What is the investment strategy ?
One in every ten entrepreneurs who manage to access angel investor money is becoming very successful. Yet statistics show that only 1.2% of entrepreneurs are able to access angel investor finance. Investors are well aware of the risks involved in investing in entrepreneurs. To reduce their risk, smart angel investors join with other angel investors to fill an entrepreneur’s needs. With this aim, therefore, angel investors come together to create groups known as business angel networks and invest together.
Angel investors, whether investing alone or through a group, typically take a portfolio approach to investment in that they invest in several companies over their investment horizon. This allows them to diversify risk, knowing that a large portion of the companies will not succeed while some will. Of course they hope that one or two will be huge winners as those are the deals that can generate high returns and cover loses of the firms that don’t make it.
Another aim of a BAN ( Business Angel Network) is to facilitate the matching of entrepreneurs (looking for venture capital) with business angels. BANs tend to remain neutral and generally refrain from formally evaluating business plans or angels. Angels continue to make their own individual investment decision, and the BAN does not decide which investors will invest in a deal. BANs also often provide a number of added value services to both angels and entrepreneurs, such as investor/investment readiness, syndication opportunities, etc.
Business angel networks (BANs) play a match-making function between angel investors and entrepreneurs – they do not invest directly themselves (EBAN, 2006). BANs help to make the investment process more efficient by connecting angels wanting to invest with other players in the local ecosystem (incubators, VCs, development agencies, banks, stock exchanges and others) and, most importantly, with entrepreneurs looking for capital (EC, 2002). One of the most important and basic roles of BANs is to give visibility to the angel activity in a region, and therefore serving as “front door” for entrepreneurs looking for financing, without necessarily giving individual visibility to the angels, who often prefer to keep a low profile.(OECD Document)
OECD (2011), Financing High-Growth Firms: The Role of Angel Investors, OECD Publishing.