When entering the entrepreneurial ecosystem and considering the search for external funding, one of the terms that emerges and is constantly repeated is that of 'business angel' or 'angel'. But, exactly What is a business angel? These figures are very important in the life cycle of many startups because they trust them and support them financially from their earliest moments.. They usually support them when they are in the initial stages of their life cycle, such as the seed phase or the start-up phase. Another characteristic that defines what a business angel is is their way of acting. This capital-side representative puts his own money on the table, he is not managing the money of others. In Spain, many of these figures are associated with AEBAN (the Spanish Association of Business Angels). According to this association, A business angel can be defined as “an individual who makes his own investment decisions and who contributes his own money, and sometimes his time, to unlisted companies promoted by people who are strangers to him.” The business angel not only usually provides funds, but also takes an active part to lend a hand to entrepreneurs with their contacts or guide them thanks to their extensive knowledge in the world of startups. Obviously, he doesn't do it out of love for art. A business angel is still an investor who at some point will want to recover the money he has invested. In many cases, these are companies with which they have a certain feeling with the co-founders, although their criteria for 'loosening their pocket' are usually very personal or subjective. There are some who simply invest in a project because they like their sector or it matches a hobby they have.These characters generally operate independently, but they can also congregate in networks of business angels. AEBAN associates a total of 35 with headquarters in 11 autonomous communities and representing 2,000 investors. Prestigious business universities such as ESADE and IESE also have very active Business Angels networks and regularly hold investment forums in which they present startups to their member investors.
What is venture capital? How is it different from a business angel?
Do not confuse the business angel with other figures in the investment and venture capital world, such as venture capital (VC). What is venture capital? These are companies that seek to participate in the future profits of emerging companies (between 25-30%) and support them economically in their growth phase. The main difference is that they are not used to investing in the early stages of startups, where business angels do take sides. So to speak, while these professionals are 'throwing themselves more into the pool' with companies that have not yet found their business model, have not yet acquired many clients or perhaps have not earned income, venture capitalists need more KPIs to invest in startups, minimizing their risk. This leads them to invest in startups that are at a more advanced stage and in which they can present more metrics or guarantees. Venture capital is made up of several partners who seek high returns and can be organized by funds that are launched from time to time until they run out. The most common thing is that this money is not your own, that is, it does not belong to the partners but to third parties. Therefore, they may be stricter or have less room to consider where and to whom to direct them. These funds tend to invest in several emerging companies in the hope that at least one will succeed. In other words, they are aware that some of their investments will go down the drain and others will not return too much. For this reason, they are looking for companies that are 'scalable', or that achieve rapid growth in a very short time. The economic contributions of venture capital usually give them the right to vote in the decisions of those companies in which they participate and a position on the board of directors. What they do share with the business angel is their objective of making a profit. Therefore, they can withdraw the capital of a project at any time (or divest) if they consider that it has already compensated them. However, a VC can enter when a startup is expanding to other markets, diversifying or starting to achieve good metrics or accompany it until it is acquired or goes public. More: Spanish venture capital expects a good investment year in 2020Do you want to start as a business angel?The profile of business angels in Spain
