Are the business angels the new patrons of this century?

Tuesday, 11 july 2017 | Redacción CEU

An entrepreneur may have the idea, a good plan, even start it up, but will he have enough money to finance it? Betting on the own project is easy, but when it requires that someone searches for every last penny, everything gets complicated. Many of the big companies that we venerate today would not have gone ahead without the help of a risky investor. Roles like the business angels are essential so the ideas do not remain only in ideas.

What would be of the artistic production without the patrons! It was Cilnio Mecenas Cayo in Rome during the time of Augustus who gave name to this practice, due to the fame that he reached as protector of poets as distinguished as Horacio and Virgilio. At the beginning of the Middle Ages, the Church promoted the culture and, later in this historical period, patronage began to acquire an aristocratic and political nature. Over the course of the history, different collectives promote the work of artists, writers and scientists. Times have changed a lot. Now, the patrons of the XXI century fund companies under masks like crowdfunding, private equity, business angels or venture capital, among others.

The old patrons were what we would name risk investors today. The commitment of the artists to return the investment was minimal and, in some cases, it did not even exist. They were people who believed in a project, an idea or a person and assumed their financing to get in return enjoying this art, owning or exhibiting it. Today, projects, ideas and people still need financial support. If it were not for roles like small risk investors, many companies would not be able to stay afloat.

What are the business angels and how to find them?

The Spanish Association of Business Angels Networks (AEBAN) defines them as individuals who make their own investment decisions and who contribute with their own money, sometimes their time, to companies ran by people who do not belong to their immediate circle. It is so important, the role of these investors, that they were crucial for the creation of companies with such an importance like Amazon, Skype, Starbucks or Google. Like patrons, at the turn of the past century, business angels began funding artistic productions, in particular, Broadway theater performances. Although their origin is artistic, today, they manage 'like fish in the water' in the finance world and, above all, in the digital space.

Angels investors like to invest in startups. Probably, behind the person who conceives the idea, might be the people who believe the most in the project, so much that they are playing with their own money. Nobody makes the decision for them, they have no adviser to lead them. They do not even have any kinship or relationship with the entrepreneur. The entrepreneur's close circle –Family, Fools and Friends– may bet on the project because they know the person, but the business angels bet on the project because they believe in it. Precisely, money usually is not their main motivation, although of course it matters a lot.

Nowadays, and although its role is not as widespread as in the United States, business angels can be found through online platforms. One of the best ways to attract a business angel is to do networking. Another option, simpler, is using incubators –nascent companies– and accelerators –more consolidated companies– that can bring the entrepreneur in contact with these investors.

How to get funding?

When starting a project one of the problems that causes more headaches to entrepreneurs is to find the necessary financing to carry out their project. When the company has a track record, it is easier to attract investors as a private equity. But betting on a project from scratch is not easy. The solution: looking for an angel investor that finances the project.

There is no need to get excited, in Spain the entrepreneur faces a financing strip between 250,000 euros and a million in which it is very difficult to find an investor, it is known as the effect of "equity gap". Business angels do not want, or can take on, that capital, and for venture capital firms it is a very small investment –they tend to work from three million and are increasingly limited to investing in larger amounts of money–. Furthermore, the bank financing in this stage that has an absence of guarantees, is not usually suitable either.

Even so, and despite this problem, some brave patrons risk investing in this range. It should also be said that most entrepreneurs do not need such a high figure to start up a project. Angel investors become the life vest of new entrepreneurs, assume the lack of guarantees and take the risk, because they believe in their project.

How to convince a business angel to invest?

Any company of new creation and scalable projection can be considered a startup. It is also true that this word is used to name technological companies –the most suggestive for the angel investors–. These incipient companies need an entrepreneurial spirit to guide them. It is not the same to be a businessman, that an entrepreneur. Being at the head of a project and carrying it out requires a lot of effort and also having to be prepared to face a possible failure. Being an entrepreneur is not easy, but it is the "secret ingredient" that a project needs to prosper. But, what is a business angel looking for?

Entrepreneurs willing to invest

It seems obvious but it is necessary. If entrepreneurs are not willing to invest the money in their own idea, how are they going to convince a mediator to do it? They need to get involved.

Something else than just an idea

Ideas are not everything. It is necessary to design a project that have a sense and purpose, study the target market and build a solid project.

Someone who likes to talk about his/her idea

It is common to hear that the entrepreneur does not want to tell his/her idea because someone can steal it. The way so that idea can take shape is precisely that, introducing it. Convincing an angel investor requires being willing to talk.

A good economic manager as ally

A business angel needs to know that his/her money will be managed effectively.

You have to know what you are talking about

Nobody invests if they do not believe what they hear. You have to be convincing and get to know the environment in which you intend to work.

Having the passion and being on time with the project

A business angel wants commitment. The idea of starting a project and quickly selling it to a third party is not attractive.

The idea must fill a need

It is an indispensable requirement to guarantee the success of the project.

Being willing to share the project

Do not be afraid of participation and shareholders. It is one of the great fears of new entrepreneurs, but the synergy can generate very positive results. Sharing does not mean losing.

Becoming an entrepreneur is a lonely trip and finding help along the way is very comforting. Opening doors to fellow travelers like business angels can become a great idea.

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