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The library of essays of Proakatemia

Angel investing



Kirjoittanut: Ariel Cohen - tiimistä SYNTRE.

Esseen tyyppi: Yksilöessee / 2 esseepistettä.

KIRJALÄHTEET
KIRJA KIRJAILIJA
Sami etula
Esseen arvioitu lukuaika on 4 minuuttia.

Reflecting back an Proakatemia’s sales day pitches, one of the judges was Ilkka Kaikuvuo who is a Finnish angel investor and speaker. He has invested in over 40 companies in 2021 and after his speech, l got interested in angel investing. After the sales day pitches, l went to explore our library and found a perfect book: Nordic Guide To Finding An Angel Investment, written by Sami Etula, and this essay is about that book.  

 

In this essay, l will answer the following questions: 

 

  1. What is angel investing? 
  1. How a business angel thinks and what motivates him or her? 
  1. What, how, and under what terms do angels invest? 
  1. What issues in your company need to be in order before you apply? 
  1. What do business angels check in a company? 
  1. How do l determine the valuation of my company? 
  1. How is a pitch made? 

 

Angel investing is something where a private individual invests in an unlisted potential growth company to which the investor does not have any family tides. (FFF-Friends, family, and fools. Different investment options) According to Lahti (2008) in his doctoral studies, business angels are always aiming for profit for the investment and the value of the investment exceeds €10,000 (Etula 2017). Ilkka, on the other hand, said in his speech that the investments made by angel investors are starting from € 3000.  

 

Typical angel investors have served either in management positions in a large company or have been an entrepreneur for an extended part of her or their careers. Angel investors are not only bringing money to the table, they are getting their knowledge and want to help the company grow with it to gain maximum profit. The investment is always a minority investment, usually 10–30 %, and is targeted to the pre-seed, early, or later growth stage. It is not necessary to have a ready company for getting the investment, the pre-seed stage is the first stage of founding a business and can only be a good idea. There is estimated to be approximately 303,650 angel investors only in Europe. (Etula 2017) 

 

Angel investing is significantly different than other ways of investing. Angel investor is active in the growth of the company and is playing a major role in that. Studies find, investing in sweat, network, and monitoring has way better results than only giving the money and helps the company grow significantly. (Etula 2017) 

 

Angels invest only in good companies but in reality, most of them fail and go to bankruptcy. It is estimated that only 1 out of 10 companies actually succeed to bring profit and only 4 out of 10 bring the money back (Etula 2017). According to Ilkka Kaikuvuo, the odds of succeeding are fairly low and at the end of the day, it is a High risk, high-reward type of investment where he is expecting at least one company to fail yearly.  

 

The investment process is: Searching for potential companies – selecting the companies – analyzing them – final negotiations and valuation – post-investment involvement – exit. Angel investing always includes an exit at some point. (Etula 2017) 

 

When applying for angel investment, generally you want to seek help from angels, who has experience in your field of business. Generally, angels are also looking for companies, that they actually can help. According to Ilkka, it is also not an easy task to qualify as an angel. Companies that know their worth and what help they actually want. In the application process, you need to provide documents and a valuation of your company and it usually takes 6–12 months when the investor monitors the development and increases their knowledge of the company. (Etula 2017) The value for is based on the company’s balance sheet, idea, presentation, prototype, customer flow, and inter alia. The biggest angel investor organization in Finland is FiBan (Finnish business angel network) and it takes approximately 1 week for them to contact you after submitting the documents required.  

 

When it comes to pitching your idea, keep in mind that the investors are seen many of them and you should definitely nail it. It is important to summarise the growth target and keep the presentation interesting for the investor. Prepare well and go out there to tell a story.  

 

Ilkka Kaikuvuo suggested using The Greatest Sales Deck (Raskin 2015). 

 

  1. Name a big, relevant change in the world. Create a problem to which you are offering a solution. 

 

  1. Show that there will be winners and losers. Show who will profit from this situation and who will lose. For example, electricity prices that rise sky-high. Winners are the ones with solar panels and losers are the ones who need to heat their homes with direct electricity. 

 

  1. Tease the promised land. Tease the investors with your idea and present how would it change the world. Make the promised land a desirable place where the investors want to travel.  

 

  1. Introduce Features as “Magic Gifts” for Overcoming Obstacles to the Promised Land. Tell a story about how your product or service would get you to the promised land. Be the fairy grandmother in cinderella.  

 

  1. Present evidence that the story can become true. (Raskin 2015) 

 

Most successful pitches include a story. Stories always stick to your head better than boring presentations full of facts.  

 

Eventually, there will be an exit happening where the investor exits the company. The exit usually happens between three to seven years but it can extend to even 10 years. There are a few different options for the exit: Divestment, where the investor sells their holding of the company to the next investor, repurchase, where the company buys the shares back, repayment of the loan, where the company pays the debt back to the investor with interest, Refinancing, where a new investor purchases the shareholding if the original investor or Listing, where the company is listed on a stock exchange. (Etula 2017) 

 

The investment can be implemented in various ways. In return for your investment, you can get the shares of the company, where you own part of it. Option arrangements, are where you set up a target, and when achieving the target, the options will be realized too. A capital loan is funding that must be repaid, unlike shares, capital loans have interest (Accountingtools 2022). Convertible bond loan, where in a nutshell, you can convert the remained debt into share investment if the loan is not repaid.  

 

 

Seeking angel investors in the early stage of your company is highly recommended. You do not only get money, but you get valuable help from the investors who help the company grow with their expertise in the field. Don’t be too arrogant and accept the fact that you do not know everything and are willing to accept help.  

 

 

https://www.accountingtools.com/articles/loan-capital  

Accountingtools. 2022. Loan capital definition. Read on 6.10.2022 

 

Etula. S. 2017. Nordic quide to finding an angel investment. FiBan – Finnish Business Angels Network. Read on 6.10.2022 

 

https://medium.com/the-mission/the-greatest-sales-deck-ive-ever-seen-4f4ef3391ba0 

Raskin. A. 2015. The Greatest Sales Deck l’ve Ever Seen. Read on 6.10.2022 

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