Business Angels

 

A business angel (BA), also known as a corporate angel or angel investor, is someone who financially participates in companies and at the same time supports the start-up with know-how and contacts in a typically very early phase. Most of these are successful founders who bring capital and know-how to young companies after the sale or IPO of their former company, or experienced entrepreneurs or executives who have more management experience and contacts than them due to their long professional life Founder of the supported company himself.

 

A founding angel (FA) is an angel investor who, compared to a BA, is involved in start-up projects before the company is founded and usually acts as a co-founder when the company is founded. In a later phase he invests in these companies like a business angel.

 

Characteristics

 

The typical characteristics of a BA participation are the capital investments (2008 averaging 100,000 euros) and their smart capital character as well as the advice. In addition to the purely financial investment, the business angel also acts as a coach or business coach.

 

Projected, the annual volume of business angel investments in the USA in 2007 was between 25 and 50 billion US dollars, and in Germany around 400 million euros. There are around three million business angels in the United States. In 2014 a study by the Center for European Economic Research estimated around 7.500 business angels in Germany with an upward trend.

Overall, it can be stated that BA investments in Germany “measured against German economic output are below average in an international comparison”.

 

Business angels usually become active with their investments shortly after or during the foundation, i.e. in a phase that is associated with high dynamics in the young company. This shows the main difference to a venture capital participation, which often only takes place in a later phase and then only consists of a purely financial, but often larger investment.

 

Networks

 

Business angels are often organized in networks. In Germany there are around 40 networks, many of which are regional. They serve as a point of contact for companies looking for capital and establish contact with suitable corporate angels. A business plan or presentation is usually required for initial contact. There are no certificates or standards for these networks e.g. B. about the sensitive handling of ideas and strategies within the network.

 

Start-up competitions

 

In order to address the largest possible group of people interested in starting a business, business angel networks usually hold business plan competitions, which are accompanied by seminars. Business angels and those interested in founding a company have the opportunity to get to know each other and to convince each other. The seminar content mostly includes the basics of generating ideas and strategy as well as the formal requirements for creating a promising business plan. Essential prerequisites for a BA participation are local proximity and a solid relationship of trust between the entrepreneur and business angel.

 

Profile of business angel investments

 

Business angels' investments are very risky. In return for their commitment, the business angel usually demands a very high return on investment. Since a high percentage of these investments are completely lost when the start-up companies fail, professional BAs try to find companies that have the potential to make the initial investment within five years (especially with the help of exit scenarios such as an IPO or a company takeover) to tenfold. Due to the high risk and the high percentage of lost capital, the internal interest rate for a successful portfolio drops to around 20 to 30 percent. Despite the high interest rate, the business angel capital is attractive to the recipients of the capital, as cheaper sources of capital such as B. the financing through traditional bank loans are not accessible for the young companies in the start-up phase.