The biggest challenge for small firms in search of growth is raising the necessary cash to do so. According to the National Business Angels Network, only about 2.5% of companies in need of equity investments manage to do so. Out of this small number of fortunate firms, about two thirds gets their money from business angels while the rest gets it from venture capitalists. The typical business angel investment is between £50,000 to £70,000 while the average venture capital injection is in the million pound range. Examples of companies that had to go through business angel or VC investment to grow include Microsoft, Apple and Amazon.

VC funding in the UK has been drying up in recent years due to the aftermath of the dot.crash, falling from £6.7 billion in 2000 to £1.5 billion in 2003. However, that does not mean that there isn’t available money for promising companies. In addition, with global business conditions picking up, venture capital is beginning to flow more freely again. Besides cash, a good investment partner will often provide expert advice, security, companionship, experience and perhaps valuable business contacts.

In the search for the right angel or VC, entrepreneurs should be looking for one with a good track record and relevant expertise. It is also important that the investor will not be the type that will over-interfere with the core running of the business. Finally, those looking for investments should be wary of investors asking for more than the cash they put in warrants.

On the flip side, investors are looking for clear and realistic business plans, a strong management team, and a good understanding of the product, customer and competition. This tends to exclude all but those hungriest for growth.