- August 6, 2018
- Posted by: Editorial
- Category: Funding
If you’re trying to create an innovative company, funding your project can be difficult. Not only does it generally take a lot of money to create a new product, but innovation can also be risky. As such, banks won’t always be willing to help you by granting you loans. That’s where the so-called “ Business Angel investors ” come into play.
- What’s a Business Angel Investor?
- In which cases should you contact them?
- Why is it worth your time to contact them?
- How do they choose where to invest?
- How much time does it take for you to receive the funds?
- How does the capital outflow happen?
What’s a Business Angel Investor?
A “Business Angel investor” is an individual who chooses to invest some of their personal assets in an innovative company in formation with a high potential for growth.
Often, they are experienced businessmen who know a lot about entrepreneurship. As such, they are generally eager to share some of their contacts or to give you valuable insight to develop your company and allow it to reach success.
No matter their profile though, they all have the same goal: to earn a high return on investment.
In which cases should you contact them?
Business angels invest exclusively in projects that:
- Are very innovative
- Have a high potential for growth
As such, you don’t have to worry about your activity or location holding you back. As long as your project meets these 2 requirements, they’ll be willing to help you.
Something worth remembering is that Business Angel Investors don’t only bring their money to your company; they also bring their knowledge and expertise. It is thus very common for them to take a very active role in the development of your company, despite often owning less than 20% of the shares. This is also the reason why they sometimes decide to be specialized in a certain field. That way, they’ll be able to give much better advice.
It’s very rare for business angel investors to invest more than one million euros in a given project, even if they form a group that invests together. As such, the average volume of their contribution lies between 10 000 € and 20 000 €. However, they are willing to finance every part of your business: from the initiation (initial research and prototypes) to the expansion of your activity to new markets.
Why is it worth your time to contact them?
There’s the obvious answer, which is that they will help you fund your activity. However, there’s also the leverage effect that might be worth looking into. Indeed, once you’ve received the support of a business angel investor, you’re much more likely to have a bank agree to give you a loan, for example.
How do they choose where to invest?
Granted, they tend to have pretty high expectations. However, at the end of the day, they only concern the feasibility of your project, its potential success, and how competent its team is.
They make their choice in a few steps:
- First, you submit your executive summary to them (a few pages detailing what your project is and what its goals are). They can then study it to determine if it’s worth their attention.
- If they think your project is worth hearing more about, your team will be invited to an elevator pitch, where you will have 10 to 15 minutes to present your project to them in person.
- If you’ve managed to get at least some of them interested, they’ll closely examine your project with “due diligence”. They’ll also start negotiating to determine the terms on which they’ll grant you capital.
- Finally, the closing: this refers to the moment when every document has been signed, and they’ve given you the funds.
It’s worth noting that if several business angel investors are interested in your project they will often get together in a Business Angel Investment Company so that they can share the risks.
How much time does it take for you to receive the funds?
Truth be told, it depends. However, it consistently takes a few months:
- You can expect about 3 months between the creation and the project and the executive summary
- Between 5 and 9 months between the first contact and the signing of the term sheet
- About one additional month until everything the funds have been transferred
How does the capital outflow happen?
Ideally, the business angel investor will sell his company shares in 3 to 5 years. However, there are always different possible scenarios:
- A corporation could buy your company
- Your company could start to be listed
- An investment fund could buy the company