsed interrogations of ‘lambs to the slaughter’ applicants (who should be represented by professionally trained advisers).

Research published by Pensionsledfunding.com found that of 553 applicants (2005 -2010) only 140 companies are still trading. Only one third received an offer from a Dragon and, of these, nearly 60 were aborted, usually because the Dragons retracted their offers. Planit Products of Worcester received an offer of £200,000 from James Caan but it was withdrawn after the programme was aired.

The CBI booklet ‘Ripe for the picking: A guide to alternative sources of finance’ correctly identifies Business Angel finance as a source of growth capital. It says that there are approximately 18,000 such individuals (usually high net worths) in the UK. It states an investment total of £850 million per annum.

In the context of the desperate shortage of credit for Britain’s SMEs it has a limited impact.

During my time running St Helen’s Capital (1998 – 2006) I acted for over seventy companies who joined (usually) PLUS Markets. In at least twenty cases we had to undo the damage done by early stage ‘Angels’. The usual problem was a one-sided shareholder’s agreement which precluded any other investor taking shares. In perhaps 75% of situations the entrepreneur had fallen out with the Angel.

‘The Drury Report’ (pages 18 – 19) drew attention to the Regulatory muddle on this issue and the urgent need for greater protection.

The recently introduced SEED EIS opportunity, created by the Department for Business, Innovation & Skills, which gives generous tax breaks to investors supporting SMEs raising up to £150,000, offers a better route to early stage finance.

The scheme itself has not been successful: we’ll examine the reasons why next weekend.

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