Struggling to get your business idea running? A new breed of financial backers can provide much-needed capital boost
So you think you’re the next start-up hotshot, huh? Concept and cash alone won’t get even the brightest idea off the ground.
Luckily, there are angel investors, people who provide financial backing for small and starting businesses, waiting in the wings.
The concept is still in its infancy here, as local investors still prefer traditional assets like real estate or commodities. But a new awareness is evident among young group of investors and entrepreneurs as they scout for alternative means to meet their objectives.
Strength in numbers
Surprisingly, you don’t need to be super rich to become an angel investor.
“Regardless of your personal wealth, there are a variety of platforms that allow you to invest in start-ups,” says Robyn Brazzil, programming head at Idea Lab, the innovation and entrepreneurship platform at NYU Abu Dhabi.
“There are crowdfunding platforms or local investing groups like Womena that combine capital money from individuals to form a larger investment pool.”
Tammer Qaddumi, co-founder of the UAE-based angel investing group VentureSouq, adds, “Anyone can be an angel investor. If you believe in an idea, business model, and most importantly, a team of people, then it could make sense to participate in that company.”
It’s common for angel investors to extend more than just cash support. Most of the time, pieces of advice are also traded, adding a personal dynamic to the investor-owner relationship.
“Owning a piece of the company aligns the investors’ interests with the company’s interest, incentivises the investor to leverage his own skills or network to help the company,” explains Tammer.
Betting money on a fledgling, unproven product is a risky undertaking. That’s why it’s important for start-up owners to do their homework before sitting down with potential investors.
“They should have a very clear vision and understanding of their company that they can clearly communicate,” reminds Robyn.
“Also, if the start-up already has some modest success like first customers, a key partnership, a unique business model or an innovative and protected technology, these are some things that will help them stand out.
“It’s also vital for start-ups to understand what stage they are at in the company’s growth, and try and match with the investor that is appropriate for that phase.”
Budding entrepreneurs can check out AngelList, as well as local groups such as Flat6Labs, Turn8, DTEC, in5, AstroLabs and VentureSouq for possible funding sources. These groups usually conduct demo days where they invite investors to hear pitches and find investment opportunities.
Investor groups ensure that funding applications are screened, curated and have met certain criteria to guide angel investors in their decision-making.
No one knows for certain though whether a business will succeed or fail in the long run. Despite the tedious process, gut feel still plays a major role in an investor’s decision in the end.
Tammer says, “Of course, everyone needs to manage their money sensibly – most people would not choose to invest all of their savings into start-ups.”
“But helping fund a business you believe in is a positive and potentially financially rewarding use of capital, and it can be accessible to anyone.”
Robyn adds, “Investors should educate themselves on the particular risks in investing in start-ups versus other traditional investments.
“While the risk is high to invest at the early stages of a company, the opportunity for reward can be significant too as start-ups have the potential to grow rapidly.
“There is also the non-financial reward of helping a young business flourish and contributing to economy’s growth through job creation.”
“The terms between the companies and investors vary, but a deal is usually structured as an amount of capital investment in exchange for a percentage of equity ownership in the company and possibly additional rights for the investor to participate in future rounds of fundraising,” explains Robyn.
Tammer adds, “As an equity holder in the business, the investor would have the rights to proportionate share of the profits and losses, assets and liabilities of the company.”
In an event that the company is acquired, the investor will be entitled to the share of the sale proceeds. An investor can also sell his ownership stake and transfer the shares to someone else.
Need to know
Want to learn more about the ins and outs of angel investing? Attend Angel Rising 2016 – Investor Education Symposium on 30th April at NYUAD, Saadiyat Island. Workshop runs from 1.30pm to 6.30pm. For more information, contact: firstname.lastname@example.org, nyuad.nyu.edu