How do business angels operate?
A business angel generally invests in pre-start-ups, start-ups, and entrepreneurs in their early growth phases. Investments usually range between €50,000 and €750,000 in the form of a loan or in exchange for ownership equity. Business angels operate as individuals, in networks or in funds.
Business angels like these invest on their own behalf. They are wealthy individuals who tend to regularly invest in entrepreneurial ventures with their own money, in sums typically ranging from at least €25,000 to over €1 million, and sometimes even more.
Business angels that are part of an angel network can invest individually. However, they have the added advantage of working collectively in the screening process and reviewing deals, and having the option of investing in new ventures together. In the Netherlands there are a number of angel networks that are united through the networking organisation Business Angels Networks (BAN) Netherlands. They also have a European and International branch. However, access to their website is restricted - if you want to contact them, best go through your bank or accountant.
In an Angel Fund, business angels pull their resources together but act as one investor. This means they decide as a whole on each investment; no individual investments are made. By doing so, each venture that receives funding will receive a much larger sum. Being able to pull capital resources together is beneficial because it prevents the entrepreneur from needing to seek further outside financing from other sources such as venture capitalists. This ensures that angel investors will reap a greater return on their investment.
More than just money
Business angels bring a lot more to the table than just money. They also have expertise and experience that they're willing to share, as well as access to their personal network. Their involvement is often hands-on, especially during the early stages of starting a business. The more stable the business becomes, the less a business angel involves him/herself in its day-to-day operations.
Where can I find a business angel?
In general, business angels don't walk around flaunting their venture capital. The best way to find a business angel is via your own network, bank or accountant. The latter often have lists of potential investors. Many business angels also form informal investor networks.
Amsterdam Capital Week
Every year, the Amsterdam Capital Week offers startups who are looking for financing an array of workshops, meetings and networking opportunities to present themselves and find a financial partner in the Netherlands. Find more information on the Amsterdam Capital Week website.
Customer Due Diligence (CDD) and foreign investors
If your company attracts a foreign investor, for example in the form of an equity stake, you should contact your bank before the investment is actually made. This will enable the bank to carry out the Customer Due Diligence (CDD) process correctly, as is their obligation under (amongst others) the Prevention of Money Laundering and Terrorism Financing Act (Wwft). Part of this process is gaining insight into money flows (from abroad) and, sometimes, the organisations and persons involved.
If a new foreign investor becomes involved in your company, and the ownership structure of your business might change as a consequence, you will have to inform the bank of these changes beforehand. The bank will then inform you of the information or documentation it needs to carry out their CDD policy. This also enables you to prepare for the actual investment by a foreign party in your business. You can start collecting the necessary information yourself, while requesting part of the information from the intended investor. This may prevent delays and disappointments in the process later on.