Just sold your business or come into some cash? Here’s one way to put it to good use.

While many start-ups are turning to new forms of finance like crowdfunding, angel investors still play a critical role in Britain’s economy. Angels plug the funding gap between a few grand from an entrepreneurs’ savings, friends and family and the millions of pounds that can be mobilised by professional venture capital funds.

Without the support of angels, hundreds of successful businesses would never have even made it to market. But investing in start-ups is always risky and has plenty of pitfalls. If you’ve just sold your business or come into some money, here are a few pointers on how to get off on the right foot.

Have you got enough money, time and skills?

While armchair investors can back businesses with a little as £10 through crowdfunding sites like Crowdcube and Seedrs, angels are generally expected to come up with a lot more than that. ‘For a small business to really get going and have some firepower it generally needs about £100,000 to really make those big leaps,’ says Jenny Tooth, CEO of the UK Business Angels Association. If that sounds a bit steep then consider pooling your money in an angel syndicate, where individual investors can go as low as £5,000. Bear in mind that you ought to invest in several companies to spread the risk (more on that later…) so you’ll need many times that to have a balanced portfolio.

You don’t just need cash. In most cases the companies you invest in will expect you to contribute time and expertise too – that’s in your interest too, of course, because helping the company succeed means helping your investment succeed. If you don’t have many skills to offer and have simply inherited a tranche of cash or won the lottery then proceed with caution – your cash might be better off in the hands of an asset manager or VC fund instead.

What are the Tax Benefits

Keen to encourage angels, the government has made it advantageous for investors to put their cash into small businesses with tweaks to the tax system. There’s the Enterprise Investment Scheme, which offers tax relief of up to 30% the value of the shares, and for companies that are especially new and small there’s the Seed Enterprise Investment Scheme, which offers 50%. ‘It also gives you capital gains tax deferral and you can roll that over so even if a company succeeds and you get a gain, if you invest some of that money back into another small business you’ll never pay the capital gains tax on that, as well as inheritance tax in the same way,’ says Tooth.

…read more on Management Today