Who are “business angels”? A business angel is a private investor in innovative startups in the early stages of development. Searching for a business angel in the high-tech field.

Of course, my acquaintance at breakfast emphasizes that this set of rules is his personal one, it is not the absolute truth and not a guide to action. He even jokes: “Perhaps I’m just another crazy person who believes in startups and new ideas, but this is the beauty of the spirit of Silicon Valley, and therefore I am more than confident: every project is able to find its investor, the only question is perseverance.” .

Business angels are private investors who provide financing and support to start-up businesses. As a rule, business angels are fairly wealthy people who have their own entrepreneurial or industry-specific experience. They offer various forms of financing and support for new businesses at various stages of formation and development, but most often at the stages of the “incubation period” (seed) or at the start-up stage.

The history of the origin of the term “business angel”

The term comes from "theater angels", who were private investors who provided the seed capital needed to launch a new theatrical production on Broadway in New York. In return, they received a share of the proceeds from the production.

An Organization for Economic Co-operation and Development (OECD) report on financing high-growth companies highlights the important role played by business angels.

Today, business angels are the main source of funding that helps bridge the gap between the initial stage of development of a business project and, accordingly, the initial capital (usually less than $25,000) and the point at which formal venture capital funds become interested in the business (as a rule, these are amounts over 3-5 million US dollars).

Another OECD report highlights new trends in financing for small and medium-sized enterprises (SMEs). It showed that the global financial crisis of 2008 had a serious impact on this area.

Bankruptcy rates have increased significantly and there has been a serious decline in the availability of bank financing. While large firms were able to secure financing through means such as bond markets, most SMEs were limited in their ability to obtain funds from banks.

There is also a "dramatic decline" in the growth of venture capital funding between 2008 and 2010.

And at this time, financial support for SMEs by business angels became especially important.

Although business angels are potentially important, very little data is available on them.

This is partly due to the informal nature of their investment practices, as well as the fact that they prefer to keep their investment activities private.

Portrait of a business angel today

There is relatively little research on the phenomenon of business angels. The definition of "business angel" remains unclear, and the terms "business angel", "informal investor" and "informal venture capital" are used interchangeably.

In an interesting article on angel investors published in Strategic Change, Veland Ramadani notes that in the early years, companies such as Bell Telephone, Ford Motor Corporation, Apple Computers, the Body Shop, and Amazon had angel funding.

The typical business angel is a middle-aged man with a high school education and professional experience. Most of them have experience working in their own companies or managing enterprises and organizations. They also have high personal value.

Regarding the amounts invested. It has already been said that basically business angels fill the gap between the owner’s own capital - up to $25,000 - and the moment when it becomes interesting to venture capital or bank financing - from $3 to $5 million.

For example, studies conducted in Australia show this profile. The average Australian angel investor is a middle-aged man with a personal net worth of around US$2 million and an annual income of over US$180,000. They invest an average of $200,000 in new business ventures and retain between 10% and 14% equity in these ventures.

The feature that sets angel investors apart from more formal venture capital investors is the personal nature of their investments. Business angels invest their own money and therefore take on greater personal investment risks than venture capital fund managers.

An interesting touch to the portrait of a business angel in the West. They tend to invest close to home, with most investing in businesses that are located in their local community, usually within a 1-2 hour drive from their home.

Business angels also prefer to invest in private business ventures that have not yet gone public on the stock market.

The high risk of their investment is fraught with potential failure. Typically, they invest 5% to 15% of their assets in new ventures and aim to earn a return of 20% to 30% on their investment.

Motivation of business angels

A study published in the Journal of Business Venturing says that angel investors rely more on the entrepreneur's individual characteristics when making investment decisions. Entrepreneurs who exhibit a high level of passion for their venture may receive more favorable treatment from an angel investor.

However, the study also suggests that differences can be found depending on whether the angel investor is older or younger (older people are more likely to view passion favorably), and their level of creativity or intellectual potential.

Therefore, entrepreneurs seeking to impress a business angel investor must, as they say, be “on fire” with their idea.

Here we come to the classification of business angels based on their investment motivation. Knowing an investor's motivations is key to a healthy working relationship that can last for decades.

