Should business angels listen more carefully to the needs of start-ups as well as working on their own image?
Most of what we read about business angels’ relationships with start-ups is centred on how much they should invest and what start-ups can do to attract business angel funding. Business angels themselves might also be forgiven for thinking only about what start-ups can do for them in terms of profit or the experience they can gain from the venture.
But do business angels actually listen to what it is that start-ups want from their backers or are they more concerned with competing against other angel investors? With more and more companies seeking alternative funding beyond the banks, it is more important than ever to listen carefully to what it is that growing businesses really want from those who invest in their company. Business angels and the businesses they invest in need to be at least in tune with each others needs to give themselves and the business they invest in a fighting chance of success.
A successful exit is far from guaranteed, which is why a recent survey released by international law firm Dorsey & Whitney LLP makes interesting reading for anyone looking to explore the relationship between startups and business angels from the other side of the fence – and gain some useful insight into how successful outcomes might be achieved.
The survey turns accepted wisdom on its head when it comes to what start-ups want from business angels. Results gained from a survey of 363 start-up executives who recently raised funds or planned to in the near future reveals that business angels are their most popular source of funding but money certainly isn’t everything.
Looking at the survey you get the impression that those CEOs surveyed need a business angel who understands their business and can provide the right guidance without wanting to take control and they also want the deal done quick. This may be one reason why they were more likely to turn to business angels in the first place rather than VCs and super angel investors.
But are business angels really listening? And by the same token are start-up CEOs more concerned with securing the funding which in itself can be difficult to achieve rather than spend more time looking for experienced business angels who can supply the added extras? Those seeking funding compete with more and more start-ups taking this route to finding capital, which can mean that the pressure is on to accept the first offer that comes along. This doesn’t appear to be happening with the participants in this survey who follow the accepted wisdom that it is better to have business angels on board who understands the business they invest in.
Speed of investing was also rated as important by more than 90% of those CEOs surveyed. This suggests that start-ups are looking for business angels who not only know their business, but who also are prepared to bring a fast injection of cash at just the right time. It is also true that they will have an accurate figure of the level of funding they require in their head that will be no more and no less than they need. This is why the understanding of finance needs also rated highly in the CEOs concerns. Don’t give us too much or too little was the overall consensus.
So looking at the evidence of this survey what makes a perfect business angel? First and foremost they need to move fast, the angel investor must also be someone who understands the business which rules out anyone wishing to take a punt in a new sector they haven’t invested in before. They must also not be too greedy and have healthy respect for the business they invest in, rather than as one participant put it, use the opportunity as “a great story to tell at cocktail parties”.