Why to invest in startups?
I was invited to present at the KU Leuven International days about the common criteria for business angel investments in Europe. As a member of the biggest European business angel network FIBAN (Finnish Business Angels Network) and a startup enthusiast, I was pleased to have the opportunity to explain to students the important role business angels have in financing startups.
According to the data EBAN (European Business Angels Network) has collected, the total money invested in early stage companies was EUR 7,5 billion. Of this amount business angels invest 73% EUR 5,5 billion. There is a lot of hype about crowdfunding but it is still a minor form of financing making up only 1% of the total instruments. Although VCs traditionally concentrate more in later stage companies, they have become more active in the early stage seed financing and invested EUR 2 billion.
With time, business angels have learned to better diversify their risk and although the investment per individual startup has gone down, the total amount invested in startups has increased. The average investment per business angel is around 20,000 EUR. Business angel activity is high risk and keeping in mind that 9 out of 10 companies fail, the ROI expectations are high in order to cover for the losses. People investing in startups are prepared to tolerate uncertainty, but in return enjoy the passionate startup world.
In my presentation I covered the types of investors and the potential pros and cons of having a business angel onboard. A business angel is your partner for the longterm. A business angle does not only bring the needed cash but also their knowledge, personality and network. Studies show that a startup with a business angel investment is more likely to succeed.
My most important factors to consider when investing in a startup are:
•Excellent founding team
•Product internationally scalable
•Unique innovative idea or substantial improvement (IP protectable)
•Good pitch (know your S**)