• Family investor. Their motivation stems from an interest in supporting a family member or friend.
• Relationship investor. The investor is an employee from a previous company or a business friend you know well. This investor may or may not understand what your new company does, but has a successful track record of working with you.
• An investor in an idea. He is very familiar with where your company is targeting. This is the best type of angel because this person supports your idea.
• An investor who has a personal or professional relationship with a relationship investor or an idea investor.
• An “archangel” investor can be either a relationship investor or an idea investor who has the ability and successful track record of attracting money from other angels (and possibly non-angels). They have created a successful company in the same sector or have strong personal contacts with other investors.

They typically review proposals based on eight broad criteria.

The first four of these include the market's readiness to accept the new product, the stage of development of the new product, how intellectual property is protected, and how likely customers are to accept the innovation.

The other four factors are the path to market for the business model, the market's potential for growth, the relevant experience of the management team within the enterprise, and the soundness of the financial modeling.

Most business angels maintain their investment in a young company for about 4 years. They typically seek to exit their deals through sales rather than IPOs.

Compared to formal venture capital fund managers, angel investors make fewer investments when money is lost, but they often make a significantly higher proportion of investments that either only break even or generate very modest returns.

Also, the fundamental difference between business angels and banking organizations and venture investors is that they invest exclusively their own capital in new projects.

What benefits do business angels provide to companies?

They tend to be very helpful in bridging funding gaps for fast-growing small firms, especially during the incubation or start-up stages of the business. The main contribution is their ability to bridge the gap between initial capital and later investments.

They also help the management of such companies gain knowledge and experience. In addition, angels have been useful in their ability to facilitate outreach and networking, especially when a firm needs to provide additional capital and follow-on financing.

From the point of view of becoming a business angel, they can be classified:

1. Typical angels are entrepreneurs with extensive business experience who run their own companies. Their capital accumulated throughout their careers. They serve as valuable mentors and advisors to the firms they fund.
2. Trendy angels. They have less experience than typical angels, but invest heavily in the latest developments in modern technology. Monitor the emergence of technological innovations on the market. As a rule, they prefer not to take an active part in the management of companies that are financed.
3. Corporate angels. Executives of large corporations who were laid off or retired early. While profitability of their investments is their goal, they also seek personal motivation when investing. Many of them invest in one company and seek a paid position within it, which is often part of a business deal.
4. Angel Entrepreneurs. Successful investors who own and operate their own businesses. Their steady stream of income gives them the ability to make riskier investments, but also provide more cash for aspiring businessmen. They rarely actively participate in the management of a new company.
5. Angel enthusiasts. These investors are typically older businessmen (65 years or older) who invest small amounts of money in many different businesses and view investing as a hobby.
6. Angel of angels. They can finance a serious project of another business angel. They often demand a seat on the board of directors, but rarely seek an active management role.
7. Professional angels. They work professionally as doctors, lawyers, accountants, etc. and invest in companies in a related field. To help a young enterprise, they can provide their professional services at a reduced rate or even free of charge. Professional angels have enormous value in obtaining initial capital and rarely make follow-up investments.

Let's not forget about the other side of the business angel phenomenon. Sometimes it happens that the motivation for investing is to take possession of an idea, know-how, business, etc. Therefore, taking into account all the risks of attracting third-party capital should be an integral part of the process of finding financing.

Business angels in Russia

There is no doubt that such a trend in business technologies could not help but appear in Russia.

In the last few years, both associations of business angels and brave individuals have emerged.

Among the associations we note:

• National Association of Business Angels (NABA). NABA has been a member of the European Business Angels Association since 2011;
• Russian Association of Business Angels;
• Association of Business Angels of Siberia;
• AddVenture Business Angels Fund.

But, as in the West, these associations are more information, advisory and educational organizations. The real investments are made by individual investors.

According to statistics, the main investments of Russian business angels are made in Internet technology projects, mobile applications, telecommunications, and IT.

Investment volumes range from 20 to 300 thousand dollars.

Based on the results of 2017, among the most active business angels playing in the Russian business field are:

• Alexandra Rumyantseva - 30 transactions from 8 to 51 thousand dollars;
• Vitaly Polekhin (NABA) - 10 transactions from 50 to 150 thousand dollars;
• Sergei Dashkov - 10 transactions, each for an average of 150 thousand dollars;
• Andrey Golovin - 7 transactions from 7 to 12 thousand dollars.

Of course, the Russian experience has its own characteristics.

In exchange for his investment, the angel receives a share in the newly created company. In Russian realities, this part reaches 80-90%. While in the West this share is much smaller.

