Jenny Tooth is CEO of the UK Business Angels Association, the trade body for angel and early-stage investing, representing around 18,000 investors around the UK. She has over 20 years’ experience of facilitating SMEs’ access to investment, both in the UK and internationally. Jenny is an angel investor and in her role at UKBAA she focuses on building and connecting the angel community around the UK, and assisting entrepreneurs to attract investors.
“…Just a tenth of capital invested globally is in a business led by a woman. Only 18% of venture capital investors and 14% of angels in the UK are female. In the US, a woman is twice as likely to start a business as a woman in the UK…”
Becoming an angel to help small businesses succeed
I have always been passionate about helping small businesses to succeed and as a result I set up my own company to support access to finance for SMEs. I did this both in London and in Brussels, where I lived for nine years.
I have been involved with angel investing since 2000, when I was introduced to the scene during a project I was working on at the time. I came to realise what a key source of support it was for small businesses – not only in terms of finance but also in terms of other practical help, as angels will often share their market knowledge, contacts and business expertise with the companies in which they invest.
I have been angel investing myself for over ten years and find it hugely rewarding. In 2009, I co-founded Angel Capital Group, to help high-growth companies realise their potential through both knowledge and investment – this business was sold to Newable this spring. I became CEO of UK Business Angels Association in 2012.
My role at the UK Business Angels Association
UKBAA’s main role is to build and connect the early-stage investment community. This involves everything from helping new angel investors get started, often by connecting them with an angel group or syndicate that is a good fit for them, to raising awareness about angel investing generally and assisting entrepreneurs to become ‘investment-ready’.
At the moment, we are very focused on increasing the number of female angel investors – currently only 14% of angel investors in the UK are women and I am on a mission to increase this proportion to 30% over the next two years. Another core part of what I do is liaise with Government to ensure that the environment for early-stage investing remains supportive. In the UK, we are lucky to have measures such as the Enterprise Investment Scheme and Seed Enterprise Investment Scheme, which provide tax relief to individuals who invest in higher risk early-stage businesses.
Lack of access to finance for female entrepreneurs – this needs to change
Just a tenth of capital invested globally is in a business led by a woman. Only 18% of venture capital investors and 14% of angels in the UK are female. In the US, a woman is twice as likely to start a business as a woman in the UK. Clearly, this all needs to change, especially when you consider recent research findings from Barclays Bank and the Entrepreneurs Network, which showed that female-led companies bring in 20% more revenue with 50% less money invested when compared to companies led by men.
The same research found that 34% of male entrepreneurs have seen a business go under compared with 23% of female founders. There is much that can be done. We need to provide young women with successful business role models – 83% of women who have started their own business have known someone else who has done so.
At UKBAA, we are focused on the female investor side of the equation – we believe that increasing the proportion of women angel investors will not only benefit female entrepreneurs but will also pay dividends to the high net worth women who are currently missing out on the opportunity to back the UK’s high-potential early-stage businesses.
Banishing angel investing myths
It is great that Dragons’ Den helped to raise awareness about angel investing. However, it is not true to life! Angels would not subject early-stage companies to such a ‘grilling’, nor would they so impulsively decide whether or not to invest. There is a good amount of due diligence involved. Most importantly, business angels would not take big chunks of equity in a company – the maximum you would expect a good business angel to take would be around 20%.
A key point to make here is that entrepreneurs need to make sure they are asking for the right amount of finance. If they ask for too little, they will likely have to look to raise another funding round again quite soon, which will take away their attention from the running of and growing of their business.
Many women ‘under ask’, so they need to make sure they are asking for an amount of money that will really help propel their business to the next stage of growth. Remember that you are not taking on debt that you have to pay back, instead you are giving away equity in your business. Most business angels would seek to have a return on that investment over a period of 3-8 years, with some holding their stake for as long as 10 years, so it is a long-term relationship.
So, before you take on equity investment, you need to be able to show an angel what is your ‘exit’ strategy – you need to be able to demonstrate how the shares that they buy can be sold at a profit -for example, if your company is bought out by a larger player in the industry or if you go for an IPO. In general, individual business angels will invest anywhere between £10,000 and £500,000, with the majority of angels investing as part of a group or syndicate, meaning that they can pool their resources and invest anywhere up to around the £1.5m mark.
Finding the right business angel(s) for you
Given that the relationship between a business angel and the company in which it invests is a long term one, it is very important to get this right. The chemistry has to be there. If you are seeking investment from an angel syndicate, there will typically be a ‘lead angel’ who takes responsibility for leading on the deal, so it is important that you get along with them.
Remember that angels will always do due diligence on you and it’s just as important for you to do the same on them. Check out their online profiles – on LinkedIn and so on. Make sure you think they are a good fit for your business. This isn’t just about a financial transaction, it is about sourcing additional support for your enterprise. The skills that business angels bring may be able to fill gaps that you currently see in your business, for example around financial strategy or talent acquisition or marketing.
The importance of ‘impact investments’
It is true that many women, in particular, seek to build a business in response to a global need or real human problem, such as around healthcare, education or the environment. Angels are very sympathetic to this and many have around 25% of their investment portfolio made up of ‘impact investments’. They may seek a lesser or slower return in such an enterprise. It is important, however, that you can demonstrate your business is not just a philanthropic endeavour but a revenue-generating prospect too.
Angels are taking big risks when they invest in early-stage companies – up to 60% of their portfolio will not bring them a return, therefore the ones that do well need to do really well – so you need to be able to convince them that there is a good chance that they will get a high return on their investment.
Coming up next
There are two major things coming up for us this summer – the roll-out of our research into women’s perspectives of angel investing and our forthcoming Angel Investment Awards, which celebrate success in the angel and early-stage investment market.
On the former, we have recently launched an online survey and will use the results to identify what are the barriers to female participation in angel investing – we encourage as many women as possible to get involved, so do share information about this and complete the survey if you can! It is both for women who currently angel invest and also for high net worth women who do not currently angel invest; and the more responses that we get, the more impactful we can be when it comes to solving the problems identified.
As for our awards, there are 14 to play for this year and the winners will be announced at a fantastic black-tie celebration at The Dorchester Hotel in London on 6th July. Nominations are open until 9th June, so if any of your readers have invested in, founded or know of a company that is going great guns and deserves recognition, make sure they are nominated!