When and how to contact angel investors
Business angels and venture capital provide capital and advice
In order to get start-up capital, the prospective entrepreneur does not necessarily have to turn to a bank or take advantage of a subsidy program. An interesting alternative are investments by business angels or by actors in the venture capital sector.
Financing of start-ups by participating investors
If founders and prospective entrepreneurs obtain financing through a bank, through grants and subsidies or through loans from their personal environment, then nothing really changes in their role as the responsible manager of their own company. There may be minor conditions associated with the financial commitment of individuals or institutions.
For example, it is possible that a financing bank would like to see business evaluations on a regular basis or insist that it be granted direct access to accounts receivable from customers. However, such donors play no role in the day-to-day decisions that have to be made in the company.
It looks different if you decide to finance venture capital or a business angel. These are concepts in which the donor participates directly in the target company and thus of course also has a certain amount of say and codetermination rights.
Venture capital creates capital, but it also means assigning rights
As a rule, such investments are made on the basis of a capital increase. The investor makes a certain amount available, which flows directly into the company's share capital. For this he receives a firmly agreed share in the company, the specific amount of which can be freely negotiated.
The future rights and obligations of the donor result from this participation and from any additional agreements made. Here it is possible, for example, that he has to agree to certain legal transactions or decisions or that he has a say in pending investments. In addition, he of course also has the option of selling his share.
This can lead to the founder suddenly being confronted with new partners who do not meet his expectations. There is, however, the possibility of minimizing this risk by working with a corresponding right of first refusal for the entrepreneur and thus giving him the opportunity to purchase the share for sale himself if he has the appropriate financial means .
Capital in connection with advice and action: a business angel as an opportunity
One speaks of a business angel whenever a wealthy person decides to invest their money privately in a company or a start-up project. Most business angels pursue a rather long-term strategy and are usually neither interested in short-term profits nor in quick sales of shares.
Instead, in many cases they want to be actively involved in business activities. The average duration of participation in the business angel is four to seven years. He is interested in investing in an ambitious company as early as possible in order to benefit from the highest possible profits.
The business angel himself is often an entrepreneur who has already left his active time behind him. In his role as a financier, he also sees himself as an experienced advisor and supports the entrepreneur with upcoming decisions or with regard to the basic strategic direction of the company. Business angels often make their own networks available in order to help the target company to find interesting strategic partnerships or new customers.
Hoping to be discovered is usually not enough
As you can easily imagine, it is not that easy to point a business angel about your own company and to recommend yourself there as a worthwhile and interesting target for investments. However, it is not purely a matter of luck to meet such a donor. Business angels are organized nationwide in their own networks and can be contacted directly and consciously in this way.
Founders and entrepreneurs looking for a business angel are strongly recommended that they work with a reliable and serious business plan and that they are able to present their project in a professional manner. The chances of convincing a business angel of your own project are only very good if these two requirements are met and the chemistry between the parties is right.
|„If your only goal is to get rich, you will never achieve it.”|
John D. Rockefeller
Venture capital - risk capital for innovative companies
One of the reasons why founders and prospective entrepreneurs find it difficult at first glance to get start-up capital for their project is the unpredictability of newcomers with regard to their actual chances of success. After all, anyone could go to a commercial bank, present a breathtaking concept for success and receive a large loan from the financial institution. As long as you are not yet in a position to have a really successful career as an independent entrepreneur, you are often met with a high level of mistrust.
This is exactly where so-called venture capital comes into play. This term can be translated as venture capital or venture capital and refers to a special form of financing for young companies. The financier consciously accepts the increased risk associated with investing in a very young company. In return, he tries to achieve a particularly high profit as part of this commitment and improves his profit chances by investing in several companies at the same time. In this way, he spreads the risk and can assume that at least part of his investments will be in the profit zone.
The greatest interest in venture capital is in companies that are active in very innovative areas and where one can assume that high profits will be achieved within a short period of time. Investments are usually made during the first growth phase. The size of the participation is seldom less than 50,000 euros and can be considerable.
