Business Angels are usually private individuals who once built up a company themselves and now want to put their private money into exciting business ideas.
Consequently, they bring a certain know-how in business management with them and usually want to participate in your startup outside of financial support.
A Business Angel can therefore perhaps be compared to a “second-hand goods dealer”: He wants to actively support your company and also “take many matters and decisions into his own hands”.
The typical characteristics of a BA investment are therefore, in addition to their capital investment in your start-up, also their active support as well as the consulting of your startup.
In addition to the purely financial investment, the business angel also acts as a coach or business coach for your company.
But be careful: The right of co-determination of your business angel in important decisions of your company can, besides profiting from his business expertise and company experience, also lead to disputes in the design of your start-up.
An investment by a Business Angel can be made at a very early stage of your company and is financially on a smaller scale.
Business Angels usually become active with their investments shortly after or during the foundation, i.e. in a phase that is associated with a high dynamic in your young company.
This also shows the essential difference to a venture capital investment, which often only takes place in a later phase and then only consists of a purely financial, but often larger investment.
Business Angels often accompany you on your initial path from start-up to scale-up.
Ticket sizes of 50,000 to 500,000 euros are common, whereby the investment exit is usually targeted after 5 years.
Since the value creation of your company affects the active profit of the Business Angel, he is primarily interested in the growth of your start-up as well as in as much equity capital as possible.
Investing in your startup – which is in the early stages – is also very risky for the Business Angel. Therefore, the BA usually demands a very high return on investment (ROI) in return for his commitment.
Business Angels are additionally aware that a high percentage of their investment is completely lost if the companies they select fail. Therefore, they try to find companies that show a clear potential to increase their initial investment tenfold within five years.
However, due to the high risk and high percentage of lost capital, your Business Angel’s internal rate of return on a successful portfolio here can rise to around 20 to 30 percent.
Despite this high interest rate, the Business Angel investment is profitable and sustainably attractive for your startup, since less expensive sources of capital such as financing through conventional bank loans are not accessible for your startup in the founding phase.
But how widespread is financial support through the business angel business model?
There are around three million Business Angels in the USA.
In 2020, there are estimated to be around 10,000 business angels in Germany, with an upward trend.
Overall, however, it can be stated that business angel investments in Germany are relatively below average in international comparison.
In addition, Business Angels are often organized in networks. They serve as a contact point for companies seeking capital and put them in touch with suitable business angels. It is usually not the decision of a single person whether your start-up receives funding.
The following documents are therefore a prerequisite for a promising business angel contact: Teaser Pitch, Verbal Pitch, Full Pitch as well as Financial and Legal Overview.