Business angels: who are they?
The most common definition of a business angel is the following: it’s a type of investor who specializes in investments in innovative projects at an early stage of their development. That is, investor puts in relatively small amount of cash, but this is a great starting point for the startup. Doing this, business angel gets a stake in the project. And in case of substantial revenue, he gets quite a good payback.
Another peculiarity is that in majority cases, business angel invests his own money (contrary to venture capitalists). As a rule, he operates with a small amount of cash, about $50-100k. Sometimes, business angels form up a group and invest a larger sum of money.
The bigger the risks, the bigger the revenue
A typical business angel is a 35-55 y.o. man with substantial investment experience, and mostly likely an ex-entrepreneur. That’s why if angels already have quite a lot of their own money, they are ready to take risks and invest in startups. In most cases, investment size is no bigger than 5% of angel’s overall funds. Majority of business angles invest in several projects at a time.
Talking about risks, they are really high in this sphere. The reason behind this is that IT is quite a new field, which is constantly developing and undergoing changes. Besides, at early stages startups and business angels are far from being “a family”, and their interference bears just informal character. Of course, this makes it more difficult for investor to take any control of the startup.
Nevertheless, neither of these factors stops business angels to invest their own money in risky ventures. Even if 1 startup out of 10 gets successful, the revenue received form this one project will cover expenses for the rest of “not so successful” projects. As a rule, this ratio works in real life.
No doubt those early investors in Google are now billionairesJ
Differences among business angels
It’s also capturing to take a look at the so-called modern classification of business angels:
- Corporate private investors: a very special type of business angels who invest the money they get from care benefits. As a rule, these are top-managers who, besides a desire to invest their own capital into a promising venture, would also like to take active part in the business development process of the startup by eventually getting a C-level position in this project.
- Entrepreneurial business angels: one of the most common and most active types of investors. These people are usually successful entrepreneurs themselves, and they just want to widen the field of their expertise and dive into a new venture.
- Enthusiast angels: in terms of investor skills, these are the “dummies”. They rather invest because of sheer interest, than because of a desire to get revenue. For them, it’s just a hobby.
- Professional angels: these are choosing only those fields of investment where they possess strong expertise and experience, business contacts etc.