Message from Jeremy: To all Tech IT Easy readers, who could obviously not necessarily remember the initial announcement, I have invited Vincent to write about innovative start ups based in the Netherlands, Apple, the media industry, incubators, business books and many other things that happen to interest him at the moment. Vince, they’re all yours!

When he “recruited” me, Jeremy told me his golden rule: keep it simple, stupid! Anyone who glimpsed at my blog when it was still alive, knows that this is extremely hard for me to do, and the last post I made here is an example of such “over-complication.” Thankfully, life is full of second chances, and I’ll focus on short messages more often. This is one of them, focussing on a single issue in the book I reviewed last, that of business angels.

Four Riders of the Apocalypse?

Cheap way to attract attention, I know. Business angels are far from bringing apocalypse to their financed companies, though plenty of people I talked to will disagree with that. More on that later.

The book, Raising venture capital in Europe, outlines four types, actually conceptualised by the MIT Entrepreneurship Centre. These are: operational expertise-orientated business angels, financial returns-orientated angels, guardian angels, and pro-entrepreneur angels. Their titles are already suggestive, but here is a break-down.

• Operational Expertise Business Angels: These have been or are major executives in the industry they are again investing in and are instrumental in growing the company through providing both financing, expertise, and contacts to suppliers, partners, and customers. Venture capitalists highly value these types of early-stage investors.
• Financial Returns Business Angels: These are high-worth individuals, but characterised by a passive involvement in the companies they invest in, except for maybe some business-advice. Too many of these types has a negative effect on attracting venture capitalists, as it does not grow the financial pie.
• Guardian Business Angels: These are probably the most active types, provide a lot of support, take seats on the board of directors, help find venture capitalists, and are highly valued by them. Since entrepreneurship is a highly people-chemical business, this makes sense.
• Professional Entrepreneur Business Angels: These are investors with the personal experience of having set up their own firms. Also the most well-know type, I think. They may sometimes invest outside of their expertise, which can be a problem, but have a lot of experience in and provide support with market-research, building up the company, meeting milestones, and other business-building activities. They are also highly valued by venture capitalists.

Attracting Angels

It’s not really that different from attracting venture capitalists, except that their investment-profile is slightly different. When dealing with business angels, depending on the type, you are dealing with someone that invests partly based on chemistry with you and partly on his or her due diligence. The latter will be shorter then the venture capitalist-process, but still involve a professional appraisal of your proposal, and asking questions such as:

1. Are you solving a big problem, preferably one that is revenue-generating and can be recognisable as a problem today?
2. Is your solution differentiating, compelling, and feasible?
3. Does your business-model address this problem well?
4. Have you assembled a team and partners with the experience to make this business a reality?
5. Is you strategy reasonable and believable to get to the market and build the business reasonably quickly?
6. What kind of momentum has already been established to get the business running (especially with customers)?

(Source: Anthony P. Morris, 2002, cited in Arundale’s book)

Finding angels in Europe can be a chore, as I found out personally. Many successful relationships come from existing contacts and there is of course the rise of Business Angel Networks, which make it easier and at the same time less personal, and I may talk about a different time (I don’t personally see these as business angels).

Differing Angelic Experiences

In my last post, I hinted that many business angels are in fact not so angelic. This opinion comes from a number of personal experiences, I won’t go into, and a number of interviews, I conducted with entrepreneurs while at Tornado-Insider. I believe that my experiences were mostly with Financial Returns angels, who take a more passive approach in the business, but a highly active one when wanting their money back.

As for my interviews, I found that many entrepreneurs had a similar perception of these types and the only exceptions were either through luck, experience, or already existing relations. Finding a business angels is a chemical affair, as this person will be involved with your venture for a while and you have to be able to count on them when times are tough as well. As such, and this is also advice the book gives, take your time getting to know your investor before he or she invests, get to know their portfolio and style of working, and make an informed decision.

As mentioned, Raising Venture capital in Europe can be purchased from a number of stores, including Amazon.com and .co.uk.

(Not so short in the end, but hopefully a good read)

Edit: Ah yes, my next post will be on Europe’s technology-centres.

Edit 2:  The original MIT-study with a full description of the types can be found here.

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