There are many forms of financing startups on the market. Supporting innovative ideas by business angels is becoming increasingly popular. Such a solution, taking into account the preferences of budding entrepreneurs and more experienced investors, allows to build a mutually beneficial relationship.
Business angels – table of contents:
What is a business angel?
To put it in a nutshell, business angels are people with extensive business experience and adequate financial resources, part of which they decide to invest in the chosen startup. At the same time, business angels do not offer financial support only. They help to develop the venture, devote their time, make use of their network of contacts and provide less experienced colleagues with valuable business advice.
Despite the great diversity among business angels resulting from different approaches to the investments or the form of providing support to startups, the main motivator for each of them is the prospect of receiving shares in return for the invested money. Thus, it can be said that they provide a particular startup with a kind of loan, which is then changed into shares.
Nowadays, business angels have become one of the largest sources of external financing for startups. They do not cooperate with them only in the initial stages of business development. They often also make investments in later phases or start supporting companies that have been on the market for some time.
When business angels enter at the early stage, they most often expect a certain capital gain in return, which they can achieve through the sale of shares. On the other hand, when they plan to stay longer in the company, they are more focused on participating in the profits generated by the startup, for example, in the form of dividends.
In many cases, business angels also choose to provide venture capital. A common problem of highly innovative startups is the lack of investor’s faith in the real success of bringing a revolutionary idea to life. Therefore, a more flexible and adventurous approach by business angels becomes essential for the implementation of somewhat bolder ventures. As a result, investors belonging to this group, by introducing modern and technologically progressive solutions, have a huge impact on the entire economy.
A guardian or a mentor?
The very name “business angel” indicates the caring role of the individual taking on this function. Business angels are supposed to provide startups not only with the necessary financial support, but also to support them with their experience, knowledge or even network of contacts. The help provided both through the material capital, as well as the intellectual one, means that the involved business angels also begin to play the role of mentors for young entrepreneurs just starting their careers.
The uniqueness of business angels stems from their independence and flexibility, which is much greater than in the case of funds. Investing their own money and making individual decisions, they can act in accordance with their preferences and subjective assessment of the potential of a given business. At the same time, unlike a VC fund, cooperation with business angels gives startups a chance to negotiate and attract them with their way of working or values.
Business angels most often choose to invest in companies operating in the industry in which they operate themselves. In this way they are able to use the knowledge and experience they have gained so far and pass it on to budding entrepreneurs. In addition, they can more effectively assess the potential of a brand by paying attention to important aspects and analyzing them accordingly.
Starting cooperation with the right business angel can help a startup achieve the desired success and a strong position in the market faster. For budding entrepreneurs, the received capital and guidance becomes an extremely valuable tool, which, in many cases, makes it possible to instantly jump from the position of a risky idea to that of a rapidly growing company, in which many market players see great potential.
One of the biggest advantages of this form of investment is the fact that angel financing has been specifically designed just for startups, so that such a business does not even need to have existing revenues, which in other cases was a problematic requirement to meet. In addition, such an investor can be attracted by the very idea or plan. So there is no need to present a market-ready product right away.
How to find a business angel?
Angel funding is not regulated by any norms or laws. On the one hand, this is what makes it so flexible, but on the other hand, the lack of a conventional structure makes finding a suitable angel investor a real challenge.
Some business angels function within the framework of special organizations. In this case, it is easier to reach them, and negotiations are conducted in the presence of a trained investment specialist representing the interests of the organization.
It turns out to be a bit more complicated to reach business angels that operate individually in the market. In such a situation, a useful tool is an extensive network of contacts and the use of a variety of channels. For this purpose, you can use friends operating in the same area and social media, such as Facebook or LinkedIn, which offer special groups gathering business angels.
There are also various programs that aim to support the development of startups and help young entrepreneurs reach out to business angels by providing training or workshops. It is also helpful to visit business incubators, where startups can present their innovative ideas and attract the attention of potential investors, encouraging them to make an attractive offer and support further development.
When launching a startup, one of the biggest challenges for budding market players becomes obtaining external funding to bring their innovative idea to life. Nowadays there are many forms of support, but the comfort and freedom provided by cooperation with business angels makes them perceived as the most desirable investors, who, in addition to purely material assistance, will also enrich the startup with their knowledge and valuable guidance.
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The most important questions
What is a business angel?
Business angels are experienced individuals with adequate financial capital, part of which they decide to invest in a chosen startup. At the same time, they do not offer startups only financial support.
What makes business angels unique?
The uniqueness of business angels is based on their independence and flexibility. They can act according to their preferences and subjective assessment of the potential of a given business. The cooperation with business angels itself gives startup owners a chance to negotiate.
Where to look for angel investors?
Some of them function within the framework of business angel organizations. At the same time, in order to reach business angels operating in the market individually, it is helpful to use networking, social media or special programs created to help startups grow.
What benefits can a business angel count on?
Most often, such an investor receives a portion of shares that will ensure a profitable return on the invested money in the future.