Preparing for Angel Investment
If the key to a successful business plan is management, management and management; you would be justified to expect an experienced management team to give you the edge over your rivals when it comes to attracting suitable funding and support.
Yet knowing who to talk to in the first instance or what information your company needs to present when and how can be as important in ensuring your success as knowing when to walk away according to the duo behind road safety solutions provider, VisiLok.
With decades of experience in the automotive and logistics industries between them, the two business consultants, Barry McGowan and Ron Aspinall, inadvertently found themselves in a situation four years ago where they needed to raise enough capital in order to keep a promise to the widow of the inventor behind an innovative, safety-critical product for the heavy goods vehicles industry.
Known as VisiLok, the nut and stud device would finally stop wheels coming off trucks and busses by ‘locking’ the movement of the nut when it starts to come loose and ‘flagging’ the operator into action. Wheel loss is currently linked to around 7 fatalities that occur in the UK each year.
Having already invested £400,000 of their own funds on the initial design, patenting, etc, they now needed to ensure that the device was fully fit-for-purpose.
Mr Aspinall explains: “After going through a number of development stages which included proving the basic integrity of the design concept and function, we needed to ensure that the VisiLok nut and stud was robust in all operating conditions. At this point we had already approached automotive engineering consultancy, Lotus Engineering, but also needed to find a manufacturing partner.”
By applying for a SMART grant, VisiLok hoped to set up the manufacturing process in Wales.
However, they were told they needed to match the grant with an investment of £250,000 of their own funds. Having already spent £400,000 and with no further access to love capital – that given by family and friends – this proved a step too far and it was back to the drawing board.
“We started talking to various banks, business angel groups, etc and the feedback was pretty disappointing,” Mr McGowan added. “We were either too early or too late and whatever option we chose; it would end up costing us a great deal of money for not very much in return.”
VisiLok then turned to Finance Wales – a provider of commercial funding to small and medium companies in Wales – for help. Finance Wales in turn suggested the company contacts xénos – the Wales Business Angel Network.
“Although we had numerous versions of our business plan for various purposes, we still had to ensure that it was written in the right way to attract suitable investment,” McGowan commented. “Fortunately, we were able to get help from xénos and in a position to pitch for investment in North Wales within weeks.”
Disappointingly, they were not successful in attracting any offers the first time round.
It was after completing the second pitch in Cardiff a few months later that VisiLok was made an offer and raised a total of £150,000 through a syndicated investment by three business angels.
“If you want to succeed, you need to be both passionate and resilient. Our first offer was for £100,000 and 30 per cent equity, but as this greatly undervalued the business, we had to walk away.”
It is knowing when your ‘big idea’ is really a big idea and also scalable on a national or global level that makes this part of the process tricky at best according to Mr McGowan.
“Often there is no tangible product; only perceived equity or, in our case, an existing patent. This makes your ability to inspire potential investors such as business angels or venture capitalists pertinent.
“In a pitch, this means showing that you understand your business, how the numbers work and you are able to get your message across clearly and concisely.”
Since securing the angel investment, VisiLok has completed both the design and test stages. This includes both laboratory testing and road trials. The firm subsequently set up a manufacturing agreement with cold forming components manufacturer, Floform based in Welshpool.
The product officially became available in March this year and the business expects to achieve a market penetration of four per cent within five years of new vehicles and one per cent in aftermarket. This roughly equates to 6.75 million nuts.
In finding that perfect balance between passion and resilience, Messrs McGowan and Aspinall suggests:
- Take early steps to structure your business planning correctly. This would, for example, ensure that you are already considering various funding options before needing the money to progress.
- Do your homework – know how much your business is worth and what you are prepared to give away
- Consider alternative sources: with the ongoing credit crunch, funding sources such as angel investment or venture capital could be your best option.
- Remember investment by a business angel is about a lot more than money. It often succeeds or fails based on the relationship with the personalities within the business, so make sure you get on.
Ends.
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