What is a business angel?
- Alicia Heeger
- 15 Jun 2023
- Edited 13 Dec 2022
- 1 min
- Managing and growing
A business angel is someone who invests in businesses for commercial reasons, with the intention to make a profit. Since business angels are themselves former business owners, they are well positioned to assist and support you.
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. Investors generally prefer businesses located in their own geographic area, so if you are personally looking for an investor, you stand the greatest chance you will find one in your own area.
Loan or shares
The investment by a business angel may take on the form of a (convertible) subordinated loan, an investment in shares, or a combination of both. The investments made by business angels are a form of risk capital. Business angels usually focus on businesses with the legal form ‘besloten vennootschap’ (private limited company). If the business in which they invest is successful, they make a profit; if the business fails, 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.
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
To help you while preparing your funding application, you should use a business plan, annual results, and the Business Model Canvas.
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. Also watch the video Financing your business. The video explains how to get financing for your business and the steps you need to take to do so.