A business angel is a private investor who invests their funds in startups or small businesses, providing financial assistance at the early stages of the project's development. Unlike venture funds, business angels invest their personal money and often provide not only financial support, but also share their experience, connections and knowledge, helping the startup develop and grow.
Characteristics and role of a business angel
Business angels play an important role in the startup ecosystem, as they provide financing at a stage when traditional sources, such as banks, may not offer lending due to the high level of risk. Business angels, as a rule, have entrepreneurial experience, which they can use to support a startup not only with money, but also with business advice, mentoring and connections.
Key characteristics of a business angel:
Early stage investments. Business angels most often invest in startups at the earliest stages, when the product or service is at the prototype stage or is just beginning to attract the first customers.
Private funds. This is their personal money, which they are willing to risk by investing in promising projects.
Active participation. Business angels often take part in the management of the company, give advice and help in making strategic decisions.
Exit from investments. Business angels expect to make a profit in a few years, when the project becomes successful and can be sold or listed on the stock exchange.
How do business angels choose startups for investment?
Choosing a startup for investment is an important and difficult process for a business angel. What do they pay attention to:
Team. A strong team of founders who have experience and knowledge in their field is one of the main factors when making an investment decision.
Idea and product. The innovativeness of the idea, the potential of the product and its demand in the market play a key role in attracting the investor's attention.
Market and competition. The size of the target market and the level of competition can significantly affect the likelihood of a startup's success.
Business model. The investor must understand how the startup plans to make money and scale its business model.
Exit prospects. Business angels prefer startups that have clear plans for entering the market and a possible scenario for selling the company or its shares.
What are the benefits of working with a business angel?
Financial support. Business angels provide funds that can be critical at the initial stage of a startup's development.
Mentoring and experience. Thanks to their business experience, business angels can offer valuable advice and mentoring, which will help a startup avoid mistakes and achieve success faster.
Networks and contacts. Investors can help a startup establish connections with other entrepreneurs, potential clients and partners.
Flexibility of terms. Unlike bank loans, the terms of cooperation with a business angel can be flexible and take into account the specifics of the project.
Risks associated with investing from business angels
Despite all the advantages, cooperation with a business angel also has its risks:
- Dilution of founders' stake. In exchange for their investment, angel investors receive a stake in the company, which may reduce the founders' stake.
- Control and interference. Some investors may be too active and try to influence operational decisions, which may not always be in the startup's best interest.
- Failure risks. Most startups fail in the early stages, and angel investments may not bring the expected returns.
Our company, Open Oil Market, a commodity marketplace, has also chosen a pre-IPO strategy for entering the market. We are participants in the Skolkovo Foundation's compensation program, which provides for possible compensation of up to 20 million rubles.
How to become a business angel?
To become a business angel, you must have sufficient available funds that you are willing to invest, and preferably have experience in entrepreneurship. There are several steps that will help you start your path to investing in startups:
Education and research. Learn the basics of investing in startups, read books and articles on the topic, take specialized courses.
Build a network of contacts. Join business angel clubs, participate in startup events and forums to establish contacts with other investors and startup founders.
Project evaluation. Learn how to analyze startups, study their business plans and understand which of them have potential for growth.
Mentoring. Be prepared not only to invest money, but also to help the startup with your experience and knowledge.
1. Alexander Galitsky
Known as: One of the leading business angels and venture investors in Russia, co-founder of the Almaz Capital Partners fund.
Investment projects:
Parallels is a Russian IT company developing software for virtualization and cloud technologies. Galitsky invested in it at an early stage. In 2012, part of the company was sold, which brought in profits several times greater than the initial investment.
Xometry is a platform for industrial production, offering custom manufacturing services for parts. Almaz Capital was one of the early investors in this startup.
Exit: For a number of projects, Galitsky went public or sold shares to strategic investors, as was the case with Parallels.
2. Yuri Milner
Known as: Co-founder of DST Global and one of the most successful investors in IT companies.
Investment projects:
Facebook – invested in the early stages, when the company was worth about $10 billion. After the IPO in 2012, the company's value grew to $100 billion.
Alibaba – participated in the investment round at the early stages of growth. By the time of the IPO in 2014, the company's value reached $231 billion.
Exit: The investor received multiple profits on both projects. For example, investments in Facebook brought in income tens of times more than they invested.
3. Sergey Belousov
Known as: Founder of Acronis and Parallels.
Investment projects:
Parallels – actively developed the project, and after selling part of the company, received a profit that was several times higher than the initial investment.
Acronis – developed a project in the field of cyber protection and data backup, which became one of the leaders in the market.
Exit: The sale of a part of the stake and the attraction of strategic investors brought significant profits.
4. Igor Ryabenkiy
Known as: Founder of the venture fund Altair Capital.
Investment projects:
Miro is an online collaboration platform that he supported at an early stage. The company later raised millions of dollars from major funds, including Iconiq Capital.
Flo Health is a women's health app that Ryabenkiy invested in at an early stage. The company attracted investments from leading venture funds, which allowed it to significantly increase the value of its stake.
Exit: A number of successful projects were exited through subsequent rounds of financing, sales to strategic investors, or an IPO.
5. Dmitry Alymov
Known as: Managing partner of the Frontier Ventures fund.
Investment projects:
IVI is the largest online cinema in Russia. Dmitry invested in the project at an early stage.
Lamoda is an online fashion store and shoe store that received investments at an early stage. Exit: In the case of Lamoda, some of the shares were sold after achieving significant growth indicators.
6. Evgeny Kuznetsov
Known as: Expert in the field of technological entrepreneurship, Managing Partner of the Orbita Capital Partners fund.
Investment projects:
Cognitive Technologies is one of the leading Russian companies engaged in artificial intelligence and automation systems.
Motorica is a company developing bionic prostheses.
Exit: Invested funds are returned through the sale of shares in subsequent investment rounds.
Typical exit strategies of business angels:
Sale of shares in subsequent rounds - allows you to lock in profits when the startup attracts new investments at a higher valuation.
IPO - entering the public market, during which the company's shares become available for free circulation.
Sale to a strategic investor - a large company buys a startup to integrate technologies or enter new markets.
Business angels play an important role in the development of startups, especially in the early stages, when access to traditional sources of financing is limited. By investing their funds and experience, they help companies grow and reach a new level. However, as in any field, there are risks, and success depends on the right choice of startup and effective cooperation.
