Business Angels
- Nick Vosniakos | Νίκος Βοσνιάκος
- Sep 17, 2019
- 4 min read
It is important to note that there is no precise definition for Business Angels. Most organizations refer to Business Angel as an individual private investor, often with high net worth and business experience, who directly invests part of his personal assets in new, growing and innovative private businesses. Additionally, business angels can invest individually or as part of a trade union where an angel takes the lead. In addition to capital, Business Angels provide business management experience, skills as well as business contacts to the new entrepreneurs. Experienced "angels" know that they may have to wait for the return on their investment. Therefore, they can be a good source of "smart" capital.
Business angels play an important role in the economy. In many countries they are the second largest source of external funding to start-ups after family and friends. In addition, they are increasingly important for the provision of venture capital as well as for the economic development and technological advancement of businesses. According to EBAN (European Business Angels Network), the characteristics of a business angel are as follows:
Is an individual investor (according to some national regulations)
Investing directly (or through his personal involvement) his own money
It is financially independent, ie a possible total loss of Business Angel's investments will not significantly change the financial position of its assets invested in a company
Usually invests in seed or start-up companies without family relationships
Makes his (final) investment decisions
Invests in the medium to long term
Ready to provide strategic support to entrepreneurs, in addition to their individual investment
It respects the Code of Conduct, including the rules on confidentiality and fair treatment (against business people and other business angels), and complies with the fight against money laundering.
How Do Business Angels Work?
According to EBAN research, the typical profile of a Business Angel is a man (about 3-5% in the market are women) aged between 35 and 65 with successful previous experience as an entrepreneur or manager investing between € 25,000-250,000. It usually invests about 15% of a single venture's equity and backs it up with management advice and networking in business circles and finance sectors as mentioned earlier. Generally, Business Angels make their business decisions based on their experience in a particular field (e.g. IT) and usually focus on companies in their area. Still, it should be appreciated that Business Angels are a heterogeneous group. For example, in terms of investment incentives, financial gain and wealth creation are the main incentives, but there is often interest and satisfaction in setting up successful start-ups or in supporting local economic development.
Traditionally, business angels tend to prefer to invest on their own, rather than as part of a network or group. However, participation in groups, unions and networks is also important. Angels can invest both individually and jointly with other angels or institutional investors in a variety of forms (e.g. co-financing with preparations). Still, many Angels invest in many companies to mitigate the high risk and expect that one or two companies they invest in will generate high returns and thus cover potential losses from businesses that did not survive.
How are Business Angels organized?
As mentioned earlier, the most common form of Business Angel is the person who invests directly in a company through his personal contacts. They work in private and generally prefer to remain anonymous. As a result, detailed statistics on the invisible Business Angel market segment are not readily available. There are, however, other more visible ways of organizing through which Angels come into contact with companies. One such form is Business Angels Networks (BAN). According to EBAN, BAN is an organization designed to make it easier for entrepreneurs (by seeking venture capital funds) to be matched with business angels. Usually a BAN can act as a recipient of investment funds requests. Such proposals would initially be checked for quality or circulated directly to BAN members. Imports between entrepreneurs and investors can be done at network meetings or directly. Normally, Business Angels will invest on their own behalf in the company concerned. Both investors and entrepreneurs can pay for the cost of the network. BANs tend to focus on specific sectors or areas. They generally abstain from the formal evaluation of business plans or angels. The Angels make their own individual investment decisions, and BAN doesn't decide which investors to invest in a deal. BANs also provide many value-added services to both angels and entrepreneurs, such as investor preparedness, training and pooling opportunities. We can say that they act as intermediaries for their investors, providing support to both interested parties.
Also, business angel unions represent another form of business angel organization. According to EBAN, the unions' goal is to bring many business angels together in an informal consortium to create a large pool of capital above what any business angel could invest, as well as to pool skills to provide more management support. One of the advantages of unions is the ability to spread risk, as well as further funding to businesses, as investments are made by a number of angels. Usually the investor pays for the syndicate and the syndicate will evaluate the possible investment for Angel to make the final decision.
Given the great influence of Business Angels on businesses in recent years, their investment promotion tools are the responsibility of EU countries. Individuals who are willing to invest in companies should be motivated. This should include the use of public funds to target co-financing with business angels. Finally, the European Commission aims to encourage EU countries to learn from good practices by supporting business angel investments, in particular across borders and through partnerships with venture capital funds.
