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EDITIONS
Education Wednesday, 23 January, 2002, 14:00 GMT
Lunch Lesson Two - Raising money
In the Wall stock room
Robin and Hernan take a look at the stock
Not all angels have wings.

Robin Field is an angel - a business angel.

He invests money in small unquoted companies that want to expand.

But he doesn't see his investment as anything angelic.

"I don't know where the term Business Angels came from, " says Robin, "But it's entirely selfish."

Selfish

Robin invests money to make money. If he didn't expect to get a good return on his investment he wouldn't invest.

And he's made a success of it. He recently got back ten times the amount he invested in one company.

Judith and Hernan Balcazar
Hernan: "If you go to a bank you are always going to be risking more of your own money"
But for every success story, Robin admits others will fail.

"Out of ten companies I'd expect three or four to go bust," says Robin. "Two or three will limp along, and maybe a couple will be really good."

High hopes

One of the companies Robin is hoping will be a success is Wall - a mail order company specialising in up market women's clothes.

Wall is owned by Judith and Hernan Balcazar.

It uses rare Peruvian fabrics to produce clothing.

To expand their mail order business they needed capital. And that's where Robin came in.

Hernan says: "If you go to a bank you are always going to be risking more of your own money because they will want a guarantee or more guarantees on their loans."

Dating agency

Judith and Hernan met Robin through the Business Angels Network.

This is an organisation that matches angels with companies - a bit like an investment dating agency.

Judith and Hernan did a presentation before a group of would-be suitors. One of them was Robin.

He liked what he saw.

Persuaded by their business plan and their personalities he invested 110,000 in Wall and became a Director of the company.

Robin, the former boss of the Filofax company, has a lot of valuable business experience, which Hernan and Judith say have benefited their business.

Good returns

But this expertise doesn't come for free.

Robin expects to get a good return on his investment within the next five years.

At that point he'd expect the company to either float on the stock market or to be bought out by a bigger company.

But for Hernan and Judith it's too early to judge what will happen with the business.


Student Guide

Judith and Hernan have found their angel.

Robin Field doesn't have white fluffy wings but he can help to make their dreams come true.

Robin met them at a special event aimed at bringing people who run small businesses together with people who are looking for interesting businesses to invest in.

Because he liked the look of them and their business plan he decided to go ahead and invest.

Robin put up 110,000 and it made all the difference.

Faith

The fact that he had faith in them encouraged others to invest.

The total inflow of cash transformed the business from an enterprise running a shop and a small catalogue into a much bigger mail order activity.

Robin took a strong interest and became a director. Not all angels do this but he wanted to get involved.

And the business is doing well. In just three years it has become self-financing and doesn't need to borrow any more.

Just think

How does investment help a business to become self-financing?

Robin's Rules

When deciding to invest in a company, Robin has his rules.

  • He must get on with the people

  • He needs to be able to believe in their ability to carry out their plans. If you are investing in a business, you must trust the people who run it.

  • He needs to be convinced by the merits of the business plan. Robin has run businesses himself so he has a good idea whether plans will work.

  • He needs to believe in viability of the market in which the business will operate.

    Just think

    Have you produced a simple business plan?

    If so, look at it carefully and work out if it meets Robin's Rules.

    If you haven't, make a list of the sections of a business plan and decide how they work together. What effect does finance have on marketing, for example.

    Why does Robin do it?

    Robin wants to make money.

    He made some money when he turned around the struggling Filofax business.

    He didn't want this money to just to sit in a bank account so he decided to invest it.

    When he invests in businesses, he chooses ones that he thinks have the potential to grow.

    He has to trust his judgement.

    When the business is sold, he gets his share back.

    He hopes that the 20% he bought of a small company will turn into 20% of a much larger business.

    Just think

    If he took a 20% share in a business worth 500,000, how much will he receive if it is sold for 4 million?

    What if you don't have an angel?

    Most businesses don't have an angel. So where do they get the money from?

  • A sole trader can only borrow from friends and family or the bank.

  • A private company can bring in a new part owner. All the existing owners must agree and approve of the new deal. It can also borrow from the bank.

  • A public company can issue new shares. These are often sold to existing shareholders first but can be put on the open market so they are available to anyone. It can also borrow from the bank or other lenders.

    Just think

    If you were an angel what sort of business would you want to invest in?

    Explain why.

  •  WATCH/LISTEN
     ON THIS STORY
    Simon Gompertz looks at business angels
    Interview with an angel
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