The German Business Angels market is colorful and diverse, widely branched and heterogeneous. This makes it difficult for start-ups to find the right Business Angel. How can a young company get in contact with a Business Angel? What is to consider? What mistakes should be avoided? How to protect against Business Devils? 10 hints on the way to the right Business Angel.
1. Optimal preparation
Precondition for the initial contact to a Business Angel is a founding team which is enthusiastic about its business idea. A team that has an outstanding knowledge about his target market and knows how they can earn money on this market. Patents should be proposed, prototypes should be created and marketing and sales partner should be identified. Founders should know exactly what they expect from their Business Angel. Certainly, the founder team should have a complete business plan.
2. Select the correct time
Founders who get in contact to Business Angels, too early are in danger to be “burned”. Business Angels are well connected to other Angel investors and the whole private equity market. An “unsuccessful” first appearance in the private equity scene is communicated quickly. If founders get in contact to Business Angels, too late, they miss the chance to start the business with the necessary capital. Many Business Angels act according to the motto of the “early bird”, others want to see even more. Ultimately, the right time to contact Business Angels depends on the company’s needs.
3. Use venture capital investment grant
Using the venture capital investment grant (Investitionszuschuss Wagniskapital) is helpful to find a Business Angel. Innovative companies can apply for a certification which proves the company as eligible for the venture capital investment grant. Companies who have this certification should register in the directory of eligible companies which is hosted on “BAND IVZ Verzeichnis”.
4. Be active – never wait
In the case that no one contacted you after sending the BAND One Pager, it is good to be active. On the BAND website all Business Angels networks which are members of BAND are listed with contact information and a brief profile. If you know that the one pager is already present in the networks you should get in contact with the networks.
5. Benefit from the added-value of the Business Angel networks
To get in contact with Business Angels networks is worthwhile in any case. On the one hand, they guarantee a certain seriousness of their Angels, on the other hand, each company benefits from the individual feedback from the network manager. Companies which completed the screening process with a positive result are receiving contacts to a variety of very different Business Angels, syndications are easier to initiate.
6. Take several approaches
To bring a Business Angel into the company is a key element in the development of the start-up. Finding a Business Angel can take some time. Normally, it takes several months. Founders should not believe that it is sufficient to start one or two attempts. It is important not to be discouraged from the first “No”. Meanwhile, in Germany there is a variety of very different matching events. Not every is suitable for any start-up. Founders should select suitable events.
7. Answer questions
Business Angels know that young companies can never be perfect. They are spending their own money, their time and their expertise, so they have the right to know all details about the company in which they have invested. Therefore, the founder team should be open-minded about all aspects. The founders should accept critical points and discuss problems openly. This is also important for the relation between the founder team and the Business Angel. Founders should consider exactly who they want to trust.
8. Be careful not to trust a Business Devil
Like everywhere else, there are also black sheep among the Business Angels. These Business Devils pretend to be Angels. They are not willing to act according to their promises. They do not give information about themselves. In that case: Back off, if someone demands money before he is ready to invest.
9. Get References
The best protection against Business Devils is to ask the portfolio companies of the alleged Business Angels. If the portfolio companies report positive things and the personel relation between the founder and Business Angels is trustful a cooperation by signing of a LOI is possible.
10. Use training opportunities
To be prepared – and not just on the stumbling blocks of the initial contact to a Business Angels, but especially to the following difficult phases of the company valuation and the contract design – it is recommended to visit training seminars, which are specifically designed for the needs of capital seeking companies in the early phase (“Investment Readiness” programs).
(Adapted and updated, Venture Capital Magazine, Special July 2010, p 38)