This is explained by the high risks in the Russian market, undeveloped investment technology, and tax features. Although regarding the latter, in the information disseminated by the Government, there are plans to stimulate business angels with various tax benefits and deductions. In 2018, these benefits should be included in the tax code.

TOP 15 most active angels in Russia. With the support of RVC, NABA and the business newspaper RBC daily

There is no single definition of business angels, which in itself creates difficulties in understanding who ultimately is an angel and who is not. The fact is that quite a large number of people invest in the projects of technology entrepreneurs. When making the TOP 15, we proceeded from the following definition: business angels (or angels)– these are professional single venture investors for whom supporting innovative companies is one of their main activities and whose goal is to make a profit. Thus, business angels should not be put on the same level as investing entrepreneurs who are not focused on supporting start-up businesses, but do it from time to time. It is also necessary to separate angels and private investors who invest not only in hi-tech, but also in many other assets, as well as non-professional investors who invest chaotically, inconsistently and without a certain logic. In our understanding, a business angel is, in fact, a venture fund of one person (it is interesting that some well-known angels are now eventually forming their own funds, introducing their projects into them).

Important comments for correct reading of the TOP-15.

1. TOP is in no way a ranking of the best angels (this formulation is not correct in itself). This is a selection of the most active in the public sphere for the specified period (that is, two years), an attempt to show the most active market participants with the aim of, among other things, popularizing venture investing.

2. The TOP 15 is a media product and not a scientific study, so we ask that you treat it as such.

3. The criterion according to which we built the list is the number of invested projects over the past two years. We understand that this is a very conditional metric of angel activity (the main one is, of course, return on investment), but it is the most transparent and explicit indicator, and in this case it is used only to add internal logic to the list. At the same time, we provide maximum information for each investor so that the reader can independently evaluate the most important criteria.

4. We understand that all the information we collected and verified has assumptions: not all transactions become public, not all angels are ready to share this information (according to the Evaluation of EU Member State Business Angel Markets and Policies-2012 report, the share of “visible” to the market business angels in various European countries range from 4-5% to 100% of the real number of investors). In the same way, they can overestimate or, on the contrary, underestimate the size of their investments. Thus, we understand that information from any sources cannot save the picture of the Russian business angel investment market from distortions. Of course, we tried to minimize these risks and relied on both research and public information*, as well as data received from the angels themselves (and their answers were carefully verified).

5. For the purity of the study, we excluded the so-called private investors and investing entrepreneurs, who for the most part do not consider themselves angels (such as the founder of the Ashmanov and Partners company, Igor Ashmanov, who quite actively invests money in new projects). It is interesting, by the way, that many private investors, who, according to formal criteria, could be classified as angels, do not consider themselves such (like, for example, the famous entrepreneur Natalya Kasperskaya).

6. We understand that the assessment of investors working in different industries is not entirely correct (investments in complex, knowledge-intensive industries occur much less frequently and the process of studying potential portfolio companies and their financing is much longer than in IT and the Internet). At the same time, the Russian venture market (as well as the global one) has a clear bias towards IT and the Internet, and the majority of venture investors work in these segments.

7. At the same time, the compiled TOP is not a random selection of business angels, but the result of market research, open research, as well as public information about transactions. In addition, almost all TOP participants were surveyed (there were indeed those who refused, but they were in the minority).

8. Based on the analysis of the angel investment market, we can definitely conclude that the number of angels is growing, including thanks to the active work of specialized associations and associations. Thus, according to formal criteria, several potentially very active business angels did not make it into the TOP 15: Pavel Glushenkov , Oleg Mikhalsky, Alexey Prudnikov, etc. On the other hand, it is obvious that the ranks of angels will be replenished by successful entrepreneurs emerging from the businesses they have already built - this is exactly the path that many current experienced angels have taken in their time - Alexey Basov, Arkady Moreinis and many other. Another interesting conclusion may be the emergence of a class of “super angels”, which are already going beyond the scope of angel activities and are actually turning into venture funds named after themselves - Igor Ryabenkiy with Altair, Igor Matsanyuk with IMI.VC, Pavel Cherkashin with VESTOR.IN.

