Starting capital: business angels and other professional investors

Start-up capital

Finding a business angel is another, rather exotic than real, way to attract money to a business.

Why is it exotic? For two reasons:

— Firstly, the capital of business angels is limited. Investments of professional investors are much smaller than the portfolio of banks.

— Secondly, professional investors are constantly looking for projects with a very high yield. The rate of return is 100% or more per annum. Such profitability is mainly characteristic of innovative projects (start-ups).

What does the average portfolio of a private professional investor (otherwise a business angel) look like? Suppose there are 10 projects in the portfolio. The average investment in the project is 3 million dollars. The total cumulative investment is 30 million dollars.

The return on the investment portfolio of an average business angel will be as follows:

1) 1-3 projects will fail. Investment is a risky business. Investing in a start-up business is doubly risky. The investor, having invested money in such projects, will lose them.

2) 6-8 projects will give an average profitability. This yield will be average for the market. The investment will pay off. But the losses brought by the «failed» projects will remain uncovered.

3) 1-2 projects will bring super profits. These projects will “shoot” and will make it possible to cover the losses caused by “failed” projects.

And now a natural question arises: what projects will a professional investor look for? Of course, those who «shoot»! This is not a private kindergarten, not a hairdresser, not a repair shop. All these are businesses opening on every corner. They cannot bring in excess profits.
Therefore, a business angel will not immediately include “ordinary” business ideas in his investment portfolio.
Is it worth looking for business angel money? The answer depends on what your business idea is. If this is something innovative, which has no analogues in your region or even in your country… Happiness can be tried. Otherwise, do not waste time and nerves.

Professional investors can be divided into two groups:

— venture funds (enterprises) and

— business angels (private investors).

Despite the relative rarity, the possibility of attracting start-up capital through business angels should not be discounted.

But it’s not easy to find such an investor! For one business angel, there are hundreds and thousands of people who want to receive his money.

In order to win 1000 people for one place in the competition, you must follow the rules for communicating with investors. Which? There are such rules!

You will find answers to these and other questions in the following articles.

Then we read — “how to earn start-up capital yourself?”.