Business angels make personal investments into businesses. Therefore, they are very careful about their investments. This brings significant benefits to other investors.
Rigorous due diligence
Wealthy individuals, who have chosen to become business angels can invest considerable amounts in early stage companies. They have been successful business people themselves so can apply significant expertise to the research and analyse of a company; its team, market, opportunity, competition, and other business fundamentals.
Negotiating the valuation
Investing at the appropriate valuation is crucial to generating a good return for investors, and for entrepreneurs. Valuation is critical to the entrepreneur’s ability to grow the company – it has an effect on the ability to raise later rounds of capital from other investors and the way a company, and its team is viewed by those investors.
Supporting growth post-investment
The company’s growth path can be affected dramatically by having successful business angels as investors. Angels add their experience, domain knowledge and often have an extensive network which they can call on to help a company grow.
Angels are experts
In the largest study of angel investment returns ever conducted, authored by Robert Wiltbank of The Angel Resource Institute at Willamette University (ARI) results showed that angel investors achieved an average 22% internal rate of return on their investments. It doesn’t mean that they never experience failures. However the overall return from building a diverse portfolio is positive. See the study here.