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Wealthy 'angels' funding firms as banks refuse loans
Jonathan Prynn7 Apr 2009
A bank funding "strike" has forced hundreds of London companies to turn to wealthy individuals for backing at Dragons' Den-style presentations.
Organisers of the "angels" events say they have seen a 50 per cent surge in applicants since the financial crisis erupted last autumn.
The Evening Standard revealed yesterday how over the same period Britain's biggest high street lenders have demanded higher interest rates, hefty fees and onerous terms such as personal guarantees for loans.
About half of firms were refused requests for credit, in some cases leading to liquidation.
Jenny Tooth, of the British Business Angels Association, said the London network would usually see 800 proposals a year, but this may hit 1,200 this year.
Unlike the BBC's Dragons' Den show, in which applicants make pitches before four investors, the "angels" events involve dozens or even hundreds of potential backers. Many are wealthy former City workers.
Ms Tooth said a lot of small companies were "looking desperately for alternative sources of funding. We still need more angels ."
James Caan, a BBC "dragon", who runs an angel-backed venture capital firm, Hamilton Bradshaw, said: "In the past six months we have been busier than any time since we founded in 2004."
In March its website got more than 230,000 hits compared with about 50,000 normally. Most requests will be rejected, but it is completing around four times as many deals as in previous years.
Mr Caan said: "There are lots of really interesting opportunities coming to us because they are not getting funding.
"What the banks are saying is 'if you don't perform you will lose your house, we can also make you bankrupt and we'll take a very high margin fee on top'. That is just a tad aggressive."
Tom Flynn, an investor with London Business Angels, said bigger firms were asking for loans: "There are people never, ever seen by the angel network before. But banks are just saying 'no'."
'This way you get invaluable support and business advice'
Former London science teacher Shira Rubin got her language tuition-by-webcam business off the ground with £50,000 from her brother and other backers.
But when she needed £100,000 to convert learn2lingo into a functioning company, she shunned high street banks because of their reputation for demanding harsh terms in return for limited support.
The 26-year-old from Hornsey said: "All a bank will do is give you the money and then just expect a return. That didn't seem the right route." Instead she approached a business angels network and persuaded two entrepreneurs - one who made his money from the internet, the other from finance - to put their own money in. "From business angels you get all this invaluable support and input that you don't get from banks. They have already run a business and have got all this experience to offer you."
The process started last autumn when MsRubin addressed 200 potential angel backers: "It was quite exciting because I really believe in what I was offering them."
The two backers, both in their late thirties, now spend up to one day a week helping Ms Rubin set up the business. In return the pair will get 30 per cent of the company, which is to launch this year.
Reader views (2)
The banks have done us a favour because this is a much better way of getting support for a business, rather than just a big lump of cash which you have to return with huge interest and service charges.
I remember similar schemes, years ago, were called Social Capital.
- Kate, London, 27/04/2009 10:31
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Great article, this is an excellent way for young businesses to get on their feet. Well done Shira, I hope you are successful in your venture!
- Gourav Sharma, Long Beach California, USA, 07/04/2009 18:10
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