A Business Angel (BA), and corporate angels or angel investor called, is someone who is financially on companies involved and at the same time entrepreneurs with expertise and contacts supported in a typically very early stage. Most of these are successful founders who bring capital and know-how to young companies after the sale or IPO of their former company, or experienced entrepreneurs or executives who have more management due to their long career-Experience and contacts as the founders of the managed companies themselves.
A founding angel (FA) is an angel investor who, in comparison to a BA, is involved in start-up projects before the company is founded and usually acts as a co-founder when the company is founded. In a later phase, he invests in these companies like a business angel.
The typical characteristics of a BA participation are the capital investments (2008 averaging 100,000 euros) and their smart capital character, as well as advice. In addition to the purely financial investment, the business angel also acts as a coach or business coach .
Projected, the annual volume of business angel investments in the USA in 2007 was 25 to 50 billion US dollars, in Germany around 400 million euros.
There are around three million business angels in the United States. In 2014 a study by the Center for European Economic Research estimated around 7,500 business angels in Germany with an upward trend.
Overall, it can be said that BA investments in Germany “measured against German economic output are below average in an international comparison”.
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 level of dynamism in the young company . This shows the main 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 are often organized in networks . In Germany there are around 40 networks, many of which are regional. They serve as a point of contact for companies looking for capital and establish contact with suitable corporate angels. A business plan or presentation is usually required for initial contact . There are no certificates or standards for these networks e.g. B. about the sensitive handling of ideas and strategies within the network.
In order to address the largest possible group of people interested in starting a business, business angel networks usually hold business plan competitions, which are accompanied by seminars. Business angels and those interested in founding a company have the opportunity to get to know one another and convince one another. The seminar contents mostly include the basics of generating ideas and strategy as well as the formal requirements for creating a promising business plan. Essential prerequisites for a BA participation are local proximity and a solid relationship of trust between the entrepreneur and business angel.
Profile of business angel investments
Business angels' investments are very risky. In return for their commitment, the business angel usually demands a very high return on investment . As a high percentage of these investments are completely lost if the start-up companies fail, professional BAs try to find companies that have the potential to make the initial investment within five years (especially with the help of exit scenarios such as an IPO or a company takeover) to tenfold. Due to the high risk and the high percentage of capital lost, the internal rate of return for a successful portfolio drops to around 20 to 30 percent. In spite of the high interest rate, the business angel capital is attractive to the recipients of the capital, as cheaper sources of capital such as B. the financing through traditional bank loans are not accessible for the young companies in the start-up phase.
- Günther, Ute / Kirchhof, Roland (Ed.): Guide for Business Angels. Business Angels Network Germany e. V. (BAND) in cooperation with VentureCapital Magazin , Munich 2012, ISBN 978-3-943021-33-2 .
- Thomas Raueiser: Syndication strategies of business angels . Eul, Lohmar and Köln 2007, ISBN 3-89936-593-3 .
- Matthias Wallisch: The informal private equity market in Germany. Framework conditions, networks and spatial investment patterns . Herbert Utz, Munich 2009, ISBN 978-3-8316-0875-1 .
- Lucas Manz, Gunter Festel, Christian Rammer, Pascal Gantenbein: Technology investments by business and founding angels in Switzerland . In: M&A Review . September 2015, p. 327-331 .
- Understanding the Nature and Impact of the business angels in Funding Research and Innovation (PDF) business-angels.de, December 2017, p. 21; accessed on September 12, 2018
- Evaluation of the “INVEST - Grant for Venture Capital” funding program . (PDF) zew.de, project report by the Federal Ministry for Economic Affairs and Energy , June 16, 2016, p. 61; accessed on September 12, 2018