Very few agency businesses used to talk about external funding from the get-go. Usually they were self-funded, or even client-funded, during the initial stages of growth when the focus is on building a sustainable foundation.

Ten or 15 years ago, agencies rarely needed launch money because they could pretty much do what they needed from a back room with a phone line and a laptop. But today, demands on certain kinds of agencies are very different and they may need to invest in technology, a client-facing tech offer, or even an international capability really quite early on – and with that comes pressure on working capital.

So what does that early-stage funding look like, whether at launch, or a few years down the line? How much is needed to help an agency leadership team get to where they want to go – and how can they access it?

Should there be a friends and family discount?

One common early-stage option is investment from friends and family – people backing other people, so to speak. While it might sound benign and it often is, there are some watch-outs, most crucially around planning for the future, so that there aren’t major repercussions later on.

In a worst-case scenario, if you have twenty individuals each putting in £10K at different times and therefore at different price points, resulting in what’s known as a “messy cap table”, then negotiating around their various priorities can be a real hassle. This can come to a head at the point where the business is about to embark on a significant event, such as going out for institutional investment.

Also tricky is where investment and a personal friendship overlap, and it can be incredibly hard to tell your friends or family to ‘butt out’ – you may like their money, but you don’t necessarily always like their point of view. While in theory you should see the world the same way, that’s not always the case!

Friends and family investing can also create real tension where the requirement for financial return might conflict with people’s changing circumstances since they first invested.

The better angels of our nature

For all of these reasons, professional early-stage angel investors who know what a fair return looks like are often a safer choice.

They also understand what it’s like to exit an investment as well, and what the broad rules of the game should be.

Angel investors will also probably want a voice in the business, maybe even becoming an NED or chairperson and that kind of involvement can be invaluable in helping a business grow. While this is a good thing, equally it could be problematic, depending on the size of their investment, what else they’re involved in, and to what extent they want a say in the direction of the business. It can be a trade-off between expertise and noisiness in a boardroom, and a desire to get involved that can require a bit of extra management!

That said, many angel investors come on board because they’re backing the founder and the and the founder’s vision. That can be what makes them such an attractive prospect. And if they are experienced in that particular type of business, they may also be able to offer constructive advice and valuable counsel on further investments or exit events.