After watching Al Gore’s documentary film An Inconvenient Truth, Victoria Atherton vowed to set up a business to help consumers cut their carbon emissions. Hearing about a new generation of energy-efficient electric scooters, she did some market research, quit her job and began writing the plan for her business, called Urbanites + Scooters.

Reluctant to pay 11% for a bank loan, Atherton decided to get the £130,000 she needed from private investors. She is not the only entrepreneur to try this at a time when bank lending is expensive and hard to secure. An increasing number of established businesses as well as start-ups are looking to private investors for funding, according to Bill Morrow, co-founder of Angels Den, an innovative network linking entrepreneurs with private investors.

Entrepreneur registrations were up 23% last month, said Morrow. “We’re getting 19 calls a day from people who have been turned down by their banks. Money that people had taken for granted is being taken away and they are spending a lot of time looking for alternatives.”

More high-net-worth individuals are expressing interest in investing in small businesses, having lost faith in other investment options. The number of investors registering on the Angels Den website soared by 31% in October, which makes it a good time to seek private backers, said Morrow.

“If you are a high-net-worth individual and have £200,000 or £300,000 to invest, you’re not going to make much money in the bank, and what are you going to invest it in right now? Equities? Commodities? One investor said to me, ‘A spotty youth at Goldman Sachs Wealth Management has just lost me £150,000. I’d rather lose £120,000 myself backing an entrepreneur with an idea.’ We’re getting those kinds of comments a lot from investors right now.”

In its first year of operation, Angels Den has signed up 1,800 angels and 2,000 start-ups and established businesses, which between them have agreed 122 deals worth an average of £220,000 each. The combined sum invested is more than £25m, said Morrow.

Angels Den works differently from traditional angel networks, in part by using the internet to link entrepreneurs with backers. For £100, businesses can publish a summary of their investment proposal, or put the whole business plan online for £500.

Morrow came up with the idea after he tried to secure funding for his own venture through traditional angel networks. “I spent £14,500 with various angel groups without any success. The web is a very cheap way of running a business, and we charge half the price of our competitors,” he said.

Angels Den owes much of its appeal to the speed-pitching events it runs. They are a cross between a Dragons’ Den-style presentation to investors and speed dating, in which the entrepreneurs have three minutes to pitch to each group of investors in turn.

During a speed pitching evening at the British Library last week, The Sunday Times sat in on a session with finance broker William Flatau, who was there representing a group of angel investors.

Male and female entrepreneurs, some still in their teens, others well past retirement age, hurriedly pitched their proposals and struggled to answer all Flatau’s questions in the allotted three minutes.

The proposals included an improved design for a workbench, an online tool to improve web searches, a golf tour for talented amateurs and a leisure-park development. The investments sought ranged from £40,000 to £30m.

The rushed pace of proceedings, in which entrepreneurs struggled to make their case and answer questions – and in some cases were bodily pushed to the next table by strict, stopwatch-wielding organisers – may seem chaotic, but it works, said Morrow.

The aim is to create maximum contact between dozens of entrepreneurs and investors in a single evening. “It’s madness, but it gets results. If you’ve got a good-enough business you will get funded. It’s amazing how some deals you think will fly don’t work out and some you think have no hope get funded – that’s part of the beauty of it.”

Speed pitching worked for Atherton. “It’s an incredibly exciting experience. When I had finished I wanted to do it all over again,” she said.

After the speed-pitching session, one of the angel groups, Trac Scotland, called her back to talk in greater depth and they began negotiating to invest the £130,000 she needs. Atherton and her potential investors hope to finalise a deal before the end of the year, which should enable her to begin selling her scooters next spring.

Colin Allison, one of the entrepreneurs at the British Library event, has also been successful. He was there to seek his third round of funding, having raised £275,000 through Angels Den in two prior rounds. Allison, a serial entrepreneur, is in negotiations to raise a further £375,000 to launch his innovative authentication technology business PINoptic.

“You have to have a good story and a good business plan and you have to have all the details at your fingertips,” he said. “If you have a business that’s going to generate continuous orders and there is some intellectual property you can defend against copycats you’ll get interest from investors.”

Launched nearly a year ago to connect budding entrepreneurs with angel investors, Angelsden.co.uk already has 1,100 angels and 5,000 entrepreneurs registered on the site.

Set up by Lois Cook and her partner Bill, Cook recalls that they launched the site in order to settle a dispute between them: “Bill felt that there weren’t enough good ideas for people to invest in while I held the view that start-ups are always struggling to find funding.”

So in May last year, Angels’ Den was born.

By registering on the site, entrepreneurs can post their full business plan on the site which gets stored in a database on Angelsden.co.uk. They are required to enter certain fields so as to make it easier for the angels to scroll through the plans and see which ones interest them.