Business angels are one of the main elements of the modern international economy. The first “angels” with a wallet were recorded at the beginning of the 20th century among New York theatergoers. “Angels” on Broadway were financially wealthy theater fans who invested in new performances and received a profit only if the production was successful. In 1978, William Wetzel, a professor at the University of New Hampshire, used the term "angel" in his work studying the process of businessmen obtaining start-up capital. He used the word “angel” to describe investors who invest personal money in other people’s enterprises at their very initial stages. Let's figure out why informal investors are called “business angels” and how they earn money.

Who are they?

• Business angels are professional investors (individuals and legal entities) who invest part of their own finances in innovative companies at early stages of development - “seed” or “start-up”.
• The overwhelming majority of business angels are successful entrepreneurs with extensive experience in developing their own businesses.
• Most often, “business angels” are men (99%) aged 45 to 65 years, with a university degree and management experience.
• Every fifth of them, according to studies by Western sociologists, is a millionaire.

What are they doing?

• Business angels most often invest in technology and intelligence, preferring high-tech startups and Internet projects.
• “Business angels” use their own capital to help innovative projects overcome the period of formation, and become the main source of external financing for companies with the potential for rapid growth.
• “Business angels” can invest not only in a finished project, but also simply in an idea, which is impossible for an institutional investor (a large financial institution).
• Many “business angels” advise and provide free assistance to their clients, as they are business experts.

What's the payoff?

Investing in the early stages of a business project is obviously highly risky. Business angels expect to make a profit due to the growth in the value of the companies they invest as a result of the development and promotion of high-tech products to the market. Business angels receive their income by selling their share (block of shares) for a price significantly higher than the initial costs. The work of “angels” is considered one of the most highly profitable types of entrepreneurship, capable of bringing the investor about 100%-200% per annum.

Methods of “angels”

• “Business angels” use a venture (Venture Capital) investment mechanism, in which financing is provided for a long term (3-7 years), without collateral or guarantees, for a share (block of shares) in the company.
• “Angel” investments are called “smart money,” since angels often support projects in which they can apply their own experience, knowledge, and business connections.
• Business angels achieve success by creating favorable business and friendly relationships between investors, inventors and company managers.
• Business angels reduce their risks by investing in several companies and projects at once, after verification and selection (the so-called due diligence procedure).
• Business angels, having started to finance a project, increase its attractiveness in the eyes of other financiers. Angel investments can attract the interest of venture capitalists to enterprises.
• Business angels are able to invest jointly by pooling resources and reducing individual risks.

What is the difference

• "Business angels" are professional single venture investors who are focused on supporting start-up entrepreneurs. Unlike classic investors, who may pay attention to a new business, but this will not become their main strategy.
• Business angels, unlike investors who manage other people's funds, invest their own money.
• Business angels always have personal involvement and expert knowledge when investing in projects.
• Business angels have the ability to make financial decisions more flexibly than venture capitalists. They have wider investment horizons (“long-term money”), a simpler registration process and a lower rate of return.
• It is cheaper to attract funding from business angels than from other financial institutions.
• Business angels can be found not only in large financial centers. The financial market for business angels is more geographically diverse than the venture capital market.

Famous Angel Projects

Thanks to business angels, Intel, Yahoo, Amazon, Google and many other well-known brands began their path to success.

Let's sum it up

So, “business angels” prefer to finance high-risk entrepreneurial companies with great growth potential, preferably at the very first stage of their development. Russian “angel” investments are not yet very developed. Considering the small number of domestic projects, Russian “angels” still prefer startups with Russian roots in the USA, Europe and Israel.

Roman Molchanov, “Investor School”.

Today we’ll talk about this class of investors who invest their personal financial resources in new and growing small businesses. They are usually called “informal investors”, or “ business angels" (business angels). They received this name because few people besides them would dare to invest in risky projects, which often do not have collateral.

Most business angels are successful entrepreneurs with significant experience in developing their own businesses. As well as highly paid specialists in large companies: top managers, consultants, lawyers, etc. The motivation for the actions of business angels can be different - some strive to master new areas of activity, others pass on experience, seek self-realization in new projects, and are confident in the social significance of their activities. However, the ultimate goal of any business angel is profit.

As a rule, he selects investment projects in accordance with his competencies, main or past activities. Investors can also limit themselves geographically and make local investments. In this case, they choose projects that are within reasonable reach of their place of residence in order to monitor the progress of affairs on a daily basis.

Earlier in previous articles, we partially touched on the topic of when you already have a ready-made business plan in your hands.

