A Business Angel is an individual who makes his own investment decisions and who contributes his own money, and sometimes his time, to unlisted companies promoted by people who are unrelated to them. Although investing at any stage of development, the Business Angel plays a crucial role in creating innovative companies by supporting entrepreneurs in the early stages of their companies' life cycle (seed and start-up).
Such successful companies as The Body Shop, Amazon, Skype, Starbucks or Google were supported by a Business Angel in their early days.
Business Angels are Known in the USA as Angel Investors or only Angels,in reference to the entrepreneurs who supported Broadway theatre productions at the beginning of the 20th century.
Although the Business Angel responds to a heterogeneous profile and therefore difficult to categorize, some characteristics are common to all of them and that serve to differentiate them from other types of investors:
They invest their own money, unlike Venture Capital entities that invest the money of third parties.
They make their own investment decisions.
They invest in companies with whose promoters they are not related or friends.
They seek to make money, although this is not their only or even their main motivation for investing.
They bring value and are involved in the Business more than financially, as they will be able to make decisions.
The participation is usually in companies in the initial phase (their investment capacity per operation is generally limited, so they usually enter when the company's valuation is not very high). On average they invest between 25-100K €
They are professionalized and invest in sectors in which they have already had previous experience.
They are usually experienced entrepreneurs or managers who invest and contribute their knowledge to younger entrepreneurs.
In general, they tend to maintain their anonymity before third parties, although many recognized business angels are already public figures.
- Identification and description of the Business, technical, commercial and financial viability (profitability)
- Planning the necessary strategies for growth and next steps, understanding the use of resources to be incorporated into the company and the return on those resources (when those resources have been invested, what milestones will the company have reached?
•The Business Angel usually invests mainly in the technology sector.
•Potential of the partners and promoters of the idea & affinity with them.
•Planning the return on investment time.
•Definition of the ownership of the company after the capital increase, and distribution of profits and capital among partners and investors after a certain time
A considerable advantage is that a business angel's investment carries less risk than traditional financing, as the latter does not have to be repaid in the event of the startup's failure. Many investors of this type bring experience and contacts, so their support can be beneficial to you
• Disadvantages of accepting investment from a Business Angel
The main disadvantage of having a business angel is the loss of total control over your Business.Depending on how you negotiate the inflow of capital, your angel investor will have the authority to take part in the company's management and receive a share of the profits if the company is sold. On the other hand, with a traditional loan, the bank has no control over your company's operation and has no right to its profits.
is the process of funding a venture or project by raising small amounts of money from a large number of people. By reaching a large number of individuals, those doing the crowdfunding often raise large amounts of money without taking out loans, emptying out their savings or tying themselves to venture capitalists or banks.
Crowdfunding is similar to the business angel system but differs in two main aspects, it seeks a massive investment from small individual contributions and relies on ICT for fundraising.
Rewards-Based Crowdfunding: individuals lend small amounts of money to a project in exchange for a reward or incentive
Equity-Based Crowdfunding: an investor receives a portion of the company in return for their investment
Donation-Based Crowdfunding: a large number of individuals donate a small amount of money toward a project, contributors don’t expect anything in return.
Debt-Based Crowdfunding: a large amount of individuals lend a small amount, with the expectation that they will be paid back the principal along with interest.
You can validate your product and use feedback to improve it before shipping
Improving your marketing efforts
Marketing is made easy by existing platforms and engaged funders
Fundraising Efficiency
Crowdfunding can raise enough capital to kickstart your venture.
Opportunity to connect
Sharing your business idea attracts not only funding, but also expert guidance and advice and feedback on how to improve your ideas.
Drawbacksto Crowdfunding
Time and effort:
Successful campaigns require a lot of dedication, in terms of time, effort and even money.
All or nothing:
If you can't reach your goal, your investors get their money back and you leave empty-handed. Only a fraction of crowdfunding campaigns meet their desired goals
Damaged Reputation:
Your reputation could take a serious hit if your project fails or falls through.
Theft of idea:
Unless you patent your collective funding idea and register your trademark, someone could steal it. Some individuals might steal your idea and build a better version (or simply market it more successfully).
It is important to seek help from a business coach who will help you delve into the pros and cons of a campaign to see if it is right for your project.
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