Business Angels are high net worth individuals who invest, either on their own or as part of a syndicate, in private businesses. Businesses seeking angel investment are usually of an early stage, high growth nature.
As well as investing money, Business Angels are often encouraged to also offer their experience, skills and contacts to the business.
The actual role of the Angel will vary from investment to investment â€“ some Angels prefer very active involvement whereas others choose to assist from afar.
As well as hoping to enjoy capital growth or a regular income stream from their investment, Angels can also benefit from various income, capital gains and inheritance tax incentives.
In addition to the financial motivation, there can also be the attraction of â€˜giving something backâ€™ to the business community, and the thrill of being involved in an entrepreneurial business venture.
Successful ventures can yield significant returns to the Business Angel. However, the risks involved are high: not all businesses will succeed and there is potential for the whole investment to be lost.
Business Angels are generally understood to be High Net Worth (â€˜HNWâ€™) Individuals or Sophisticated Investors. Although it is possible to invest in businesses without satisfying either of these criteria, businesses would have to comply with Financial Services Authority (â€˜FSAâ€™) Financial Promotion regulations if presenting the investment opportunity to individuals that donâ€™t fall into these categories, which can be an expensive and time consuming activity which might not be practical for the business that is seeking funding.
Angels are able to self-certify their status as either a High Net Worth Individual or Sophisticated Investor. The criteria for each are as follows:
|High Net Worth Individual||Sophisticated Investor|
|To have had, during the financial year immediately preceding the date of certification, an annual income to the value of Â£100,000 or more; OR To be a member of a network or syndicate of business angels, and to have been so for at least the last 6 months prior to self-certification; OR||To be a member of a network or syndicate of business angels, and to have been so for at least the last 6 months prior to self-certification; OR|
|To have held, throughout the financial year immediately preceding the date of certification, net assets to the value of Â£250,000 or more. Net assets for these purposes do not include:-
To have made more than one investment in an unlisted company in the two years prior to the date of certification; OR
To be working, or have worked within the past 2 years prior to self-certification, in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises; OR
To be currently, or to have been within 2 years prior to self certification, a director of a company with an annual turnover of at least Â£1 million.
By self-certifying as either a High Net Worth Individual or Sophisticated Investor, the individual should be aware of the following:
It is recommended that anyone interested in becoming self certified should seek professional financial advice to ensure that they understand the additional risks involved before applying.
In order to mitigate these risks, we would strongly recommend that Business Angels seek professional legal and financial advice prior to making an investment in any opportunity, and undertake thorough due diligence on the specific opportunity. It is also sensible to seek tax advice on the EIS status of any proposed investment.