Concept of business angel
A business angel was a professional person who invested his own money in some theatre plays so that they could come to life. This idea was taken to the world of entrepreneurship and today the term refers to who bets on a startup, still in its initial period, in exchange for a slice of (future) profits of the company.
This type of professional, in addition to looking for those businesses that have growth potential, can also be found in associations and on the web.
The objective of the business angel is the valuation of the startups, acquiring a share in the capital stock, during a certain period, assuring financial support to the implementation and growth of the project. The sale of their participation is done by privileging the will and interests of the entrepreneurs promoting the project. The ultimate goal is to sell your stake with an added value, only achieved if the project achieves expected success. During the period of your participation, the business angel assumes the risk of the project on the same terms as the promoters themselves.
According to the Portuguese Association of Business Angels (APBA), “a business angel is a private investor who invests in nascent opportunities (eg ‘startup’ or ‘early stage’) and participates in projects with ‘smart money’ that is, in addition to the financial capacity also contributes with his experience and network of businesses “.
What attracts a business angel?
- A good team is a very valued element for this type of investor. The team must be multidisciplinary, to complement in all the necessary skills in the company, to have some experience of working together.
- Another key element is a perfectly identified opportunity. The ideal is a unique idea that is not easily imitated in the near future. The business angel needs to have some assurance that they will get a good return when they leave the company.
- Finally, a scalable project. Hardly anyone bets on an idea that only looks at the national market. The potential for internationalization is key to attracting attention, and business angel money. Your risk is high and you only need to invest in startups that have a very strong capacity to grow.
What does it require in return for the investment?
- Participation in the capital. But always a minority participation. Even if you want, you will not find a business angel available to stay with most in the company. The goal is for the entrepreneur to always feel the project as his own.
- Total dedication of the team. At first, some business angels may even close their eyes if one of the team members continues with a parallel activity, but as far as the leader is concerned, he has to dedicate himself 100% to the company.
- Ability to interact with the mentor. There are very competent people with brilliant ideas, but they are not willing to listen to others. But the initial idea will have to be adjusted and the business angel is fundamental in that process.
- Transparency in relation. The objective of the business angel is to add value to the project and this is only achieved through a frequent interaction with the entrepreneur, to be always informed of the strategic steps of the company.
Mistakes that should avoid
- Valuing technology more than the market, trying to sell a technology that you do not realize what it is for is like wanting to get rich selling sand in the desert.
- Lack of preparation in approach to investors.
- Absence of strategy. The business plan must have properly identified the geographic area you want to cover, the industries and the segments to which the product or service is intended.
- Inappropriate team because of having a team is a key to getting an idea to a right end.
