If at any time you have considered the possibility of creating a company or starting your business, surely you have heard the concept of angel investor.
In today’s business world, in which there is a growing trend to undertake and create companies, angel investors, who are people who offer part of their assets as capital to start a company, become highly relevant.
Contrary to what is believed, this group of people is not limited to putting the money and only expecting results. In fact, their participation brings experience, knowledge, contacts and other benefits, managing to make a fundamental difference to the success of the company in the short term.
Next, you will know more in detail what a angel investorhow it works, how it differs from other financing options, the advantages and cons of making it part of your venture, as well as the necessary preparation to get an angel investor.
What is an angel investor?
The term “angel investor” It was introduced by a professor at the University of New Hampshire in the 1970s to define those who are dedicated to financing start-ups.
However, in recent years these activities have been carried out in an organized manner, through investor networks.
Being an angel investor, or angel investment, is a recent trend among entrepreneurs and people with great wealth, who seek to invest money in projects that are just beginning, such as startups.
This type of investment establishes clear differences with respect to other typical forms of financing, such as those made with the help of family and friends, which are generally based on savings and with small amounts; or the famous venture capitalwhich use third-party funds and handle much higher amounts.
Keep in mind that this modality is not simply money that falls from the sky. Usually a angel investor He is an expert who carefully analyzes financing requests, taking into account elements such as management capacity, growth expectations and the confidence that entrepreneurs generate in him.
How does an angel investor operate?
To understand how a angel investorit is important to enter into context.
Thanks to the increasing access to information by the youths and the implementation of new technologies, there has been a renewed boom in new entrepreneurial projects.
Although efforts are being made in all sectors to support these projects, the reality reflects important challenges. The statistics show that only 10% of these enterprises manage to materialize, which supposes a high risk for that entrepreneur who decides to start his company.
In addition to this situation, the possibility for entrepreneurs to access a bank or government credit they are very limited. This means that the only option is: get investors to finance your project.
This is where angel investor networks dedicated exclusively to supporting projects that are starting up become highly relevant.
Participating investors have their own operating rules. The most obvious is that in order to access the support they provide, in return; they get involved in running the business.
The main figure that investors take is mentors, with the firm idea of ensuring that your project is successful in the short and long term. The angel investor prepares his entry, participation and withdrawal from the company.
It is worth mentioning that they are not business loans as we all know them, but funds that seek to boost the growth of your project or company, generating economic returns for investors.
Advantages and cons of this type of financing
As with other forms of financing, working with a angel investor It has their advantages and disadvantages. Knowing some of them will be useful to define if this is the model you need.
The main benefit is that these “angels” are willing to take risksand they will have no qualms about investing if they think your idea has potential.
In contrast, his performance expectations they are quite high. In simple words, they enter the business to make money, with rates of up to 10 times their initial investment. This can lead to strong pressure on the entrepreneur.
The second advantage is that, unlike bank loans, invested capital does not have to be repaid in case the business does not prosper. Some might even come up with a strategy if things don’t go well.
The downside here is that you will have to hand over a good part of the net proceeds, even if you were to sell the business. Besides, decisions will no longer depend exclusively on you.
Main networks of angel investors in Spain and Latin America
It is not very often that a angel investor work independently, they are usually part of a network that allows you to evaluate different business opportunities and choose ventures appropriate to your experience.
Although it is still an incipient activity in the Latin American market, this region has just over 50 active networks, but with a strong growth trend. The countries in which this practice is most promoted are Mexico, Colombia, Chile and Argentina.
According to one publication of the Multilateral Investment Fund, some of the angel investor networks The most important in Latin America are:
- IG and IAE Club (Argentina)
- DICTUC Angels and Chile Global Angels (Chile),
- Angel Investors Bavaria and Capitalia (Colombia);
- Fundación E, Angel Ventures, Guadalajara Investors Network and MTY Global Ventures (Mexico), among others.
In the case of Spain, we are talking about a much more consolidated activity, since its origins date back to 2003. The most important networks are grouped in the Spanish Association of Business Angels (AEBAN), which comprises more than 2,000 investors in 12 communities. autonomous.
Some of the most important networks in Spain are:
- Digital Assets Deployment,
- Ad Ventures,
- ESADE BAN,
- Xes Galicia,
- SeedRocket,
- IESE,
- First Tuestay,
- Crystal Ventures, among others.
Is it a good idea to work with an angel investor?
If you are an entrepreneur and you are thinking of seeking or accepting the intervention of a angel investor in your business, you must be clear about what that person’s contribution will be in addition to the money they will give to your business.
Evaluate their experience in commercial operations, if they have access to good suppliers or what their way of working is, to avoid possible conflicts in the future.
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How do I prepare to find an angel investor?
1. Plan your idea
To do so, you need to show that both you and your project have the key elements that are required to make it a profitable business in the long term.
You must convince investors why your idea is innovative and the skills you have developed that will help you grow your company exponentially.
2. Business plan
The initial idea about the direction of the business is a good start, but most investors are interested in the forecast numbers and the possible return on investment (as a percentage), to assess whether they should invest in your idea.
3. Clear communication
It is essential that from the beginning there are clear rules and assertive communication between investors and entrepreneur to avoid misunderstandings.
Remember that what is sought with this partnership is to ensure that everyone involved wins, and understand that everyone is “in the same boat”.
4. Find a group
To mitigate the risk that a single person invests in your venture, it is advisable that you look for networks of investors.
By having a greater number of people in the project, the amount to invest will be greater, as well as the ideas, remember that: “two heads are better than one”, now imagine if there are 3 or more investors.
Angel Investor Conclusion
The angel investors They are a very interesting financing alternative for all those entrepreneurs who cannot access loans from banking institutions or government support.
Angel investors will be in charge of acting as mentors and will support you throughout the process so that you can boost your business, and in return; They get high returns on their investment.
Big companies like Amazon, Facebook and Ford They started with angel investors, which tells us about the seriousness of these networks.
Before requesting support from a network of investors, correctly analyze the options you have in your country, the requirements to be able to request financing and apply the ideas embodied in this article so that your business idea is selected by angel investors.
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