Who are business angels and is it worth looking for them

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Private investment will help accelerate the development of the project, but can lead to difficulties due to the human factor.

Who are business angels

This is the name given to private investors who invest in promising, in their opinion, developments and projects.

The very term "angel" in this sense appeared at the beginning of the 20th century in America. At that time, this word meant wealthy theatergoers who invested money in theatrical performances. These were risky investments, since the angel received profit only if the production became successful.

Now such investors are more interested in IT-development, but this does not mean that other entrepreneurs should give up.

How business angels differ from other investors

According to Alexander Loktionov, CEO of LOGA Group and founder of the Seed Forum investment forum in the European part of Eurasia, investments can be conditionally classified into two categories:

• Structured capital. This is the money of investment funds, which have certain funding criteria and obligations to investors.
• Own funds of business angels. These people do not depend on the requirements of third parties and decide for themselves how to do business and when to exit the project.

Accordingly, communication with a business angel can be quite unpredictable. He is not only an investor, but also a person with his own opinion, desires and character.

Maxim Archipenkov Founder of the SmartMerch project.

There is such a concept in the circle of startups: "venture godfather". He gives money and takes control of the management of the company, interferes in its affairs, which does not contribute to development. Such investors are commonplace. Just look at the reviews: 95% have come across similar offers.

Is it worth looking for a business angel

Pavel Lisovsky, General Director of ADA Russia, highlights the following advantages of working with a business angel:

• Accelerating the development of the project. In many cases, it is almost impossible to realize an idea without money, especially when it comes to production or development.
• Getting important contacts and connections, helping with sales - but only if the angel is really interested in the active development of the project.

The list of disadvantages is somewhat longer.

The interests of the angel and the entrepreneur may differ

Pavel Lisovsky General Director of ADA Russia.

For the vast majority of angels, the key idea behind entering a project is to follow up with a good multiplier. They don't care much about dividend stories. An entrepreneur can root for the cause and play for a long time, moving the company step by step towards a brighter future. And the better it gets, the less you want to sell it.

• The new member introduces new rules. Get ready for accountability, bureaucracy, more paperwork, and so on.
• The risk of new problems increases. You are letting into the business a person whom you don’t know in fact, and this must be very clearly understood.

Alexander Loktionov General Director of LOGA Group.

If the profit in the project allows you to reinvest in future growth, you need to do this and not be distracted by the search for investors, while maintaining control over your project.

Where to look for business angels

Alexander Pechersky, founder of the NaPopravku service, divides such people into two types:

• Professional business angels are private investors who support startups on a permanent basis.
• Business angels from among friends. Moreover, we are not always talking about people who are experienced in financing projects.

Alexander Pechersky Founder of the service "NaPopravku".

At one time we took the second path. The first investments were attracted by the startup "NaPopravku", it would seem, by accident. I talked with friends and talked about our idea for a business with my wife - a site where all the doctors in the city and confirmed reviews about them will be collected.

Friends liked the idea so much that they themselves offered to invest their money in the start of the project. I didn't even think they had the savings for such an investment. So, in informal communication, not at all expecting a result, we found the first means.

It is important to remember for a startup: sometimes money is given by people from whom you do not expect it.

Pechersky notes that professional investors are more supportive of startups that can confirm an idea - albeit with a product made on the knee and the first real sales. Having real clients fundamentally changes the perception of a project. Therefore, at the beginning of the journey, it is better to gather a small group of like-minded people in order to formulate an idea and give it at least some kind of start.

As for professional business angels, there are not so many of them in Russia, but it is quite easy to learn about them. For example, business publications often write about their deals with companies. Of course, no one will bring you a complete list of investors on a silver platter, although ratings are periodically compiled. So you have to do some research work. The easiest way is to participate in specialized investment events.

Alexander Pechersky

After the first round of investments, we turned to professional business angels and venture funds. I wrote a lot and for a long time on "cold" contacts. I looked for people in open sources, monitored summaries of business publications, looked at Facebook and LinkedIn. I wrote dozens of letters every day. Completely discouraged several times, but then found a new contact or deal and tried again.

How to find a professional business angel

Dmitry Kalaev, director of the IIDF Accelerator, advises to follow this algorithm.

1. Make a list of all available business angels

Use all possible sources: ratings (for example, to search for foreign investors and - for Russian ones), publications in the media, stories of friends, in order to collect the most complete list.

Dmitry Kalaev Director of the IIDF Accelerator.

In Russia, about 100 business angels announce their investments in startups. Not all journalists track all 100% of transactions, some of them remain unannounced. Therefore, feel free to use data from online sources to find deals with companies with whom you work in similar segments.

2. Update the list

Notice when the angel last invested. If there have been no deals during the year, it may be a sign that he is disappointed with the processes in the venture capital market or that he has run out of money. Keep your list up to date so you don't waste time organizing a meeting with someone who doesn't invest in startups at all.

3. Study the angels who have supported businesses similar to yours

If an investor has invested money in similar projects (for example, you are making an application for children, and an angel has several startups for children in his portfolio), then this is a good sign.

Please note that we are talking about similar projects, not direct competitors.

4. Rank the list of investors by priority

Kalayev advises first of all to meet with those who are least suitable for you.

Dmitry Kalaev

This is necessary so that by the time you come to the top investors, your pitch, presentation and answers to questions are well developed. If you start with those who are most attractive to you in terms of business growth, segment, networking, you risk showing yourself unprepared and losing the opportunity to present yourself with maximum elaboration. At the time of meeting with someone for whom there is great hope, you must answer all possible objections of other investors and be as savvy as possible in all matters of your business.

5. Look for a way out for business angels

Find someone who will help you get to know the business angel and introduce you to him. A large success rate depends on how much the investor trusts the person who brought you in.

Dmitry Kalaev

Take the time to understand who has already established themselves in the market and can help you. Often I come across founders who, after unsuccessful negotiations with me as an investor, ask me to introduce them to someone else.

Of course, if I have already made the decision not to invest in a startup, I would not advise anyone else to do so. Most likely, insoluble problems in the team and business are obvious to me, and there are stop factors that I consider significant. Most investors use the rule “I don’t believe it myself and will not recommend it to anyone,” and such requests will be of less help to you.

And vice versa, if an investor says that he is ready to participate in a deal, then, most likely, he can recommend you and another co-investor, and it is quite possible to ask about this.

6. Find an individual approach

Addressing a business angel should be personal. No “we are looking for investments, watch the presentation”. Make it clear that you are handling competently.

7. Present yourself correctly

A dying startup whose last hope is a business angel is of no interest to anyone. An experienced investor does not want to rescue drowning people. Be a company you want to join. And tomorrow, this connection may cost more than today, because you are actively growing.

Alexander Pechersky

The most unpleasant thing is constant refusals and complete ignorance. Investors receive dozens or even hundreds of offers every day, and it is not easy to break through them. Don't be afraid and overcome shame. If you do not persistently write and tell everyone about the project, the chance of finding an investor tends to zero. The main thing is to wait for that one "yes" to 99 "no".

The hardest part is finding the first investors. Then word of mouth operates. Investors communicate with each other, discuss projects. If your idea or product is cool, you already have the support of the first business angel, the rest will gradually catch up.

What is important to remember

• Weigh the pros and cons before looking for a business angel. Make sure that the cons of cooperation do not outweigh the pros.
• Chat more about business. You can never know in advance who will be ready to invest in your business.
• Finding a business angel is a big job, on which a lot depends.