What is a Business Angel?

 As defined by the General-Directorate of SME Policy, the Business Angel is a natural person with extensive knowledge about certain sectors, and with financial capacity for investment, who promotes the development of business projects with high growth potential in their early stages of life, providing capital and added value to management. Unlike the traditional investor, the business angel is involved in the management of the company. 

According to the mentioned source, their main characteristics are the following: 

  • They invest their own money. 
  • They invest in the initial stage of a company’s life. 
  • Their motivations may be other than strictly financial (such as professional satisfaction, family ties, etc.). 
  • They only invest in areas close to their place of residence. 
  • The amounts invested are much lower than the average amount invested by Venture Capital entities in each operation. 
  • Disinvestment is usually slower than in the case of Venture Capital investors. 
  • Profitability is generally lower than the obtained by Venture Capital entities. 
  • Business angels not only finance the creation but also supervise the development of business initiatives. 

      According to other authors, a business angel is an investor with a comfortable economic situation and a hint of philanthropy who supports business initiatives with his own capital and sometimes with his knowledge and advice both at the launch of the project and in crisis situations. 

      Other authors define it as the “providential investor” who helps in the launching of the business project or solves a critical situation of a company with a promising future but lack of financial and/or human capital. 

      For other authors, business angels are informal venture capitalists who fill the gap between “friends and family” and venture capital firms. 

      According to Fred Wainwright (Diario Expansión 19-Sep-2003), ‘’the approximate number of private investors in the US and Europe varies because no registration is required. But the power of these angels lies in the number of companies they finance. Some studies indicate that private investors invest between 10 and 20 times more than venture capital companies”. 

      He explained that the first rounds of business angels (where there are several investors) normally start at $ 250,000 – far below the amount offered by venture capital funds, which prefer rounds of a minimum of $ 2 million. 

      Other studies indicate that business angels as individual investors make an average outlay amounting between EUR 45,000 and 80,000, which does not contradict the previous figure that groups together several investors, and respond to a profile of successful entrepreneurs who, in addition to investing their own money, are involved in management.