Angel

Business angels can be considered entrepreneurs who are very wealthy and provide capital in return for a share of the company. They pay out a lot of their own money in hopes that the business they give it to will be successful and use it to grow. They take high risk in order to hopefully own part of a flourishing company. There are certain amounts of money that business owners need but cannot obtain from traditional sources such as banks. If banks see the business as a risk, it will not provide the company with thousands of dollars in order to grow.

Where can you find business angels?

Business angels can be found in a variety of ways. However, many are informal associates to the business manager. Family members and personal friends provide great business angels for a growing company. There is a connection between these business owners and angels and as long as they have trust in the company, they will feel confident investing in it. Major suppliers and clients of the business also prove to be good business angels. They are willing to invest in the company because they experience its products and have confidence that their investment will result in a successful company and a valuable share.

If a company owner doesn’t have any informal connections that have the money or trust to invest in their company, they can find wealthy business angels from online sites. Some angels give their contact information to certain sites where companies can browse through and find a good investor. These business angels want to invest and gain a share in an up and coming company but instead of looking for the company themselves, they let the business owner come to them. Many angels use these networks in order to find the most interesting business opportunities.

Business angels are not necessarily the ones who invest thousands in big businesses. There are always stories told about the man who could have invested 100 dollars in order to help start up a multimillion-dollar company. He could be considered a business angel if he had invested in that small company.

What to look out for when dealing with business angels

There are various concerns business managers have with getting involved with a business angel. When a business gets money from a bank, the bank is content as long as they are repaid for the money they invested. Because the bank does not gain a share in the company, they are no longer concerned with the company after the investment is paid back. The problem with business angels is that they have a strong interest in the company because after they invest, the better the company does the more money the angel makes back. If the owners are not willing to develop a personal relationship with the business angel then problems do occur. Business angels want to have hands on involvement in the management of their investment. The business angel can possibly threaten the autonomy of the business and the manager. The angel feels that because they invested the money to allow the business to grow, then they should have a say in how it grows and where the company moves on from here. Although there can be strained relationships between the business owner and the business angel, this strong relationship can also be a positive for a growing company. A business angel who has a strong set of skills can be a great asset to the company. The angel could strengthen the company’s contacts, products, and income by offering marketing and sales experience. This information could be extremely valuable to the company and make a big difference in how much the angel makes back on his or her investment.

One problem angels face when investing in small businesses is that they may not see a return on their investment for numerous amounts of years. It could take several years for the business to grow and even longer because their return will be released in the form of capital gains.

Studies show that there are between 4,000 and 6,000 business angels in the UK and double that amount in the United States of America. In terms of returns, thirty-five per cent of business angels return five times their initial investment. Nine per cent of business angels return numbers of over ten times their initial investment.

In conclusion, there are many pros and cons of being a business angel. Especially during this time of economic struggle and instability, the market for business angels is extremely high but also very risky. The return of stability of the economic market will see a rise in bank investments and a drop in business angel investments. However, there will always be a need for angel investments in capitalist countries. Businesses will always need capital in order to get themselves off the ground. It takes money to make money and a business angel is the perfect person to give a company that money they need. At this current time, if you are interested in being a business angel for a relative or a friend, you may want wait for the economic environment to be less risky. Businesses and companies are experiencing large swings in growth and depressions and until the economy balances out, investing large quantities of money can be extremely risky. If you are confident in the business they are investing in then go for it. This is why informal business angels are so important for growing companies. Because the informal business angel trusts the company and the company owner, they are confident that they will get repaid on their investment. Just imagine if a friend wanted you to invest in their company. Would you be an angel for that friend? Or relative? It would be easier to keep track of your initial investment but like this article has stated, the relationship between the business manager and the business angel can be strained. Informal business angels are nervous to invest in order to keep their friendship intact.