Business Angels, a Growing Option to Finance Start-Ups

28 August, 2013 — 5 Comments
businessangels

Entrepreneur and business angel

In the beginning of the XX Century an angel was a wealthy person, who provided money for Broadway theatrical productions. The term angel began to be used in the USA in 1976 after a university publication reutilized it in reference to investors who supported entrepreneurs. Since then the term in the USA is angel investor, while in Europe we called them business angels.

These investors are essential in the financing of thousands of companies in the USA. In 2012 each of the 268,160 angel investors invested an average of $85.435 in a total of 67,030 companies. (35% of them startups). A total of 23,000 million dollars! The average angel deal size was $341,800 and the average equity received was 12.7%. Source: unh.edu

These dizzying figures don’t have anything in common with those in other countries, especially compared with Spain. There are only 1,729 investors who are members of some of the 50 business angel networks existing in Spain. To be a member doesn’t mean that he has invested every year. Although, the actual amount of business angels is probably much bigger because many business angels don’t belong to any business angel networks. As prove of this 182 Spanish startups receive venture capital from business angels in 2012. Sources: Evaluation of EU Member States Business Angel Markets. page 14 and eureka-startups

Anyway business angels’ phenomenon has increased a lot in Spain in the last years. The number of business angel networks has grown from only one in 2000 to fifty nowadays.

On top of all of this, you can add the new crowdfunding investment phenomenon, which has been helping to develop the concept of business angel. Some people who start investing in crowdfunding platforms become business angels later on.

Who is a business angel?

  • A person who invests his own money in innovative companies in their early stages (see what a startup is).
  • They are often business men and women, executives, successful entrepreneurs who invest in several different companies to diversify their risk.
  • In addition to the capital, they provide management advice and important contacts thanks to their business experience. Some of them provide mentoring to entrepreneurs. However they do not get involved in daily operations.
  • They provide funding to the tune of ten thousand to some thousand dollars (or euros).
  • They own minor percentages of shares. They do not replace the entrepreneur.
  • They prefer to invest geographically close to where they live, in order to meet often with the entrepreneurs.
  • They try to earn money by selling his shares after some few years, but they often have other additional motivations, as is the satisfaction of participating in an innovative business project.
  • Most of them co-invest with other business angels in the same startup.
  • The more experienced business angels use similar tools to those of venture capitalist (shareholders’ agreement, due diligence, etc.).
  • Some of them join to some business angel networks, which facilitate the matching of entrepreneurs (looking for venture capital) with business angels.

Where do I find a business angel?

  1. Business angels networks. These networks organize meetings and forums investors. This fantastic article of Jose A Moral detailed many business angel networks in Spain with their links. Also you can see this list of AEBAN (Spanish Association of Business Angels) or ESBAN (Spanish Network of Business Angels). As an example, in Navarre (Spain) the Foro de Inversores Moderna, regularly organizes meetings to match entrepreneurs with business angels.
  2. Try to contact them directly through social media (Linkedin, Twitter, etc..). On Linkedin there are several Groups about entrepreneurship where some business angels are involved. A quite interesting Group in Spanish is Inversores & Emprendedores (Investors & Entrepreneurs). Carlos Blanco, a Spanish serial entrepreneur and business angel, has written on his blog a very useful list with the main business angels in Spain.
  3. Attending Conferences, Meetings, Business competitions and any place where you can network. Some business angels use to attend entrepreneurs conferences because they are looking for new ventures to invest in. i.e. Entrepreneur Day held every year in many cities in Spain, Iniciador, etc..
  4. Publicize yourself and your startup to provide that business angels find you! You can write a blog to promote your project. Tell your friends, your social network that you have a startup and you are looking for investors. And if you could be interviewed in television, it would be great!

If you want to learn about the Spanish angel investor sector I recommend you watching this fantastic video: Investors to the hund of goog ideas (in Spanish). This ten minutes video from Comando Actualidad explains what a business angel is, it shows an elevator pitch and interviews with entrepreneurs and business angels. Among them is Rodolfo Carpintier, a experienced investor (he owns an incubator of internet startups called DAD). They received six hundred requests a year and they just invest in five. The whole video is priceless, highly recommended.

Finally you have here a very good infographic about the rise of the Angel Investor in the USA. I would like it happens the same in Spain!

Rise of the Angel Investor

If you liked this post be sure to share it on your favorite social media! Comments are always welcome and encouraged as well. Thanks!
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