Mainly due to the current economic climate, businesses are finding that the usual areas for funding business development are drying up. We are seeing a trend toward banks becoming more risk averse to lending to businesses and the large venture capital companies are showing signs of moving away from making ‘seed' investments.

These things combined mean that smaller businesses or start-ups are more than ever seeking out business angels for potential investment.

I personally feel that this current shift toward angel investment is a good thing, not because I might be considered to be an ‘angel' but because such investors bring a different dimension to a business that more ‘conservative' lenders do not, and this in turn stimulates innovation in the UK. This is something that can only be deemed to be a good thing and is very much needed if the UK is to compete over the coming years in the global marketplace.

I find that people have various reasons for seeking out angels. You may have a business idea that requires ‘seed' capital to take the business forward from an idea, or you may be an established business looking to grow or break into new markets.

But whatever the reason might be the first thing I would advise you to do is to sit down and make notes about exactly what it is you are looking for from any potential investor. You should then step back and take another hard look at what you have written down and turn this into a priority list. This will then enable you to establish clarity of your requirements, and to then be able to communicate this concisely through to potential investors. For example, it is no good stating that you require an angel who has marketing skills in your chosen sector only to find out that what you really are looking for is someone with a good ‘network' of contacts. These are obviously not the same things.

So what should you be looking for from an angel? If it is only capital investment then I would strongly suggest approaching one of the more usual lending sources such as your bank, if you can. Although they will want some form of collateral from you to offset their risk I very much doubt that they will want to take a percentage of your company's current or future profits as would an angel.

Business angels normally bring a different dimension into a business and have some skill-set that you probably do not have and would like to have available to you. A common misconception is that angels always provide financial input to a business, this is not always the case and indeed I very rarely do this myself. What I tend to provide is something more tangible and valuable to me namely my time, experience and expertise. If you are looking for valuable input into your business then angels can bring a wealth of experience forward and in many cases a good network of contacts.

However, angels come at a cost. As with any business transaction, angels expect a return on their financial or ‘sweat' investment. You need to be aware of, and understand the various options that an angel might consider if they are to make an investment in you and your business.

The majority of businesspeople have seen the TV show Dragons' Den and how the dragons make their investments based on how much equity they will need. But this is only one investment model

The majority of businesspeople have seen the TV show Dragons' Den and how the dragons make their investments based on how much equity they will need to make the numbers work for them. But this is only one investment model used. Yes, equity is one option and you will need to set a limit on what you are prepared to part with prior to even speaking to an angel who requires this form of collateral. It would not be very motivational for you to give away 60% of your business and lose any control that you expected to have if you gave away too much. You need to do your homework and establish what is realistically acceptable to you as part of your requirements.

Some angels may not want equity but they might want to have a share in any future profits. They or you might want them to be involved in the day-to-day operation of your business or to take up a non-executive role within your organisation. However, no matter how ‘hands-on' or ‘hands-off' they might be in your business, angels very rarely offer investment without some ability to steer and advise you or your board of directors, and usually as a minimum they will attend regular company meetings to ensure that their investment is being effectively managed.

One other thing to be aware of is that people buy people, and not products and services. Have you ever been into a shop and been confronted by a very pushy sales person who you took an instant dislike to? If you have, did you buy anything from them? I would imagine probably not.

So another more subtle requirement for your angel is that you and they must be able to work together and effectively communicate with each other for the good of the business. Are you passionate about your business or idea? This is one of the first questions that I ask business owners. Angels need to see that you are passionate about what you do and you should also need to see a glimmer of similar passion in your angel. Many business owners and angels do become lifelong friends that has developed from this ‘meeting of minds'.

So, quite simply, what you should be looking for from an angel is someone who should tick the majority of the boxes that you established when writing down your requirements. They should then bring what you need to help you develop your business or idea and also should come at a price that is acceptable to you.

Phil Young is founder of Johnson-Young Associates. For more information visit www.j-ya.com