“The angels can then search by certain fields such as market sector and the geographical location of the entrepreneur so they only need to look at the ideas that meet their requirements.”

After deciding which plans interest them, the angels can then arrange to meet the entrepreneurs individually rather than attending general pitches where they may have no interest in the ideas .

Similarly, entrepreneurs don’t need to waste their time trawling round visiting different investors.

“Many entrepreneurs are already in a job and can’t take the time off to attend pitches. Our site gives them the opportunity to use the power of the internet to connect with angels in a very efficient and time-saving way. They don’t have to put a suit on and trek into London.”

Check out the Angels’ Den site here.

Andrew Ferdinando and Simon Read explored a plethora of funding options before deciding to use their own money to launch Hubworking, a company that rents out conference and meeting rooms to small businesses.
“We were probably at too early a stage for VC funding,” Ferdinando says. “We looked into debt but to do that, you have to secure everything yourself anyway so effectively you might as well put your own money up.

“We decided to set Hubworking up with directors’ loans, and pay ourselves back the same interest rate, if not slightly lower, than the bank was offering. Doing this also showed we were both committed to the business.”

The next hurdle was finding a space in which to operate. Ferdinando says landlords “didn’t want to touch us” because the company was so new. “They would ask to see three years of accounts and we’d say ‘we only incorporated two weeks ago’,” he recalls.

In the end, Ferdinando and Read found Hubworking’s first centre near Liverpool Street Station through a contact. They took over the office’s lease for the last 15 months of the contract.

“They weren’t very choosy because otherwise the space would have been empty,” Ferdinando says. “At the end of the 15 months, when the term expired, the landlord renewed our lease for five years. We managed to scrape our way in but it was hard.”

Hubworking launched in 2006 with that building and opened a second centre near Monument in February 2008. Ferdinando says a third building near Fleet Street is due to be launched towards the end of the summer.

Yesterday I blogged about the wonderful grassroots charity Kiva who helps bring together lenders and the working poor so they can have access to microloans to grow businesses in poor countries and live a better life.

I have today chosen a entrepreneur and business who requires a loan to expand their business.

Mwanshasha is married with 4 children, ages 15 to 26. Mwanshasha owns a small food vending store, which she started in 2007. Every day she works from 6:30 AM to 8:00 PM at her business and can earn a monthly profit of about $35 from her sales.

She now hopes for a loan to buy more food items for her business. She will share this loan with her subgroup member, Bituni, who has a business dealing in fish sales.

The Mwanshasha Group is made up of Mwanshasha herself and Bituni Iddi and they are based in Tanga, Tanazania and her primary market is the food market. The repayment term is monthly over 10 months. She wants to expand her product offering adding items such as Irish potatoes, rice, flour etc.

She wanted to raise $250 and with my $175 loan which is around £90 and three other loans from other lenders (based in the USA) she now has the full amount and this will be distributed through a field partner charity in her country. In this case it is BRAC Tanzania.

BRAC a development organization began its operation in remote, rural area in Bangladesh as a small-scale relief and rehabilitation project in 1972 to help the returning refugees to resettle and overcome the devastation and trauma of the liberation war. Today, BRAC has emerged as an independent, virtually self-financed paradigm in sustainable human development. It is one of the largest Southern development organisations working with the twin objectives of poverty alleviation and empowerment of the poor women. Through Kiva BRAC has distributed $346,925 to the working poor.

Follow me over the next few months as I blog about the progress the loan will make to Mwanshasha and Bituni.

A Christchurch-based energy efficient lightbulb seller has raised $10 million from two Australian investors and is about to open its own lightbulb factory in China.

Energy Mad, started by a pair of university mates just four years ago, has now expanded into Australia and the United States and has developed a product that it believes will more than double its sales.

Energy Mad co-founder Chris Mardon told the Small Business Expo in Auckland yesterday that the company had recently secured $5 million apiece from ASX-listed smart meter company Intermoco and a private Australian investor.

Energy Mad sells the Ecobulb via a unique business model that involves partnering with utilities and retailers. It had so far sold 3.5 million lightbulbs, saving $331 million worth of electricity, Mardon told the event.

The company turned over $8 million in its last financial year, and was on track to do “several times that” this year.

New products, manufactured at its soon-to-be opened Chinese factory, would go on sale later in the year. These included a covered lightbulb and halogen replacement bulbs.

Not only can John Reid claim to have been visited by angels, he is one. The 61-year-old entrepreneur founded his Parkers Prairie (Minn.) medical-device company, AbbeyMoor Medical, in 1997 with seed money from so-called angel investors. Such people invest in promising startups too young and raw to attract the attention and money of professional venture capitalists. Reid has also helped fund several early-stage ventures, on his own and with fellow angels.

