What is a "Business Angel"?
I've seen the term here, and I can guess where it comes from, but what exactly is a Business Angel?
2 Answers
A person who invests in very early stage companies in return for equity. Often, but not always, a former entrepreneur who has made a good deal of money. See Google.
If you want a more comprehensive overview of the different archetypes of investors, then Guy Kawasaki's The Art of The Start has a good overview, and is a fun read.
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The angel investor is usually the first person to exploit your business for their own profit and gain. The first step in giving up control is to get an angel. Not to mention the waste of time scouting these folks. – Frank 13 years ago
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@Franky B: All kinds of people can be angel investors -- some will not behave ethically, but some/most will. For some startups outside investment is a great match; it depends entirely on the situation and the people involved. – Jesper Mortensen 13 years ago
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The term "ANGEL" is deceptive. What it should be called is early investor. I think many Angel's spin themselves as the ones who nurture your company into something real. Most boast their resumes and experience building companies, and say they offer guidance. What they typically offer as guidance is just ensuring their investment works out the way they want. Most angels are more concerned with exit then the details of your company. They invest early, so they can sell off their shares to a VC firm or other investment bank and cash out. I know many angels, and none are in it for the "fun" – Frank 13 years ago
From your point of view, a business angel is a person who has something you need to progress with your venture, and is willing to provide it, in exchange for a share in your business.
In almost all cases, that something shouldn't just be cash. Sure you need cash, but you also need reputation, contacts, capability, experience, someone invested in your success who can help you with big decisions like hiring.
If you are offered a big slice of that - and you can satisfy yourself it's all real - then you've found someone who can be a business angel for you.
The caution you'll hear is that a whole lot of people who describe themselves in this way really aren't going to be an angel for you. So if you're new to the game, confine your attention on people you can check
- Have multiple investments past and present
- Have other people they've invested alongside more than once
- Are happy for you to talk with founders they've worked with
- Have interest, presence and reputation in the market you're targeting
- Are straight with you about their expectations of financial returns (principles, level, timing), the degree of involvement they require and the support they will offer
You may be able to shortcut a lot of this if there are functioning angel networks in your area. If there are, research them, their membership, their interest areas and anything they have that gives you an idea how closely they operate. Then find out how they facilitate people pitching.
No decision about equity is risk-free. But the risk you're taking with your founding team and early hires is usually far, far greater than the risk (when you've managed it) with your early investors.
