What is a business angel?

How does financing through a business angel work?

A business angel invests in your business. This can be done by purchasing shares or through a loan. A combination of shares and a loan is also possible.

Shares

When a business angel invests money through shares, the investor buys shares in your business. The busisess angel then becomes a co-owner of your business and shares in its profits from then on. The investor then also gets a say in your business. This means that the investor is allowed to make decisions.

Loan

A business angel can also give you a loan. You can subordinate this loan to other loans. This means that you pay back the business angel only after your other loans have been repaid. Subordination can help you attract other loans. A loan can also be convertible. That means you can convert the loan into shares in your business.

Why use a business angel?

A business angel usually invests in businesses with growth potential, but it is not always certain that this growth will be achieved. So you can use private investors if you want to grow your business or launch a new product, for example.
Business angels are willing to invest money in innovative companies. Of course, there is no guarantee that the companies will actually achieve growth.

The investment is a form of venture capital. Is the business they invest in successful? Then they make a profit. Does it go wrong? Then they lose their money.

Cost

A business angel expects a high return on their investment. In other words, they want the investment to make money. A business angel who has bought shares in your business will want to be bought out after a few years at the share value at that time. Have you received a loan? Then you pay the agreed interest and repay the loan according to the agreed schedule.

Term and flexibility

A business angel often invests for the medium term, around 5 to 10 years.

Who is a business angel interesting for?

Business angels are mainly interested in businesses with a new idea or businesses in the (rapid) growth phase. They must be able to grow to a higher turnover and profit within a few years. Business angels often prefer businesses in the sector in which they themselves have been active or in their own region. So, does your business have growth potential? Then you can start looking for a private investor.

How do you find a business angel?

Business angels do not advertise their risk capital. You can often find a business angel through your own network or through a recognised SME finance advisor. Would you like to attract a business angel as an investor in your business? Then make sure you have a detailed business plan and financing application. Use the step-by-step guide to working with a business angel as a tool. This will help you establish a good working relationship with your investor.

What does a business angel want to know about you?

A business angel wants a return on their investment. That is why the investor wants to know how your business will make a profit and how it will grow. So, you should draw up a business plan with a sound financial basis. The plan should contain information about your product or service, your market strategy and financial forecasts. You should also indicate where the growth potential lies and when you expect this growth to occur.

Tips

A business angel will invest in your business if it sees that the company is making a profit or is going to grow. The investor wants to help you make your business successful. The investor puts its own knowledge, experience, and network to work for you. Check whether the experience and network of the business angel suits your company and be open to the advice and guidance of a business angel.

A personal and business click between you and the business angel is necessary. As is mutual trust. After all, you will be making decisions together. For example, do you have the same vision for growing the business? And do you tell each other everything about all things in the business? Make good agreements about the role, expectations, and control of the investor and set them out on paper.

Help with business financing

KVK’s Financing Guide helps you find your way in financing your business. Do you still have questions? Call the helpline on 088 585 11 11 or ask an expert.