The credit crunch and economic downturn have some angels feeling skittish. But others see opportunity: Studies show that the best time to start a business is when the economy is down. That’s because entrepreneurs with good ideas will find cheaper land, labor, supplier contracts, and other ingredients that go into starting a business. Angels that back such ventures can earn impressive long-term returns—one study cites a rate of return of about 27%, on average, or 2.6 times the investment in 3.5 years. The risks, of course, are steep. Still, 258,200 angels pumped $26 billion into 57,120 ventures last year, according to the University of New Hampshire’s Center for Venture Research.

Any angel will tell you there’s a significant learning curve. But a big transformation in angel investing is making it easier to move up that curve: the rise of more formal angel investing groups. It wasn’t all that long ago that angels largely hooked up with entrepreneurs through ad-hoc social networks, friendships created over the years, perhaps at the country club or local philanthropic events. Since the latter part of the 1990s there has been a proliferation of more professionally organized groups—usually with a Web site—that screen investments and pool money on a local and regional level. Estimates of the number of angel groups in the U.S. and Canada go as high as 275. The groups even have their own trade-and-education association in Washington, the Angel Capital Assn.

While many angels are current or former entrepreneurs, and that background can prove invaluable, they also need to develop investing skills. The successful angel adheres to the same disciplines that make for a good investor, from Berkshire Hathaway’s (“BRK-A”) Warren Buffett to Yale University’s David Swensen. Understand the risks. Follow an intellectual framework. Have a well-thought-out methodology for buying and selling. Do due diligence. Diversify. “Angel investing isn’t easy, and it’s very high risk,” says Tony Stanco, executive director of both the National Council of Entrepreneurial Tech Transfer and of Angel Investors of Greater Washington. “But it’s high reward.”

Experienced angels recommend that investors create a diverse portfolio as a buttress against inevitable failures. After all, these are companies with little cash flow and no operating history. Angel groups funded, on average, about seven companies in 2007. Only a small percentage of an angel’s capital should be at risk—no more than 10% of investable wealth, counsels Susan Preston, currently general partner of the California Clean Energy Fund’s Angel Fund, a public investment fund that takes equity stakes in alternative energy ventures. Longtime angel Richard Holdren, a Houston-based serial entrepreneur who has founded or invested in over 26 health-care startups, adds that it’s critical to keep emotions in check. “You make money in angel investing by killing off your losses early, as quickly as possible,” he says. “The entrepreneur really believes that success is just around the corner, and you’ll quickly go broke investing for ‘just-around-the-corner.’”

Angels rightly tend to focus their efforts in the industry they know. Stanco, for example, was formerly an attorney at the Securities & Exchange Commission working with the software and computer group. His investments are concentrated in software. Reid is well-schooled in the medical technology business.

But to get a wider range of perspectives and deals, and to pool resources, many angels—including Reid, who lives in a largely agricultural community with a population of 1,032—join angel groups.

THE “REAL DEAL”

Reid belongs to a group of 26 angels affiliated with a larger umbrella network, RAIN Source Capital, based in St. Paul, Minn. RAIN organizes small groups of angels in mainly Midwestern states into a network of some 400 members. That makes it easier to develop a deal flow, pool money, and share expertise. Angels living in Grand Rapids, Mankato, St. Cloud, and similar Minnesota towns have invested some $7 million in Reid’s company. “We get prospects in front of the network to find the members who will say: ‘I used to be in that business’ and to tell us whether it’s a real deal,” Reid says. There could be a deal coming in Mankato, he says, that “we never would have seen without the RAIN network.”

The level of professionalism at angel groups is all over the map. Some mimic professional venture funds, a number have forged close ties to universities, and others are more like social clubs engaged in for-profit philanthropy. A common mantra among angels and angel groups is the importance of due diligence. That means pursuing questions like: What is the market opportunity, barriers to entry, and business model? What’s the company’s competitive edge? Is there an exit strategy? What is the entrepreneur’s background? “The biggest fallacy is that 98% of people think if they have a wonderful technology the business will take care of itself,” says Holdren. “But the character of the entrepreneur is more important than the technology.”

What sort of return can an angel expect? There’s that rate of return of about 27%, on average, a result reached by professor Robert Wiltbank of Willamette University and Warren Boeker of the University of Washington in a study of 539 angels from 86 groups in North America from 1990 to 2007. The return figure comes from 1,137 “exits” during this time period through mergers and acquisitions, initial public offerings, bankruptcies, and shut doors.

