What is a Business Angel and where to find them (Part I)

In Fundraising by Sébastien FluryLeave a Comment

Startups need money. Except if you can be your own investor for the first phase (I don’t know many such entrepreneurs in Switzerland – but that will come with future exits) in a significant way, you’ll probably need an external financial kick to get out of the ground. I’ve recently written on the first sources of financing for a startup (Why taking money from your family and friends is a bad idea) and I’ll present here another segment of investors active in the startup world: business angel (or also called angel investor or simply angel).


But what is a business angel? The term is often over used or over dreamt. An angel is a wealthy individual investing in innovative companies (often tech companies) with an exponential growth potential. In comparison to institutional investors, angel invest their own money in startups that they have either slowly spared during their career or earned by selling their own business.

What are the motivations behind angel investing?

As well as there is kind of an emotional/irrational component in putting money in a early stage startup, angels are not philanthropists.

They invest because they think they can make a profit on their investment (remember the word business in business angel!). Startups is a risky allocation of money, but the potential pay-off is amazing. It’s usually internationally accepted that the ROI target should be around 5x to 10x the initial investment. But in Switzerland, I’ve observed that making 3x-5x the investment is already a great success. And it is! As an entrepreneur talking to angels, you have to understand the targeted multiplication factor for the guy who will invest in your company.

But money is often not the unique motivation. Angels can provide business advices and access to a network in your industry at a level you can’t reach alone. Angels can decide to be hands-on (contributing to valuable additional skills) or hands-off (money only) while investing, and that has to be evaluated / negotiated with the entrepreneur. It’s necessary to evaluate if the investor can add value beyond money or if it’s a pure financial investment (which is also perfectly OK!).

It can happen that angels invest to get a job in your company. My advice with this is to be extremely careful. It can be extremely profitable to your business, but it can hurt it in many ways. And do you really want to take the money from someone (in exchange of shares of your company) to give him back this money straight away? And what if this guy would provide a work investment against shares?

Angels can be professional business angels or doing it alongside their job (as an entrepreneur or top-level executive). That’s also a point to understand as a founder.

Startups are becoming more and more trendy in Switzerland (and that’s something good for the ecosystem!). And so do angel investing! I don’t think we are in a bubble, but people start to realize they can better use their money than mandating their private banker for all of their money.

Investment size

Business angels usually invest individually anywhere between CHF 10’000.- and CHF 200’000.- against shares of the company. Of course, there are also “Super Angel” (term came out 2 years in Silicon Valley), popularized by the angel activity of super star Ron Conway, who invests up to CHF 1M per startup. But it’s unfortunately rare!

Here in Switzerland, I’ve heard that some angels can invest individually up to CHF 500k. But the average  ticket per angel is closer to CHF 30-50k for the initial investment (follow-on rounds are possible).

However, more and more angels join business angels clubs and invest in group. The big advantage of angels group are numerous:

  • have a better access to deal flow (it’s easier to find great startups to invest if you’re part of a group, except if you have an amazing wide network and a great visibility);
  • share the Due Diligence efforts (analysis of the investment opportunity);
  • get training: angel investing has almost nothing to do with trading (“investing”) money on the stock exchange (except following point!);
  • diversify their risks (yeah, the basis of financial is never put all your eggs in the same basket);
  • feeling of belonging: it can seem stupid, but it’s not! Being part of an angel group also help get a social proof (they are not accepting membership from anybody);
  • … and for entrepreneurs, the BIG advantage is that angels clubs help you be more efficient! A syndication of 20 angels investing each CHF 25k is much more time efficient as negotiating with each one individually. And clubs are publicly visible, a lot more than individuals (well, tools like Linkedin have eased the identification of angels!).


In some countries, you have to be officially accredited to invest in startup companies (and that’s why crowd-funding had a so hard-time until recently, but that’s changing). It’s a proof that you have the financial and business knowledge to know what you’re doing (investing in risky assets), you have sufficient money to live (not depending on revenues potentially generated by investment in startups) and to invest, and finally that you invest a minimal amount per year. Often, this accreditation gives also access to a specific tax exemption.

In Switzerland, SECA (Swiss Private Equity & Corporate Finance Association) accredits business angels if they have at least $1M net worth, earns at least $200k per year and invests $100k per year at minimum. I’ve not find out – now – how many they are, but it would be very valuable for founders to know (if someone of SECA is reading, please comment below!).

Regulation is changing with the rise of crowd-funding platforms to allow angel investing for everybody (it was impossible in some countries). As far as I know, Switzerland has been pretty flexible so far and everyone can invest.

More and more, countries are exempting fully or partially investment in startup companies (see the Seed Enterprise Investment Scheme in UK). Swiss politics have been reluctant to implement this kind of exemption so far, and that’s a pity. Startups need money and create jobs. Even a partial tax exemption for the money invested in startups can be profitable over time. Absolutely sure of this. Can you imagine what it would mean for Swiss startups and economy if all the 322’000 millionaire people based in Switzerland would invest as little as CHF 10’000.- per year in startups? Yes, CHF 3.2 billion flowing every year to Swiss startups… Assuming that half of this money is paid for salaries in Switzerland, it would represent at least 20’000 jobs (without taking into account any leverage from sales revenues). It would be GAME CHANGING…

Evaluating an angel

While meeting angels, you have at least 6 key points to evaluate:

  1. Chemistry? Do you have a good feeling with the angel, can you imagine working with her/him closely? If the personality of your interlocutor can’t fit yours (I’m not telling you have to agree on anything), it will be difficult for a collaboration;
  2. Active or passive? Is your interlocutor a virgin (not yet invested but want), a latent (not invested in the past 3 years) or an active (at least one deal per year) angel?
  3. Motivation for investing in your company? Financial, business or emotional decision;
  4. Background? Banker, executive in a big corporation or entrepreneur;
  5. Money? Does she/he really has the money? And how much can she/he imagine to invest reasonably in your company?
  6. Due Diligence? How long will the angel need to make a decision? Does she/he him rely on the analysis of someone else (or an angel group)?

There are no reason not asking it directly. But you can already find a bit of information before meeting the angel. Google her/him before! I’m astonished of how few people really prepare their meeting by making a little research on the web. Rather than asking all these key informations upfront, you’ll often find out this during the conversation. And if not, ask after having done your job (pitching and convincing)! The worst thing that can happen: your interlocutor don’t want to respond you. But if it happens, think twice before accepting the money!

In my second part of this post, I’ll write on where to find business angels. Don’t hesitate to subscribe to my blog to receive my posts per email (box on the right) or to follow me on twitter.

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Here’s the second chapter!