Issue link: https://htpgraphics.uberflip.com/i/246991
Funding Section 5 Business Angels These individual investors are likely to be interested in spin-outs because of the opportunity to receive a significant shareholding in exchange for taking a large personal financial risk at the early stages of a company's life. As entrepreneurial characters and busy people, who are probably backing a number of businesses, they are not likely to want any management role nor any Board involvement but often they do like to reassure themselves about the energy and commitment of the people involved, inject ideas and operate informally by introducing contacts for further investment or business opportunities. Hence, business angels are not usually in a structured relationship with the spin-out. However, not surprisingly, they will be very interested in how their money is to be used and it is common for "angels" to reassure themselves that reasonable salary and option schemes are in place (eg by seeing copies of employment and service contracts) and to receive updates from time to time. The British Business Angel Association (www.bbaa.org.uk) is a good way to get in touch with these "angels". Another useful source is the Enterprise and Business Support (www.bis.gov.uk/policies/enterprise-and-business-support). Venture Capitalists These are specialist finance providers, who are interested in very good returns on their investment, and often have minimum criteria regarding an investment, eg the company must have already achieved a certain stage, the management must have a track-record of success and the company must have minimum potential scale of returns and operate in specific market sectors or technology areas. Often the finance to be invested will be provided on the achievement of agreed goals, called 'milestones'. So, if certain stages are not reached or tasks not completed satisfactorily, then the next amount of finance is withheld. This is often referred to as 'drip-feed' investment. Venture Capitalists also require stringent examination of the status of IP rights and of existing or pre-existing situations regarding the work and its people involved (the due diligence process). They will usually expect the existing shareholders to provide warranties as to the accuracy of information and the IP position of the company. 29