What is a business angel?

A good fit for you?

Business angels are interested mainly in businesses during the startup and (rapid) growth stages. A business should preferably be innovative, for example by offering a new product or service, or have the competitive advantage required. Another requirement is growth potential, and businesses must be able to start generating high revenues and large profits within several years. Preferably the business will have the legal structure of a private limited company (bv).

If your business fits this description then a business angel might be right for you. Investors generally prefer businesses located in their own geographic area, so if you are looking for an investor, you have the most chance of finding one in your own area.

Loan or shares

The investment by a business angel may take on the form of a loan, an investment in shares, or a combination of both. The loan is often subordinated to other loans. You pay back the business angel only when your other loans are repaid. A loan can be convertible. That means the loan can be converted into shares in your company. The investor can also buy shares in your company directly. The business angel then becomes a co-owner of your company and shares in the profits.

A business angel usually invests in companies with an unpredictable future. The investment is a form of risk capital or venture capital. Is the company they invest in successful? Then they make a profit. Does it go wrong? Then they lose their money.

Engagement and return on investment

Financial returns are an important criterion for business angels in deciding whether they will keep investing. In addition to this financial incentive, this person has an additional reason for investing in businesses. This person sees supporting businesses and turning businesses into a success as a challenge. They will use their knowledge, experience, and network for your benefit. You should therefore be open to the advice and support business angels can offer you. 

It is important that you get along with business angels on a personal level, since you will be making decisions together. Set clear rules for the level of commitment involved and about how meetings will be organised. Make sure there is a good balance between the investor’s impact on your business and your own control. This way, you can prevent a situation where your business angel turns into a ‘business devil’. You will not want this person to acquire a majority stake or take over control of the business from you.

Investment amounts

Business angels invest amounts ranging from €50,000 to €750,000 and increasingly often invest as part of a group. The main benefits of this approach are greater financial strength, risk diversification, and sharing knowledge. If a group of business angels is involved, amounts may run up to €2 million.

Preparing your application

Are you hoping to attract a business angel as an investor in your business? Then make sure you have a detailed business plan and funding application. Also have your annual figures and use the Business Model Canvas. The Guide to working with business angels will help you establish  a good collaboration with your investor.

Enlisting help

Help increases your chances of obtaining financing, and with the right adviser and a good financial rationale, you will get your finance application approved in no time. These advisers will help you get started. If you have any questions, call the KVK Financing Desk on 0800 1014. 

Read the article on private equity for information on venture capital funds and Regional Development Corporations.