The Business Angel plays a relevant role in the creation of innovative companies, since, together with managers and investment platforms, they support entrepreneurs in the early stages of the life cycle of their companies. He or she is an independent person, physical or legal, that provides its own capital to invest in the development of a business, usually in exchange for a shareholding. In this article we explain what characterizes this figure against venture capital and how you can capture their attention for an innovative project.
His profile, as defined by the newspaper Expansión, is that of successful entrepreneurs who, at a given moment in their career, normally between 35 and 54 years of age, decide to contribute their money and knowledge in other businesses. They usually continue to lead their company and some create also their own fund.
According to the Spanish Association of Business Angels (AEBAN), established in 2008, this figure, "although it invests in any stage of development, plays a fundamental role in the creation of innovative companies by supporting entrepreneurs in the initial stages of the life cycle of their companies (seed and startup). In their beginning successful companies as The Body Shop, Amazon, Skype, Starbucks or Google counted on a Business Angel.
Its main sectors of interest are information and communication technologies and software. In addition, there are a series of characteristics common to all the Business Angels that differentiate them from other types of investors:
1. They invest their own money, unlike the venture capital entities that invest the money of third parties.
2. They make their own investment decisions.
3. They do not have a relationship of kinship or friendship with the promoters of the company.
4. Invest in accordance with the viability of a project. They seek to earn money, although this is not their only motivation to invest, not even the main one.
5. They assume a high personal risk with the expectation of receiving a return on their investment (estimated between 2 and 40 times in a period of 3 to 8 years).
6. Business Angels not only invest their money, but also their time, in projects. They are interested in participating in them as guides or mentors, providing connections to their network and guiding the entrepreneur in the establishment of their business.
Types of Business Angel
There are several models of angel investors. If we take the British magazine Startup, we could classify the Business Angel typologies into six:
1. Virgin: they have not invested in any business yet.
2. Latent: they have not invested in the last three years.
3. Wealth Maximizer: this category includes experienced entrepreneurs who invest for financial gain.
4. Entrepreneur: supports companies as an alternative to stock market investments and often for the love of entrepreneurship.l.
5. The one in search of income: invests in order to obtain income or a job.
6. Corporate: companies that make regular investments, often by majority participation.
It is useful to know them to know which is the profile that suits our business best, depending on what you expect to obtain from them.
Diferences between a Business Angel and venture capital
As investing angels invest their own money, they may take more risks than venture capital companies and invest in startups at more risky stages. For their part, venture capital companies invest through managed funds, which are collected with public or private money and are subject to administrative restrictions and the need to generate a certain profitability quickly. In addition, they tend to invest in young companies, but they must have shown some evidences of viability.
Another of the main differences lies in the time of action. While Business Angels usually take less time to decide if they invest in a certain company, venture capital firms will have an investment committee that will make consensual and objective decisions, so the speed of the intervention will be much slower.
Venture capital involves an entire firm of investors, board members and people who develop the business in which it is invested. This, for entrepreneurs, means committing to allow more people to make decisions about their business. Meanwhile, angel investors tend to make independent decisions, so the risk they want to run and their speed of action will depend on themselves and their motivations.
Where may we find a Business Angel to fund our project?
In the Spanish entrepreneurial world, the Business Angel has experienced a notable increase in both number and skills. This fact has led to the creation of several associations of private investors. This, thanks to the Internet, has made it easier to find some of them. For example:
Asociación Española de Business Angels (AEBAN)
Established in November 2008, its main mission is "to promote the activity of Business Angels and Business Angels networks in Spanish territory". AEBAN currently associates 38 networks based in 11 regions. These networks, in turn, include nearly 2,000 investors who, as they point out, in the last year mobilized resources worth 40 million euros. All its associated networks can be located on this map.
Big Bang Angels
Non-profit association whose members are individuals or business angels, networks of business angels and investment clubs, accelerators and business incubators, family offices, venture capital funds and other private investors. Apart from representing the collective and connecting investors with innovative projects, they help to train potential investors and entrepreneurs. How to get Big Bang Angels to accept a project? These are their acceptance criteria:
- Competent and innovative market
- Scalable and replicable model
- High growth potential
- Capable and committed team
- Transactions between 20,000 and 300,000 euros.
Angel Investment Network
Service that connects investors and entrepreneurs. It is owned by Angel Investment Network Ltd., an investment company based in London. Its website facilitates synergies between local, national and international networks of entrepreneurs and investors, who can choose from a wide variety of projects.
Business-Angel
Web promoted and sponsored by InnoBAN, whose objective is "to publicize, promote and disseminate the activity of Angel Investors and their networks [...] and their importance in the entrepreneurial ecosystem". The page incorporates a Directory of Business Angels Networks ordered by Spanish regions that can be very useful for entrepreneurs seeking investment and potential investors who wish to join one of them.
Advices for attracting angel investors
As we can read from the AEBAN Report 2017, a quarter of the investors who are in a network of business angels only access projects through them, so knowing them is essential to be able to access them.
The study also points out that the main reason for dismissing a project is the lack of confidence in the team, so that being surrounded by a good group of professionals will make the angel investors see the project with greater security. At the same time, presenting him a worked Business plan is also an important guarantee for him.
On the other hand, before requesting the support of a Business Angel, it is necessary to gather all the possible information about he or she, to determine if it is the investor that our project needs.
Do you have an innovative project in mind? Do you want to start? Download the eBook ‘Herramientas clave para la consolidación y crecimiento de empresas innovadoras’, written by the University of Valencia Science Park, and discover the first steps to start a new innovative company.
References:
- The Growing Business Team. (2017, 06, 27). What are business angels and what can they offer? [Piece of news]. Recovered from: https://startups.co.uk/what-are-business-angels-and-what-can-they-offer/
- Mateos, Montse. (2017, 05, 30). Dónde y cómo invierten los 'business angel' españoles. [Piece of news]. Recovered from: http://www.expansion.com/emprendedores-empleo/emprendedores/2017/05/29/592c37b146163f19518b45e2.html
- Asociación Española de Business Angels. (2017). Informe Business Angels AEBAN 2017. Obtained from: http://www.aeban.es/sites/aeban.es/files/Informe%20AEBAN%202017.PDF
- Business Funding Show. (2016, 11, 22). Venture Capitalists VS Business Angels. [Entrada del Blog]. Recovered from: http://www.businessfundingshow.com/funding/venture-capitalists-vs-business-angels/
Kishinchand, Indra & Torrego, José María. (2016, 01, 10). Los 75 business angels más influyentes de España. [Piece of news]. Recovered from: http://www.elreferente.es/tecnologicos/business-angels-espana-29197