When you are a startup or growing business seeking funding, you may want to consider attracting a business angel. This wealthy individual can help you provide knowledge, expertise and capital in the early stages of your venture phase.
What is a business angel?
The term "business angel" was first used, in the early years of the 20th century, to refer to the rock-rich investors who spearheaded the vibrant Broadway. Today, the term is used more broadly to refer to any informal investor who provides financial support to a start-up or fledgling company.
Business angels are often wealthy individuals who have made their money selling their own successful business and now want to invest in businesses. Not only are they wealthy, but they often have the knowledge and experience to guide entrepreneurs through their growing businesses. Moreover, these angels often also have a large network to help move business forward just a little faster.
What is the benefit of an informal investor?
Business angels typically invest their own personal funds in a business, which means they are not subject to the same legal restrictions as venture capitalists or other institutional investors. This allows them to be more flexible in their investment terms and have more control over the businesses they invest in. In addition to money, the valuable mentorship of an industry experience expert is often an opportunity that entrepreneurs want to seize with both hands.
These private investors typically seek high-growth investments and are willing to accept a higher level of risk than traditional investors, such as a bank. In exchange for their investment, business angels usually receive shares in the business. The term "high risk, high reward" applies to them.
What should you look for in a business angel?
In addition to its many benefits, entering into a relationship with a business angel comes with risks, including:
- High degree of control. Business angels often have a high degree of control (say) over the businesses they invest in. This can be detrimental to the company's founders.
- Dilution of ownership. These informal investors typically take a stake in the businesses they invest in, which can cause founders to lose some ownership of their businesses.
- Limited cash flow. Business angels typically invest smaller amounts than venture capitalists, and this can limit a company's growth potential at some point.
In general, working with a business angel can be a good way for small businesses and startups to access capital and expertise. However, it is important to be aware of the risks involved before making any decisions.
When is a business angel the best investor?
Due to the entrepreneurial blood of the average Dutch person, the reluctance of banks and the digitalization of our society, the Association of Business Angels Networks Netherlands (BAN NL) is overloaded with funding requests. In general, companies that are in the phase where a product goes into production or where customers are approached have the greatest chance of success with informal investors.
Average investment amount of a business angel?
An informal investor always bets on several horses. And as a result, the investment varies from project to project and from investor to investor. Business angel investments typically range from $25,000 to $100,000 per startup, with an average investment amount of $50,000.
This amount is individually manageable for most private investors. As the amounts get larger, you may have to deal with multiple business angels in your venture. It is therefore wise for entrepreneurs to think carefully in advance about the ideal construction.
Where can you find these angel investors?
The BAN NL represents a large group of business angels. On their website you can find though networks of informal investors have joined this collective. In addition, you can visit platforms such as Brookz for your search for a suitable investor.
How do you convince a business angel?
Once you've found a business angel, all you have to do is convince them of your business plan. Right? While every informal investor has different requirements for their investment target, there are certain things you can do to increase your chances of success:
- Put together a good pitch. This should include a detailed description of your business, team, market opportunities and financial projections. You should also be able to then answer all the business angel's questions about your business.
- Throw your own track record into the fray. If you've started a successful business before, this will give the business angel confidence in your ability to do so again.
- Be clear. Have a clear idea of what you expect from both an investment and the investor. Not only in terms of money and what you will use it for, but also about mentorship. In addition, the investor also wants to know what percentage of shares in your business they will receive in exchange for their investment.
