The term "Business Angel Investor" refers to those individuals who back new entrepreneurial ventures with promising business plans. They are the largest source of real risk capital in the country and the least understood. In fact, outside the major financial centers, they are often the only source of risk capital for the entrepreneur.
Business Angel investors are wealthy individuals, often former or current entrepreneurs, who help finance startups in exchange for equity. Although less well-known than venture capital, Business Business Angels invest more in total than VC firms do. The resources available to find Business Business Angels in South Africa include organisations such as the Investors Network industry associations and venture capital seminars. However, the best resources are often your attorney or banker.
The term "Business Angel" was first used in the USA on Broadway to flatter wealthy people who invested in theatrical productions. These days it extends to private investors in businesses that have outgrown credit cards and loans from friends and family as a source of new capital but are still too small to attract professional venture capital.
The informal Business Angel market plugs a gap caused by the very success of professionals. The total amount of money managed by venture-capital funds has grown dramatically in recent years, yet it takes as much time to properly research a small investment as it does a larger one. As a result, the average investment of a venture fund has likewise grown to the level where many venture firms won't even look at a business that needs less than R10 million, even though many ultimately successful high-tech businesses start out at this scale.
The biggest trend in the Business Angel world is the creation of formal networks. Business Angel investing has historically been a costly, hit-or-miss affair, with personal connections and introductions being the primary way that investors and entrepreneurs match up.
Business Business Angels are wealthy individuals who will write you a personal check, ranging anywhere from R20,000 to R1 million, to help finance your company. There are many flavors of Business Business Angels, from the retired dentist hoping to impress his golfing buddies by getting in on the seed round of the next eBay to the former CEO who wants to stay in the game (if not up until 2 a.m.) by helping startups grow.
At some point you likely will raise money from a large venture capital firm, but it won't be the first financing you receive. Most VC firms today won't make investments less than R10 million to R15 million. Yet virtually every Net company needs to raise a seed round of a few hundred thousand Rands to allow the founders to quit their day jobs, create the skeleton of the company, incorporate, build a prototype Website, file for necessary patents, and so on. Taking less initially lets you build the value of your company and lets you give less of it to the big VC fund when you eventually raise that R50 million round.
