Angels or VCs – what funding option is best for your business?
Health tech businesses with rapid expansion plans will need the right financial backing. Here, Scott Miles and Taylor Moores, explains how angel and venture capital can help your business grow.
Businesses with ambitious growth plans need the right financial support. Seed capital, whether from the bank, founder’s capital or from friends and family is rarely a long term solution to fund growth and development. Whether founders turn to angel investors or venture capital (VC), funding will be determined where they are on their business journey.
Angel investors, typically an individual or angel syndicate, will usually invest smaller amounts into business for a small equity percentage, compared to VC investors.
On average, angel investors look to contribute amounts in the region of £25,000 to £I million into early phase start-up companies, usually where they are yet to prove their scalability and long-term business plan.
Helpfully, angel investors will also bring expertise to the table, offering advice to individuals and companies in the early phases.
Venture capital investors
VC investors will typically make investments of £1 million or more, and look for businesses that are more mature and with a clear exit strategy in place, whether IPO or trade sale.
When looking for VC funding, health tech businesses should ensure that their plan is clearly available in presentation decks, alongside supported evidence of high growth potential and, where appropriate, scalability. VCs will look for a seat on the board and majority control of the business.
Before agreeing investment, budgeted plan of spend, exit plans and proof of concept are just some of the fundamentals which will be requested. This will need to be supported by evidence of an innovative product or service with mapped milestone and valuations alongside conversion proof, so that entry to market is deemed viable to investors.
Evidence of consideration to potential risks and mitigation precautions together with projected succession planning will also be expected.
A change of mindset
The move from angel to VC funding needs to be accompanied by a change in the way the business operates and the mindset of its founders.
VC funding does not simply finish with cash in the bank. Ultimately, with individuals from the VC becoming both a member the board and the management team, expect active involvement in the decisions surrounding both budget and future planning. It is imperative to ensure that the VC fits the company as much as the company fits the VC.
Current management need to be open to accepting outside members into the team and be confident in the advice and experience that VCs can offer. Importantly, you need to ensure that you affirm your goals and envisage a VC as your business partner to with aligned goals.
Whilst VC funders bring considerable benefits to a business, it is important to remain vigilant and consider the possibilities of things going wrong.
Founders are committing to a long-term relationship, with any return on investment often 10 years away. You also need to remain mindful that being backed by a VC does not mean automatic success. It is a highly involved process in which financial discipline and hygiene remains paramount.
As well as budgets and cash projections, you need to consider how much needs to be raised, how it will be utilised and ensure that this is not over projected. It is important to coincide monies required with benchmarks and ensure that the likelihood of scalability and product longevity remains achievable.
Angel investors are typically useful at the start of a business journey, offering less funds with less risk to businesses in return for a small equity stake. Venture capital investors generally provides support later in the fundraising process to businesses with proof of scalability, able to demonstrate access to market and an exit route to support both the management and equity investment received.
Both represent big decisions for founders and it pays to take independent advice before accepting investor cash.
If you would like further information about Angels or VCs, please get in touch with our team.
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