As they say, business is always done using 'others money.' But entrepreneurs also need to use immense emotional intelligence when it comes to choosing an angel investor. "Your first angels are those that know you, trust you, believe in you and will guide you," said Ihsan Jawad, the founder of Zawya.com and co-founder of Honey Bee Tech Ventures, an investment company focused on the consumer internet space. They typify the true meaning of angels.
"Angel investors appreciate the risks inside, understand the complexities of growing a business and that a high proportion of companies will go bust. But they also know that they will find some stars amongst the list," said Edward Roderick, co-chairman and Managing Partner at Envestors MENA, a UK-based business angel network with its regional headquarter in Dubai. "Since they believe in the business, they will get you through all the difficult situations because they believe in the management team." All the experts interviewed by Zawya agree that there are two categories of angel investors a) Family and friends and b) Informed investors. We asked them for insights into understanding the angels better...
Two categories of angel investors
Family and friends: It involves little more than providing financial commitment and support to the entrepreneur from time to time," said veteran banker Suresh Kumar, chairman at Values Group, a strategic advisory services that also offers private capital and investment management services. "At best, they are investing in an 'idea'. If they are not well informed about the sector or business, then they can provide emotional comfort to the entrepreneur. However, if later things go wrong, families and friends will have the capacity to understand the situation and not get upset that their money was lost," said Kumar.
Informed investors: They will carefully assess the risks, rewards and potential of the 'idea'," said Kumar. "They are also likely to be monitoring the investment. If things go wrong, they may intervene with solutions to help remedy the situation. However, they will be upset, if the entrepreneur goes 'off track' from the initially presented business plan. Or if the entrepreneur ends up carelessly burning a lot of cash." The above two categories are further divided into different personality types. Know your angel:
Mentor angel investor: "This type of investor helps young entrepreneurs and influences his/her decisions. This type is perfect for new start-ups," said Iyad Mourtada, managing director at OpenThinking, a business learning platform for executive development in leadership, entrepreneurship and innovation.
Professional angel investor: This type of investor loves to get his hands dirty in the business and get involved in the operation. "Great for entrepreneurs who need capital and a close business partner," said Mourtada. This kind of investor is not just looking for a star. "He or she is also willing to give their time, effort, contacts and industry knowledge to help that process," added Roderick.
Core angel investor: "This type is perfect to support high-tech entrepreneurs who do not want to get involved in the day-to-day operations of the business and prefers to focus on technical aspects. This investor will manage the business to ensure smooth running," said Mourtada.
ROI angel investor: This type provides the capital for financial stable business and is interested only in the return of the business without any direct involvement in the business strategy or operation, said Mourtada. This kind of investor is also cold-hearted, said Jawad. "He does not know you nor is interested in the space you are in - he has spare money to invest, likes risk taking and wants to deploy that as an alternative investment. But he would only look at the financial point of view. This is a shrewd investor who would want to negotiate more than any other kind," he said.
Corporate angel investor. This type of investor will handle the strategic management levels of the operation, noted Mourtada.
Looking for a star: Such investors are obviously high net-worth individuals who usually have 90 percent of their money invested in a variety of more stable environments such as stocks, shares cash and funds and so on. "They will allocate around 10 percent of their funds into high risk strategy areas where they are looking for a potential star," said Roderick. "The kind that will give them lot of kudos from being associated with the business when it becomes well-known and great opportunity to get massive enrichment from the process."
Furthering family interest: "They want a business that the members of their families can get engaged with - at some stage," noted Roderick. "This may be their inheritance for the future or an initial introduction into business in a small way. If it succeeds, they get big and outperform their fathers - eg Richard Branson."
In your space: "This kind of investor is very close to the space that you are in or likes the space you are in," said Jawad. "Some love arts, certain industries or services like restaurants or organic products. Basically, they are passionate about your sector and also want to learn more about that industry."
© Zawya BusinessPulse 2013
"Angel investors appreciate the risks inside, understand the complexities of growing a business and that a high proportion of companies will go bust. But they also know that they will find some stars amongst the list," said Edward Roderick, co-chairman and Managing Partner at Envestors MENA, a UK-based business angel network with its regional headquarter in Dubai. "Since they believe in the business, they will get you through all the difficult situations because they believe in the management team." All the experts interviewed by Zawya agree that there are two categories of angel investors a) Family and friends and b) Informed investors. We asked them for insights into understanding the angels better...
Two categories of angel investors
