Business Angels (Angel investors) are private individuals who invest their own capital in young, growth-oriented companies. They often have entrepreneurial experience and also support start-ups by providing specialist knowledge, strategic feedback and access to their professional network.
They can be an important source of funding, particularly in the early stages of a business. This is because many start-ups initially generate only modest turnover and therefore have limited access to traditional bank loans.
What roles do business angels take on?
Business angels do not merely provide financial backing to a start-up. Depending on their experience and the terms of the agreement, they may also support the start-up’s development.
Typical posts include:
- Start-up capital: Funding for product development, market entry or initial growth initiatives
- Mentoring: Sharing business experience and providing support with important decisions
- Industry knowledge: Assessment of markets, competitors and business models
- Network: Contacts with potential customers, companies and other investors
- Strategic support: Feedback on sales, organisation and business development
- Fundraising: Preparing for future funding rounds and establishing contacts with further investors
However, the level of involvement varies from person to person. Some take a very active role in their investments, whilst others mainly provide capital.
How does a business angel investment work?
As a rule, angel investors invest their own capital in a start-up. In return, they receive, for example, shares in the company and thus share in its financial success or failure.
Before making an investment, they often assess the business model, the founding team, the market and the potential for growth.
A typical procedure involves the following steps:
- How to get in touch: The start-up presents its business idea and its funding requirements.
- Getting to know each other: Both sides check whether their expectations and objectives are aligned.
- Company audit: Prospective investors analyse the relevant economic and legal aspects.
- Hearing: The level of investment, the valuation of the company and other terms and conditions will be agreed.
- Investment: Once the necessary agreements have been finalised, the funding will be provided.
As this investment involves significant risks, there is no guarantee of a return on investment.
Example: Financing a B2B tech start-up
A start-up is developing software for automated quality control in industrial companies.
The team has already developed a working prototype, but needs additional funding for initial pilot projects and to set up its sales organisation.
An experienced angel investor is investing 100,000 euros in the company.
As well as providing capital, the individual brings contacts with industrial companies to the table and supports the founding team in further developing its sales strategy.
In this way, the start-up not only receives funding, but also gains access to valuable business expertise.
What is the difference between business angels and venture capital?
Both forms of financing provide start-ups with venture capital. However, they often differ in terms of the source of capital, the volume of investment and their organisational structure.
| Business Angels | Venture capital funds |
|---|---|
| Investing mainly their own capital | Investing, as a rule, a fund’s capital |
| Often active in the very early stages of a business’s development | Investing at different stages of development |
| They often draw on their personal experience and contacts | Often offer institutional expertise and networks |
| They usually make decisions independently | Consequences of typically defined fund strategies |
The distinctions are not always clear-cut. For example, both groups of investors may participate jointly in a funding round.
You can find out more about the various options in the innoWerft article Looking for an early-stage investor? We’ll tell you who’s the right fit for you!.
What advantages and risks should start-ups bear in mind?
The combination of capital, expertise and contacts is often described as Smart Money referred to as.
This support can be particularly valuable for start-ups when they have to make major business decisions for the first time.
However, when raising equity capital, founders give up a stake in the company. Furthermore, investors may be granted certain rights to information or a say in the company’s affairs.
Start-ups should therefore carefully assess whether the expectations, experience and objectives of investors are aligned with their own business strategy.
A good working relationship is just as important as the financial terms.
How do start-ups find suitable business angels?
Suitable investors can be found, for example, through investor networks, start-up events, accelerators and personal recommendations.
When reaching out, founders should prepare a compelling pitch deck and set out their funding requirements in a clear and transparent manner.
It is also advisable to look specifically for people who already have experience in your own sector or with the relevant business model.
After all, the right investor can contribute more to a company’s long-term development than a purely financial investment.
How can innoWerft help with this?
innoWerft supports founders in further developing their business models and funding strategies, as well as preparing for meetings with potential investors. Through coaching and its network of investors, start-ups can identify suitable contacts and plan key steps for their next funding round.
Frequently Asked Questions about Business Angels
What does ‘business angel’ mean in German?
The term refers to a private early-stage investor. It refers to a person who contributes their own capital – and often business experience as well – to start-ups.
How much money do business angels invest?
The amount invested depends on the individual, the start-up and the funding round. It can range from smaller five-figure sums to significantly higher amounts.
Do business angels receive shares in the company?
Often, yes. In the case of a direct equity investment, they receive shares in the company. However, other forms of financing are also possible, such as convertible loans.
Can several business angels invest together?
Yes. Several investors can participate in the same funding round as part of a co-investment or an investor syndicate.
innoWerft is an early-stage investor and accelerator based in Walldorf, supporting start-ups before or shortly after they are founded by providing capital, coaching and access to a network of investors and businesses to foster sustainable growth.
Would you like to take your start-up to the next level and find out more about innoWerft? Apply now for the Open Pitch.