An Entrepreneur can resort to a Business Angels for several reasons.
- Lack of personal assets,
- High level of risk of the project,
- Need for business experience and contacts on top of the financial requirement.
No repayments: equity capital comes without the burden and cash-flow drain of the monthly repayments required by debt,
- Value-added capital: equity investors can offer, at least in theory, much more value to a company than just capital. Business angels and venture capitalists can bring industry expertise, customer and strategic contacts and proven experience in helping young companies grow,
- Deep pockets: equity investors may be a source of follow-up financing if the business requires it at later time, adding a sense of financial stability to a growing company,
- Increased discipline: external investors can bring new and higher levels of financial discipline, as well as greater requirements for good governance to your business,
- Enhanced reputation: an equity investment can meaningfully improve the reputation and status of a company, which can help to attract employees, acquire customers, and interest future investors.
Of course, there are! Some very famous examples include Amazon.com, Apple, Body Shop... More recent examples include:
- Easy design and self-print solutions VISTAPRINT,
- Networking platform OPEN BC,
- Facebook, Twitter, etc.
According to research conducted by the EBAN Secretariat in 2008, in 2007 the average size of deals in the majority of European countries was 165.000€, while in the UK in 2008 the average was 327.628€ (including co-investment funding). Business Angels can invest less, or more especially if co-investing with other Angels.
Business Angels are actively involved in the company and will therefore need business skills in order to achieve the potential of the company in which they invest and accelerate the growth of the company. Angels are often entrepreneurs themselves or have a solid entrepreneurial experience, as their role is also to provide expertise to the company in its first stages. We have seen earlier that in Sweden, as much as 90% of the Angels had created a one or several companies.
If your business experience is limited, you should consider aligning yourself with an experienced Business Angel in a syndicate.
A project should preferably have the following characteristics:
- Be documented on a realistic financial plan,
- Include a clear marketing and market penetration strategy,
- Rely on a product that can be sold rather than one that is agreeable,
- Be supported by a managerial team of undeniable competence,
- Present an exit route for Business Angels based on a realistic evaluation or the company at the time of the exit.
The table below indicates the percentage of networks that invested in each of the sectors out of total networks replying to the question: Sectors of investment of the deals concluded through the networks in 2007, in 2008.
Entrepreneur must be willing to sell a percentage of the issued share capital in exchange for funding. This will provide a strong capital base and, if the right investor is chosen, valuable additional skills and experience. To ensure that both interests are protected, professional advice when structuring the deal should been seek.
This should be defined in the Initial Agreement. Business Angels are typically successful business people in their own right and research has shown that they can contribute strategic advice, marketing, finance and accounting skills as well as networking (especially with potential customers and other sources of finance).
According to a survey made by Venture Capital Report (UK) and Oxford University (UK) with a sample of 500 Business Angels, their main criteria for assessing a proposal are:
- Impression of the management team,
- Experience and understanding of the sector,
- Projected profitability,
- Business plan content and presentation,
- Attractive return on investment,