Meaning of Business Angel Part I

Any potential company founder can use help. Mainly in financial terms, of course, but also in the form of competent advice, know-how and valuable and useful business contacts. This is where a business angel (BA) comes in ; he is an experienced entrepreneur and advises young start-ups.

Definition: what are business angels?

A business angel is an experienced entrepreneur who can help founders to succeed. This person usually holds shares in various companies and thus supports the young companies financially. So he acts as a kind of patron and mentor at the same time. Because at the same time the corporate angel advises the companies and provides them with the necessary know-how and necessary contacts. The Business Angel provides the young companies and start-ups with their own network with contacts at a very early stage. The activity of the business angel relates to

  • Financial support
  • Participation in the financing plan
  • Support in the conception and drafting of business plans
  • Support with the necessary know-how
  • Brokerage of contacts

The business angel is usually a successful founder who has received capital through the sale or IPO of his company. This capital, which is liquid through the sale or IPO of his own start-up, needs to be invested. He or she can introduce it to young companies and at the same time provide them with know-how. A business angel can also be a senior executive with many years of experience in management who has sufficient know-how and contacts. The bond with the supported company is even more intense. The business angel does not provide his help altruistically, because he benefits from the success of the young companies, as he is financially involved in it and shares in the profits. How high the support is and when the patron wants to monetize his share of the success,

The corporate angel usually grants a few years in which no income or royalties have to be paid out to him. So the start-up should get a quiet start phase and be able to work with the money in peace. After this “grace period”, however, the mentors also want to have their share of the company’s success. How the success bonus is paid out to the money and know-how provider is of course also decided by the type of company . If it is an AG , shares are common. Other companies pay out book salaries or interest the capital employed at an agreed rate. This can be double-digit.

What does a business angel do?

According to Homethodology, the Business Angel advises start-ups in the start-up phase and young entrepreneurs in the start-up phase, while at the same time investing venture capital in the founder’s business idea. He helps young companies to get off to a successful start with financial means and by arranging contacts. Starting a business and running a business are associated with considerable risks for the young entrepreneur. The business angel has extensive industry knowledge and numerous contacts in the relevant economic market. He can assess the risks of starting a business and supports start-ups with their business idea. The business angel can only help if there is a chance of success. It contributes significantly to the success of young companies.

Therefore, the work of the business angel with his protégé begins at an early stage, namely when advising and developing an innovative business idea . Thanks to their specialist knowledge, a business angel can differentiate between good and bad ideas and help start-ups to develop ideas with good growth prospects. Only then does it pay off for the business angel to invest in the company.

Every company also needs a business plan to start with. Here, too, a business angel lends a helping hand to the protégés. A business angel has the necessary experience to work out such a plan with realistic figures and to make it appealing. Also, it is in his own interest to know the numbers in order to plan his funding. If necessary, the company still has to take out a loan from the bank, for which the business plan must also be submitted.

Start-ups are usually highly motivated and their founders have various qualifications. At least it would be helpful if they brought not only capital but also specialist knowledge with them. Here, too, the business angel comes into play, as he can encourage and coach new entrepreneurs accordingly and pass on his know-how. Perhaps he will also make recommendations as to which qualified employees need to be brought on board. His good contacts in the industry help him further.

Business Angel 1