It looks like a scene from the BBC reality show Dragons' Den — except no-one is hamming it up for the TV cameras and the clock ticks even faster. This is an anonymous business centre off Tottenham Court Road with a roomful of entrepreneurs, eager to pitch to investors. The reason they have gathered is speed pitching, a furiously-paced funding idea a little like speed-dating for businesses. It is a model that may turn business finance on its head.

These so-called “angel networks” are proving to be a lifeline for many new businesses, particularly as banks have been refusing to lend cash because of the turmoil in global money markets.

In this Dragons' Den-type scenario, entrepreneurs have just three minutes to explain their business idea to an investor. Then a bell rings, and it is time to move to another table in the room, to pitch again to another business angel.

After an hour of breathless conversation, the real business of the night starts. The entrepreneurs meet the investors over drinks and canapés to decide if there is a spark that will turn into a hard cash deal.

The business angels are willing to provide share capital for an unproven venture which, if successful, will earn them stellar returns — but nothing if it fails. Such investors last year put up almost £1 billion for at least 3500 UK businesses, according to the Department for Business, Enterprise and Regulatory Reform.
It seems hard to believe such sums will still be on offer when, as Bank Governor Mervyn King has confirmed, we are entering recession. But there are still plenty of angels willing to invest.
Angels Den, which runs this event in Tottenham Court Road, is one of 25-odd angel networks in the UK. Other leading groups include London Business Angels, Beer & Partners and Envestors Private Investor Network.

In the case of Angels Den, entrepreneurs pay £500 to upload their business plans onto its network website for all the 1700 registered angels to see. Many of the angels will be invited to one of the company's speed pitching events where 12 businesses go on beauty parade.

Founder Bill Morrow claims that after 15 months, “we have 1700 angels, we have completed 122 deals, and an average investment is £220,000”.
He argues his organisation is different from other angel networks: “Angels Den is inclusive; anyone can join and anyone can present a business plan. We don't push deals — we let our angels select the deals they want. This means deals that we don't expect can get funded.”

Morrow started Angels Den after attempting to get funding for his own venture. “I spent £14,500 with various angel groups and I didn't get to meet any investors. The whole angel network seemed an inefficient market. The web is a very cheap way of running a business, and we charge half the price of our competitors,” he says.
The principle is to stack 'em high and sell 'em cheap, an unusual approach for an angel investment network. Typically an angel group will organise an upmarket reception with up to eight carefully groomed entrepreneurs who present on stage for 10 minutes to a room full of investors. An angel network might expect to fund between 20 and 60 businesses in a year.

Entrepreneurs cannot expect it will be easy or quick to win over an investor. Oliver Woolley of Envestors Private Investor Network said: “You have to be investment-ready to get money from investors. Angels are becoming harder about their terms, and the process can take up to six months. It is not going to happen for people who say they need cash in three weeks.”

The British Business Angels Association promotes quality standards for angel networks. Development director Jenny Tooth offers advice, support and education for people to become investment-ready: “If a three-minute pitch gets people out there and meeting, that is good, but no one should invest on that basis. Every deal needs careful due diligence and investor interaction.”
Once the directors and investors have met, they need to agree a valuation of the business, usually some way below the bullish numbers suggested by the ebullient entrepreneur; the cheaper the business, the cheaper the shares, and the more upside for the investor. The next step is for the angels to study the business in the cold light of day, far away from the easy banter of the well-catered receptions.

With angel funding under their belts, companies hope they will be able to attract borrowing from banks to provide working capital and funding for growth — once the freeze in the money markets eventually thaws. Growing companies can be lucrative for business angels. And who knows if the next Google or Facebook just might turn up at one of the speed pitching events?

* William Flatau runs commercial finance brokerage First Finance, which organises bank borrowing for companies that need money.