It’s been a tough few years for the little guy. The COVID-19 pandemic hit global economies hard, pushing world governments into debt, hard-working citizens into rent arrears, and even forcing a couple of big-name, multinational players in the travel industry to the point of bankruptcy. But the COVID-19 pandemic was particularly hard on small and medium businesses. In this post, we’ll take a look at how small businesses were hit, why small business is important, and how angel investors may be able to help.
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One Man’s Famine is Amazon’s Feast
Yes, the Coronavirus was a total disaster for small & medium businesses. When the world’s high streets were forced to close in early 2020, the consumers of the globe became even more reliant on the big tech companies for their needs. Amazon alone increased its already colossal market share and Jezz Bezos increased his personal fortune by an estimated 20% and this all came at the expense of small businesses and locally-owned shops.
It was bittersweet even for the business that ‘succeeded’ during the pandemic. For example, whilst a number of small & medium locally-owned restaurants managed to reinvent themselves as food delivery services, in the process they became reliant on Uber Eats or Deliveroo who charge hefty commission fees eating into already fragile margins.
Corona Relief and Business Support
Many Western governments did offer various levels of help by rolling out various covid relief schemes. In the UK, the government announced an unprecedented “furlough” scheme generously paying 80% of eligible employees’ wages, thus taking the heaviest burden off the shoulders of a lot of small businesses. In the US, this was matched by the Federal pandemic unemployment compensation program (FPUC) which at its peak assisted 30 million Americans, allowing their employers to “lay them off” to cut overheads.
The US, UK, and Australia all also offered both loans and grants to small and medium businesses many of which do not need to be repaid. However, all of this was simply not enough for some businesses who had 18 months of credit obligations to meet, 18 months of warehousing costs to pay, and of course rent and bills to cover on their closed down, empty offices and shop fronts. Unsurprisingly, in the US, an estimated 200,00 businesses permanently closed down.
However, pretty much all COVID-related business and employee support schemes have closed down and some of the relief loans are becoming due.
Furthermore, obtaining credit is now harder than at any time since the 2008 financial crash as lenders and banks are skeptical and tentative about the 4th wave of Corona and further lockdowns. Borrowing or raising capital is proving particularly hard for younger businesses – even online lenders specializing in working with young businesses like Seek Business Capital require a business to have been trading for 3+ years.
Heaven Sent Help
One possible ray of hope shining from the heavens for both small businesses and prospective startups is that of the angel investor. An angel investor is a private individual who finances and invests in a business. Typically, angel investors are wealthy individuals as they have enough capital to get a business moving (and crucially, can afford to risk it) although even plucky individuals with modest capital have been known to patronize businesses they really believe in.
But why would anybody become an angel investor?
Let’s be honest, angel investing is risky – after all, most businesses fail. But, angel investment offers the chance to win great rewards. Because of the risk involved, angel investors can command substantial shares in a business they support and there are examples of angels turning a well-placed $20,000 into a yearly return of twice that amount.
Furthermore, Angel Investing gives wealthy individuals the opportunity to handpick projects and businesses they believe in and direct capital and investment where they think it is needed. This could mean investing in green, renewable technology or it could simply mean investing in your own local high street and saving it from dereliction.
Whilst I am not a religious person, all this talk of angels has got me thinking about the New Testament ‘Parable of the Talents’. In that story, the servant who buries his money away for fear of losing it has it taken away from him whereas the ones who invest it or who “bring forth what is in them”, make it back ten times over.
Of course, if you are sitting at home counting your gold and would like to Angel invest it, it is hard to know where to start. I mean, you could simply tour your local business’ offering out your swag but this is not likely to yield sensible results! There are, however, business fares, angel investor meet-ups, and even online brokers looking to match business with backers who can help get things started.
It’s been a tough old time for business so they sure could use some help from a guardian angel or two right now.