The donors attach great importance to demanding a strong influence in the various target companies and sometimes also make resources, know-how or contacts available in order to improve the chances of success. During the investment period, the venture capitalist is not particularly interested in profit sharing or dividends. Instead, he aims for a high profit on the final sale of his shares at the end of the investment.
Tips and advice on the path to becoming the ideal investor
Granting an investor access to one's own company is fundamentally linked to granting the financier a certain degree of influence over the conduct of business. Anyone who is aware of this feature and who optimally deals with the associated restriction will find interesting potential with access to venture capital or business angels. The following tips will help you prepare adequately as to whether it is an option for you to give an investor access to your company. In addition, our advice ensures that you are aware of the advantages and risks of this form of financing.
Without a waiver of freedom, these models are not possible
A founder or entrepreneur who attaches great importance to his personal freedom and independence will hardly be able to get used to the idea of granting external investors access to his company and thus relinquishing part of the control over business processes.
It is very important that you are fully aware of the fact that people or institutions who want to participate in your company are pursuing their own goals and will act accordingly before making a corresponding commitment. This financing model can only be an interesting option if you are willing to give up part of your independence.
In contact with a business angel, the chemistry has to be right
The relationship between a business angel and a start-up project or company is based on the personal contact between the investor and the entrepreneur. This contact can only work if both parties treat each other with respect and are at least basically sympathetic. If, on the other hand, the chemistry between the sponsor and the founder is not right, serious disputes and disruptions can quickly arise.
These have a detrimental effect on the business relationship, destroy interesting synergies that could result from the connection and within a very short time lead to one of the parties trying hard to cancel the connection. It is therefore essential to ensure that there is a good understanding in discussions with potential investment partners.
Carefully review the goals of the investors
When a wealthy person or an investable institution participates in a company, this is generally done with a very specific objective. This can, for example, be based on the short-term realization of high entrepreneurial profits, the attempt to bring a target company to the stock exchange, the request to sell the acquired share as quickly as possible or from a desired expansion of your own strategic network consist.
For you as a founder and entrepreneur, it is of crucial importance to know the exact objectives of the potential financier as well as possible. After all, the investor's individual goals have a decisive influence on his medium and long-term behavior within your company. Do not rely solely on the statements and promises of the partners in question, but make your own inquiries and draw your own conclusions.
Clear conditions ensure relaxation
As in many other business matters, when it comes to the relationship between entrepreneurs and investors, clear and regulated relationships are a fundamental prerequisite for long and harmonious cooperation. The focus should always be on the highest possible degree of mutual openness. For you as a founder or entrepreneur, this means that you should be as open as possible with your individual wishes, needs and demands.
Don't be afraid to tell potential investors exactly what you want and what you expect from the cooperation. Remember that it doesn't make sense if you create an impression during the initial interview that you will not be able to fulfill in the longer term.
A long-term perspective is the guide for founders
When founders or entrepreneurs are in the situation that they have to look for an external investor, they are often worried about the longer-term goals that determine and control the behavior of the financier. However, out of suspicion about the intentions of potential partners, you shouldn't miss your own too longer term goals and perspectives to be clearly defined.
Do you want to enter into a long-term cooperation with the investor, do you expect long-term strategic advantages from the participation or are you just looking for a financier who will finance an upcoming development step for you at short notice and which you want to get rid of as soon as possible? Be sure to clarify your own goals and perspectives for yourself and make these the basis of your search for investors.
[Infographic] Business angels and incubators with venture capital
When it comes to greater financing needs, founders and prospective entrepreneurs rely on attracting professional investors. So-called incubators have specialized in investing in interesting start-ups at an early stage in order to benefit from strong growth in the short term. Alternatively, so-called business angels are also used. These are mostly experienced entrepreneurs who have fun and are interested in passing on their experience, knowledge and money to young companies and actively supporting them in the start-up phase. (Source: BVK statistics)
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