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Angels aim for golden halo of pure profit

Smaller growth companies should remember that business angels are principally motivated by profit, says private equity consultant AngelBourse.

Research conducted by the University of Bristol for AngelBourse, an organisation which provides private equity services to unlisted companies shows that “pure profit” is the number one reason given for business angel investment.

Business angels were asked to rate eight different motivations, giving them a score between one and eight. Pure profit came top with a mark of 7.53 and personal enjoyment was second with 5.73. Enliven retirement and discretionary capital came bottom with scores of 1.13 and 1.23.

AngelBourse managing director John Blowers believes the results show that business angels are realists who know the risk of early-stage investments and look for high returns.

The firm predicts a boom in business angel investment and private investment in small growth companies due to the planned Government relaxation of rules over the marketing of shares in unlisted companies to private individuals.

This relaxation, which is about to come into effect in late January, will mean that potential investors will be able to self-certify they are high-net-worth or sophisticated investors and companies will be able to promote their shares to individuals who they reasonably believe to be in that category.

High net worth is determined as individuals earning at least 100,000 or owning net assets of a minimum of 250,000, excluding primary residence and certain rights under insurance and pension contracts.

Blowers says: “Companies looking for equity funding should not confuse business angels with fairy godmothers. They will want to drive a hard bargain but they are often prepared to take risks and consider relatively small investments that others will shun.”

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