What is a business angel?

To finance your company's start-up phase, you can turn tobusiness angels"Business angels use their address books and personal financial resources to support you. Depending on your business and your project, you'll need to take the time to target the business angels who interest you. Their profiles vary widely, as do the amounts they invest. Alone or in networks, these business angels have many advantages in supporting new entrepreneurs and their projects in 2024.

What is a business angel? 

A business angel is a person who invests in an innovative company and advises the entrepreneur. The business angel usually intervenes in the early stages of a company to help it get started.

Good to know : The term business angel comes from English, and means 'business angel', or also defined by the French Academy as 'angel investor'. 

How does the business angel work? 

A business angel can intervene at different stages in the life of a company.

For example, a business angel intervening in the seed stage and still attesting to the company's development can reinvest a few years later.

During this second round, he could, for example, bring a business angel friend to complete the next round. 

The business angels who intervene later, during other fundraisings , thus minimize the risks because the company has had time to prove its viability. 

How is the business angel remunerated? 

The business angel invests from his own financial assets a capital contribution for a certain company, for which he perceives certain values of future success. This person therefore sees a future interest for his investment.

The business angel generally takes a substantial capital gain from his investment. If the project is successful, the business angel can resell his participation in 3 to 5 years, or have his shares bought back by the entrepreneur, the investment fund or even via a stock market listing. 

The business angel can therefore be remunerated in several ways: 

• In capital: remuneration in the form of dividends or capital gains on the sale of securities
• In bonds: remuneration in the form of interest
• In royalties: remuneration in the form of a commission on sales. 

What percentage does a business angel take? 

The business angels remain most of the time a minority shareholder in the company. Generally they will take a share of the capital lower than 20 %. 

This is also why they generally choose projects that are close to home, or from their economic sector, because of their professional experience and expertise. 

Angel investors typically set a goal of earning back about ten times their investment. 

How to find the right business angel? 

In France, there are many federations of French business angel networks. These networks put entrepreneurs in touch with the right financial players. This simplifies the meeting process enormously. 

However, there are several types of business angels profiles . On the one hand, there are retired people who can invest between €5,000 and €20,000 per year, and who accompany entrepreneurs through their expertise.

There are also successful entrepreneurs who are themselves keen to invest in projects they consider promising. They can usually invest between €50,000 and €500,000. 

In most cases, the amounts invested never exceed €1 million. The average ticket, which is the annual amount invested by a business angel, is around 10 000 to 20 000 €. 

In France, there are :

• Euroquity: which connects SMEs and investors. 
• France angels: the national federation of business angels and entrepreneurs.
• Women business angels: who support women in their projects. 

How to negotiate with a business angel? 

The selection and negotiation with a business angel can be severe but basically evaluates the feasibility and success of the project, carried by the team. 

To convince at least your interlocutors, you must demonstrate that you optimize the economic model of your business and that you make profit by bearing your global costs while remunerating your shareholders. 

Note that when there are business angels interested in the same project at the same time, they can join together in a business angel investment company (SIBA) in order to share the risks. 

Overall, the viability and profitability of your project are the fundamental criteria that investors look at in your file. 

What are the advantages of a business angel? 

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Business angels operate in many cases in networks, they analyze several sectors and therefore have multi-sector skills as well as a certain notion of risk. 

Business angels all have an interest in helping you break into your market with their experience and skills.

Business angels do not always depend on geographical location to finance a project, which is interesting to find experts in your sector in another country. 

The business angels remain in the minority and have an active participation in your company, but they do not manage your company either, which gives you more freedom.

Overall, access to their expertise, address books and valuable advice are the best advantages to optimize the success of your business. 

On the other hand, via a business angel, the entrepreneur does not have to repay the cost of the investment initially allocated. On the other hand, the business angel's investment must be made profitable in order to bring him an added value. 

Business angels have the advantage of benefiting from tax advantages on the invested capital, such as the TEPA law or the Madelin law. 

What are the disadvantages of being a business angel? 

There are certain aspects to take into account in this mode of financing for your company. Indeed, to be financed externally implies an intervention on the capital of your company and thus at the level of its management and its control. 

The support of business angels, although very advantageous, will also require regular contributions which can take some time for the entrepreneur. 

What are the alternatives to the business angel? 

The honorary loan 

The honorary loan is a loan without guarantee or personal surety, most of the time at zero interest. The amount can reach up to 90 000€ for an innovative project. It is provided by support networks such as Initiative France or Réseau Entreprendre. 

Crowdfunding

Crowdfunding or participatory financing is a financing mechanism that operates by raising funds from a large public to finance a creative project, most often online. 

The bank loan

The bank loan or professional credit, is a financing granted by banks to companies or professionals. This loan takes the form of a credit, granted under specific conditions.

The project in question must meet a certain number of criteria in order to meet the banker's expectations.

Revenue Based Financing (RBF)

The RBF is a non-dilutive financing solution to help digital companies. To finance a project on the short term, the RBF requires an analysis of the financial and banking data of the company in question (acquisition costs...)

It is an advance in the company's cash flow , which makes it possible to release capital for the company's growth, in a non-dilutive way. 

Karmen offers businesses the ability to get a financing offer in less than 48 hours. For businesses, the process takes less than 24 hours. Simply connect your financial tools to our algorithm and get a response in less than 72 hours. 

The business angels are key resources to support the start-up of a project and its entrepreneurs. Being often successful entrepreneurs or people with a high expertise of a sector, they are assets to guide startups and support their beginnings.