What actually are business angels?

What actually are business angels?

As an entrepreneur seeking funding, you have perhaps already heard of business angels. But what actually are business angels? Why call on them rather than a bank? How much funding can they provide me with? Where can I find them? And what are the terms of their services?

We can help you get a clearer picture in the article below.

What are business angels?

Business angels are private investors who invest a small proportion of their wealth in startups to become shareholders.

What are the advantages to calling on this type of investor?

Other than the financial input, business angels can make their entrepreneurial experience available to startups, as well as their sector expertise and their network of contacts. They also provide strategic advice to help the startups in which they invest to grow. It is therefore vital to carefully select your investors. They can truly help you open doors and improve your business.

Why not call on a bank or an investment fund?

Often, when companies start up, they require a significant amount of capital. However, they have not always had sufficient time to prove themselves. Banks for example, are relatively demanding when investing money and less inclined to take risks. Business angels on the other hand, aim to invest in the initial development phases of startups. This initial funding is referred to as pre-seed or seed money. Business angels invest when other players dare not commit. It is not unusual however to see business angels make investments complementing loans from banks or from investment funds. They may even be viewed as a guarantee and provide a leverage effect. If business angels invest €200k, then perhaps a bank or an investment fund will decide to follow suit.

How much funding can I request from business angels?

That depends firstly on whether you can convince one or several investors. Certain business angels invest €25k per project, others €100k. It all depends on their available cash and their liking for the project. However, projects raise €150k on average among investors for their initial fund-raising[1]. Most startups launch several fundraising rounds during their lifespan.

[1] Data extracted from the BeAngels database.

Where can I find business angels?

There are two options. Either you know them personally, or via your contacts, or you go through a business-angels network like BeAngels. The advantage of a network is that you present your project not just to one single investor, but to a whole community. At BeAngels for example, we have 420 members.

I have presented my project to private investors who want to invest. What are the terms of their services?

You set the terms and conditions with investors. It is like agreeing to a marriage contract. Before saying “yes”, you have to set the conditions, in case something goes wrong, or if it proves to be a success. You therefore have to discuss the potential exit terms and also what happens if there is a problem. Beware, this is not a loan with a bank that has to be reimbursed in the event of bankruptcy. If the company goes bankrupt, the money is lost. However, specific rules will be set for the funds to be put to good use.

Business angels become shareholders: but for how long?

Generally, business angels sell their shares after five years. Startup jargon refers to this as the exit. Events triggering an exit can vary, including a stock market listing (certainly rare but highly desirable), or if a major market player or competitor buys the shares, or even a buyout by the entrepreneurs themselves.