With the current situation of the economy and recession, 2010 saw many small businesses liquidate as well as large corporations downscale their staff to the minimal. Hence, many skilled tradesman have ventured into their own small businesses, backing their own business plan and personal commitment to make the idea a reality. Banks are not easily offering loans and it is becoming more difficult to secure business finance. Start-up capital is often a necessity to get off to a good head start with my business venture.

Business finance in South Africa, as many other parts of the world has become an increasingly sought after and often scarce resource for entrepreneurs. The thought process behind this from the banks perspective is now well known and much discussed and for many entrepreneurs seeking finance, business angels and virtue capital firms have become a sought after option. Business angel investors often provide the first significant outside capital invested in start-up companies. After an entrepreneur or team of entrepreneurs identify a business opportunity, and exhaust their own resources, they often turn to business angel investors to keep the venture growing. Without this capital, many new ventures simply cannot grow.

As entrepreneurs create new opportunities, some ventures show great promise and growth, and some of those will require additional capital. That capital can be provided in the form of debt or equity, but new venture risk is usually something that the banking industry avoids (with the exception of the credit card industry). Formal venture capital and business angel investors help meet this investment need of new ventures, a role that is uniquely important at a time when credit is particularly tight.

Angel investors are often more likely to get involved at the early stages of start-ups which many of them fund exciting and forms part of the reason why they are investing in businesses in first place. They want to get involved in the business and support the owner on the start-up and growth sages of the business. Because of the nature of their interest and resources a at their disposal this also makes plenty of the business sense as their relatively low investment at the early stage can secure them a healthy share of the new companies equity. They have become an increasingly important source of equity finance over the last decade for new and nascent businesses as venture capital investors are not able to accommodate a large number of small deals with their attendant due diligence and oversight needs. Business angels are now prominent coinvestment partners in the early-stage market.

Venture capitalists are more likely to invest money once the business is established, providing greater monetary amounts in return for shares in the business, and sometimes a role in the company, usually at the board level. Venture capital firms are more likely to take on high investment opportunities where the return may be equally attractive in order to justify the risk being taken in the first place. So as a small business or entrepreneur, this is something that you and your business angel may consider at a later stage of your business.

Angel investing is becoming more popular in South Africa. Contrary to media reports about the lack of accessibility to private investors and their inability to fund new businesses, South Africa still has its economic obstacles to overcome - fairly high everyday living expenses and a high unemployment rate - investors are trying their utmost to bring more business into South Africa, since investing is the only way to revive an economy.