Although they are becoming better known through television shows and media exposure, more needs to be understood on how business angels work, and the opportunities they offer.

At a time when conventional sources of financing for young firms can be hard to obtain, the model known as “angel” investing is attracting increasing attention. As reported by WealthBriefing earlier in the year, business angels – often high net worth individuals – are a noteworthy, if sometimes overlooked, part of the investment world.

Bill Morrow, founder of Angel’s Den, a business angel network based in the UK, is taking a look at the challenges for business angels, the rewards and the issues. Here are his thoughts:

New players in the game

Investing in the success of small businesses is no longer an activity dominated by faceless corporations and venture capital firms. In recent years things have changed drastically in favour of the business angel or small business investor, which means that anyone with a little spare cash, belief in their business acumen and an adventurous spirit can get involved in this exciting and sometimes very rewarding venture.

But why has it become so popular, and why would anyone want to be a business angel?

The profits - imagine the excitement of being there at the launch of a global success story like Apple, Facebook, YouTube or Google. They were all start-ups at some point, business ideas thought up by young entrepreneurs with very little money.  When they were launched the main routes to business finance were friends, family or the bank, but today the success stories of the future often look to business angels for essential funding to launch or grow their businesses.

Many high net worth individuals are finding that they would prefer to use their own business acumen as a business angel to fund small ventures, reclaiming some control over their financial success.

And then there is the kudos – go from armchair investor to someone who has the opportunity to contribute to the success of a new venture in one swift move, and if your investment pays off, all the better. Business angels are the management consultants of the new millennium – mysterious individuals who save companies and build opportunities for profitable development and growth.

Another motivator is to do something that “makes a difference.” Doing something meaningful, something that helps others, is good for the soul. Being part of something successful is a buzz like no other. Just as an architect can proudly point to a city skyline and say “I built that one”, a business angel can do the same with both the companies that they help financially and those that benefit from their skills, experience and direction.

To give a little back – Business angels come in all shapes and sizes, from those with minimal business experience to retired chief executives looking to put their years of expertise running an organisation to good use by helping a fledgling company to fly in the right direction. It’s good to keep active in the face of retirement or redundancy, and one way of achieving this is to invest in the success of a business venture that could benefit from your help.

Meanwhile, some entrepreneurs who are looking for funding may also be interested in more than just your money. If your experience or skills could help their business and you are willing to offer them to strengthen the chances of your investment becoming profitable then discuss this with your new business partner.

Mental stimulation is also a big attraction for being a business angel. Retirement, and in fact many jobs, can threaten to dull the mind through grey matter inactivity. If you want to stimulate your mind and your wallet then become a business angel: researching the businesses and industries of those pitching for your help, selecting the ones you feel have the most chance of success and offering those who need or request your help the benefit of your skills and knowledge.

Another plus for this business model is financial security. Creating a diverse portfolio of businesses and sectors is the safest way of ensuring your financial security.  If you are skilled at selecting the right businesses to invest in then you will be assured of a secure financial future.

The spirit of adventure is something to remember. However good you are at picking the people and businesses that you feel will be successful, you are still taking a chance with your money. It requires more than just funds and acumen to be a business angel: it requires a strong belief in the possibility of success and a determination to back this belief with your own hard-earned cash. The spirit of adventure means having the confidence to forge new paths even when the way ahead is unclear.

Oh, and many businesses fail – most, in fact – but lash your wagon to a winner and the financial rewards can be massive. If you have the stomach for the rollercoaster ride of small business investment then it would be well worth looking into how you too can become a business angel.

For the Angel’s Den site, click here.