The most famous business angels:
Igor Ryabenky, Altair Foundation (SocialMart, SailPlay, Alloka, HiConvertion, etc.)
Pavel Cherkashin, Vestor.In Foundation
Alexander Borodich, business incubator FutureLabs (MyWishBoard, WishCoins)
Vyacheslav Davidenko, projects – Alytics, Witget
Alexander Vashchenko, projects – Narr8
Alexander Yunyaev, projects – Cashsquare
Alexey Basov, projects – Pruffi, Habrahabr, Roem, Firrma
Alexey Kichaikin, projects – Displair
Askar Tuganbaev, projects - Videomore, Tolkien.Ru
Vadim Asadov, projects – Neurok, AlumniFunder
Vadim Kulikov, Kulikov Innovation Center
Victor Frumkin, projects - Flocktory
Dmitry Maslennikov, projects - KudaPotratil.ru
Evgeniy Zaitsev, Helix Ventures (medical topics)
Egor Rudi, projects – Eruditor, Printio, LinguaLeo
Mikhail Paulkin, projects – RuTube, Minutta
Murad Sofizadeh, projects - TravelTipz
Nikita Khalyavin, projects - “YaKlass”, “Professionals.ru”, ShopogoliQ.ru
Hovhannes Poghosyan, projects – Onetwotrip, Mainpeople.com
Oleg Mikhalsky, projects - AR2Life, B-152, partner and co-founder of iAaccelerator
Pavel Glushenkov, investment director at Inventure Partners
Sergey Zhukov, projects - “Products from the 90s”, “BeriDari”
Yuri Virovets, projects – Clickberry, Actio.tv
Yuri Oreshin, lifescience projects – venture fund Angelico Ventures
Leonid Volkov, Founder of Projector Ventures, projects - Callaround, Octodon, Receptol, Domosite, Timeliner, Citrea, DalSlovo.ru, Evrent, SideNotes
Igor Ashmanov, projects - Wada!, Roem.ru, “Remparo filter”, Ayayay.ru
Alexander Aivazov, projects - MarchMania
Vadim Tarasov, Investment Director at Bright Capital (“Doctor at Work”, “Photography School”)
Igor Ustinov, projects - ClipClock
Vladimir Kholodov – Russian Million project

What should you bring to a meeting with an investor and business angel?

In one of the articles we already looked at. Now it's time to prepare for the meeting to make it a success.

Prepare pitch(pitch - presentation of an idea in order to obtain funding) in three options - for 3 minutes, 5 minutes and 10 minutes. For more information on how to learn how to write the perfect pitch, I recommend reading the book “The Revolutionary Method for Closing Big Deals” by Oren Cluff, published by Mann, Ivanov and Ferber. Depending on how much time the investor will devote to you, present your project using one of these three options.

Mind Map “What to go to a meeting with?”

1. Presentation in Power Point or a similar program. Volume: depending on the time allocated to you - an average of 10 slides.
2. Project summary or teaser. This is the first section of your business plan with a summary of the project. This document should be no more than 1-2 pages and can be read in one sitting. According to venture capitalist and author of the cult book "Startup" Guy Kawasaki, during a presentation, you need to clarify WHAT exactly you do in the first minute.
3. Actually, myself business plan. To write it correctly yourself, use the step-by-step guide.
4. Financial model. It is the calculation part of the business plan and should be detailed enough so that you can answer any question the investor may have.
5. How much investment do you require and your specific proposal to the investor. Most startupers are aimed at great prospects and suffer from gigantomania. Ask the business angel for the amount that he can give you. Business angels often give seed investments: for starting a business, for preparing and understanding the market, for creating a prototype or the first prototype. You must think through each of the options.
6. Sample sample. Ideally, before approaching an investor, I would advise projects to develop for as long as possible using their own funds. Then you can show something: a trial product, first customers and reviews from them, sales channels. The more the project is developed, the higher the owner's share will be. If you came to the fund completely “green”, they will most likely take away your controlling stake: 50% plus 1.

All this will be a handy tool to answer any investor’s questions, and you should be able to tell the essence and description of the project without them. That is, you must understand what you offer as deeply as possible. This is only possible if you have worked through your project in detail and made a business plan yourself or in close cooperation with a consulting company. Step by step, you must engage the investor in your vision for the product or service you are creating, demonstrate deep knowledge of your market and customers, and demonstrate that you and your team are best equipped to turn your plans into reality. This is the only way they will trust you and invest in your project.

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