Angels from heaven for Startups
As Fred Wainwright says, for many Business Angels, it is the emotional aspect that drives them to make investments: they love being able to coach others and the excitement of the rapid pace of business growth.
What does the Business Angel expect from the investment made?
The cautious Business Angel tends to diversify his investments both in listed securities and in shares of unlisted companies. In the latter case, apart from the emotional and philanthropic aspect, the aim is to make a profit.
If a new project goes well, it is very likely that within four to six years they will receive an offer to buy or float the shares on the stock exchange. In the latter case, profitability will be assured at considerable multiples of the investment made. It is true that the entrepreneur will be a participant in this, otherwise the objective of going public would be unattainable.
On rare occasions we have seen how Business Angel sought personal fulfilment and a desire for prominence in the project he was financing, which was unworthy of the figure. On these occasions, the investor acted more like an “enlightened person” who had clearly lost the focus of his participation and would ultimately cause the project to fail due to misplaced personal ambition. These are rare cases but they do exist.
The usual economic objective is to achieve a multiple of the investment made between 3 and 5 times over a period of between 5 and 8 years on average, which means a return of 24.6% and 22.3% (IRR) respectively, depending on the maturity of the project when the business angel makes its investment. However, investment in so-called start-up projects does not usually exceed 10% of a typical investor’s portfolio.
Business Angel profile
To understand their objectives, we must know them perfectly. According to the Spanish newspaper Expansión, the Business Angel’s profile is as follows:
Over 45 years old. The age of “business angels” have been recently rising and are now being compared to USA investors. Currently, half of the investors ages are concentrated between 45-54 years and 22% are older than this.
Male gender. The percentage of men is over 10%. Many women are joining this group but still with smaller investments.
Professional profile. 23% are senior managers and 8% are middle management. 18% are founders or CEOs of other start-ups, 17% are consultants and 9% are professionals, such as doctors or lawyers.
Limited experience. The majority have a maximum of five years’ experience. Only 13% started investing before 2002, compared to 20% in the USA. This may be due to the continuous inflow of new investors, but some voices also denounce a certain “amateurism”.