A business angel is not ‘An Angel in Kraków‘ :). Unfortunately, the Polish translation of ‘angel investor’ has acquired some pejorative connotations while also sounding somewhat high-flown. How far does it reflect reality?
The term 'business angel', popularised by Professor Bill Wetzel in the late 1970s (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1505193), suggests motivations beyond business, and there is certainly much truth in that. Retired, sometimes very young, entrepreneurs who have sold their businesses, senior managers, successful professionals and active businesspeople with spare funds often co-finance new ventures out of curiosity and personal relationships.
For some, it is a way to stay in the game and avoid getting rusty. For others, helping beginners repays a moral debt to mentors and people who supported their own careers long ago. Others simply cannot sit idle, but do not want to commit fully to building another venture.
Discreet, comprehensive support
This category of private investor, particularly important to startups, also tends to be informal and largely outside institutional structures; angel networks still have a fairly limited reach. Many want to provide active advice, facilitate key business contacts or refine the business model. Many would even be willing to share in managing the business to some extent.
They can be the unsung heroes of famous companies. Without Mike Markkula, an engineer and marketer who retired at 32 thanks to Intel options, Apple's rapid growth, perhaps even its existence, is hard to imagine. Markkula not only trusted a desperate Jobs and provided the fledgling company with USD 250,000 in total funding, but, despite his wife's reservations, joined those 'renegades from the human race', as his acquaintance Don Valentine bluntly called Apple's founders (https://www.sequoiacap.com/).
Building credibility
One final, crucial point: lack of money is ultimately a secondary problem. A startup's primary problem is usually lack of status, business standing and credibility. Founders typically have no experience, established names or track record. How can such a difficult strategic position be overcome? An old Chinese proverb advises: 'Strike with a borrowed sword' (https://www.amazon.com/Stratagems-Business-Objectives-Unconventional-Strategies/dp/1904879462).
A startup can obtain money from many sources, but a supportive business angel can also lend that 'sword'. By joining the venture, they lend it credibility in the business community, as Markkula did for Apple. Securing such a mentor often signals a serious project with exceptional potential and a future. Capital is not just money and fixed assets. This credibility capital is far more valuable than cash. It opens closed doors, attracts valuable colleagues and further backers, and develops relationships at a previously inaccessible level.
Conclusions and risks
Of course, not every business angel truly provides smart money. A poorly structured relationship with the wrong people creates a serious problem for founders, often difficult to resolve. Equally, someone wishing to invest in an interesting project should know the basic rules and have tools to monitor developments and protect the investment.
We will continue discussing business angels in future posts, analysing investment models and the legal details of agreements between investor and company or founders. From the investor's perspective, we will consider the ideal startup; from the startup's, we will compare how angels and seed funds invest.