Of course, averages can be a bit misleading. Remember, on average Lake Erie never freezes, and the stock market returns, on average, some 11% a year. With the return number for angel investing, keep in mind that 7% of the venture exits that the professors studied had returns of 10 times investment while 39% had a multiple of less than one times investment. The Center for Venture Research estimates that angels enjoyed a rate of return in 2007 between 20% and 40%. “Invest what you could lose without changing your lifestyle,” advises Jeffrey Sohl, director of the Center. Inevitably, part of the reward will be psychic. But it’s fun to remember the outcome of a $100,000 investment that Sun Microsystems (“SUNW”) co-founder Andrew Bechtolsheim made to two Stanford University graduate students. The check allowed the students to move out of dorm rooms and start marketing their revolutionary idea. The result, Google.

Roar of the Dragons!

Many entrepreneurs probably get this reaction often when they pitch their ideas to angel investors.  Immediately the entrepreneur is stuck and the conversation usually can turn awkward quickly.  How can you avoid this?  Put yourself in the investors shoes.1. Angel investors are usually self made millionaires, not billionaires.  Why is this important?  The cash they have available for private equity investment individually is usually not going to exceed one million, and even that is on the high end of the spectrum.  Even this money is all not going to one company as angels will diversify their portfolio just as a stock investor would.  Of course when you do a deal most will invest along with other angel investors, but the sum of money they will invest is usually a lot lower than most entrepreneurs know.2. You aren’t going to take over the world in one week.  Entrepreneurs often want to hit the stars before they have even reached the moon.  Especially in an early stage deal, investors want to see that you can hit small milestones before they bet the house on you.  Additionally, if you have proven that you can succeed with a smaller amount from angel investors, larger venture capital rounds are much more likely to happen.  Pace yourself, set smaller goals to get to where you ultimately want to go and find money that will get you through each stage of your company.

AngelsDen the website that brings entrepreneurs and investors together has made its first deal.

The entrepreneur who initially posted their business summary online for a fee of £99 on 4 June 2007 is now, five weeks later, celebrating their success in gaining funding for their business PINoptic Limited.

The company has produced a novel form of PIN protection and validation for application in secure systems. PINoptic aims to provide a solution to credit and debit card fraud caused by ‘shoulder surfing’; obtaining the user’s PIN by watching, covertly or overtly, as the PIN is entered.

Colin Allison, a founder of PINoptic said: “We had been trying for several months to gain funding in order to complete a US patent application. We thought we had exhausted all options with no success. To find the time to go to regular pitches in front of existing angels in angel groups was very hard, so to be able to put our case forward without going through the pitch process at all helped us enormously.”

Business angel Chris Ward who is now working with PINoptic is a property developer by profession and this is his first investment as an angel.

Chris Ward commented: “I signed up to Angels Den as I was looking to invest in a company in a different sector to the one I am already involved in. I have no spare time to attend monthly pitches within an angel network, so to be able to find a business with such good potential and looking for funding without needing to go through this process suited me down to the ground.”

Bill Morrow, joint managing director of Angels Den, said: “By linking people seeking finance with those who want to invest in business, quickly and simply, we are able to provide a solution to both entrepreneur and business angel investment needs. I am astounded by how swiftly the deal was completed and delighted that we are achieving what we set out to do in the first place; to break down the barriers to equity funding.”

Angels Den’s objective is to fill the equity funding gap between the amount of money that entrepreneurs want and need. Angels Den compliments the services offered by existing business angel groups by facilitating deals with a value of up to £500,000.

Freddie Mahon whose company is currently going through the process of seeking funding via Angels Den commented: “Angels Den is very organised and driven without being intrusive. The business plan is standardised  – we felt it was like having a virtual advisor holding our hand, which encouraged us to look in detail at every aspect of our business.”

Entrepreneurs who have had the ‘divine inspiration’ (a business idea) and need some ‘divine intervention’ (investment) can log onto www.angelsden.co.uk and submit their idea to a host of UK business angels.

I’m considering looking for investment in bout 12 months time for an online venture i have started, very early days yet. I have been doing some research as i have not took investment before (previously borrowed to fund my startup). It is quite a complicated subject and a decision not to be taken lightly.

I read today that when Dame Anita Roddick needed money to open her second Body Shop, the bank had refused to lend her the money so she borrowed £4,000 of her friend Ian McGlinn, in exchange for a half-share of the company. If Anita had been able to persuade that bank to lend her the £4,000 she would have been able to repay it back over time and in the end save herself quite a bit of dosh as when she sold the Body Shop business last year for £652 million, McGlinn who held a 22.4% share of the business took £146 million!

I have read loads of strories of people giving away huge shares in the business because they could not get alternative funding and in the end missing out when they came to sell. Will feature further stories over the coming weeks ….

The Challenge is sponsored by BT Business and is supported by East Midlands Development Agency and Advantage West Midlands and is run by the non-for-profit network Connect Midlands.

Go to www.connectchallenge.orgfor more info and to enter, and you can also use the online analysis ‘The Gauntlet’ for free which was developed by Dragons Den together with Library House and would normally cost £299 to use.

Good luck!