The Angel Investor in the Startup’s Ecosystem
“Angel investor” is one of the best names in the business literature. Maybe, too good a name, to the extent that startups tend to perceive this category of investors as a solution to all problems, which is not. That is why I’ve tried to place it in two ecosystems. You’ll find out what an angel investor may and, especially, may not be.
The Money Ecosystem
The first ecosystem is time-related and refers to the capitalization cycles of a startup. Briefly, an angel investor turns up, as financer, sometime after the founders, but before the capital that demands a completely quantifiable and repeatable Return on Investment. Using bullet points, the ecosystem looks like this:
- Founders: Naturally, they are the ones who start the business, but from the point of view of the resources invested, the contribution in capital is small and this is compensated by work and ideas.
- Angel Investor: It comes after the founders phase and takes a high degree of risk in exchange for a (minority) part of the business, which will be monetized only in case of success and only after a number of years.
- Venture Capital: As different from the Angel Investor, it is an institutional form of financing, even if it includes taking risks for remote benefits. A Venture Capitalist will bring about financing from third parties, as compared to the Angel Investor, which risks their own money.
- Mergers & Acquisitions/IPO: In the exit phase (Mergers & Acquisitions) and/or during the phase of listing on the stock exchange (IPO – Initial Public Offering), the startup is on the brink of maturity, in the sense of a long term predictable profitability. The more available money, the stricter the financing conditions.
Ecosystem of the Organizations and People
If the money ecosystem is time-related, the organizational one refers rather to a definite moment at the beginning of the evolution of a startup. From this point of view, the Angel Investor lives together with the founder among the following organizations and communities:
- Incubators: (Profit or non-profit) organizations that ensure business trainings and work spaces for startups. Most frequently, they are governmental programs and financing.
- Accelerators: These are similar to incubators, but are mainly focused on the growth process of a startup, than on facilities. In the USA, these are rather private than governmental, the same as in the case of incubators.
- Other types of mentors/consultants: Together with the Angel Investors, founders also work together with other experience holders, such as mentors (pro bono or financed by third party organizations) or consultants (which work for a definite fee).
- Communication/networking facilities: To more or less formal trade shows and clubs, you can add Web 2.0, groups ranging from specialized blogs to LinkedIn and other types of presence on social media.
As for financing, a successful entrepreneur will know to look for the appropriate kind of resources which match the growth moment of the business. As for people and organizations, a successful entrepreneur will be able to keep their eyes on the various opportunities available, irrespective of how much they would focus at a certain time on one of them.