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Investors that specifically help young high-tech entrepreneurs: in June, the experts from Business Angel Club Aargau will first be examining young entrepreneurs’ ideas, then deciding on “financial injections”.
Start-up companies are predominantly financed from equity capital. At the beginning, this usually means the famous “three Fs”: Family, Friends and Fools. These groups of people invest in new ideas because they place great trust in the founders and may also, somewhat naively, recognize the great potential in an idea. There are also a fourth and fifth F that can be added to the original three; these are considered welcome particularly by future investors. These are the Founders, i.e. the founders themselves, and the Foundations, with their prize and sponsorship money.
Founders who risk their own capital thus declare for the record that they are very confident about their project. This also means they will have the corresponding level of dedication. When foundations or other organizations finance start-ups, in doing so they underline the potential of business ideas. These funds are usually awarded based on the assessment of a panel of experts. Especially in the high-tech sector, where further financing rounds become necessary later on, such “awards” play into the hands of start-ups and facilitate their search for investors.
Private investors participate in the risk
But what if the five Fs are not enough? Inventions and developments often require additional capital and more time to generate innovations, i.e. innovations with market success. Technology-oriented start-ups or those pursuing a process or service innovation usually build their prototype first, to test the response on the market. However, further costly steps are required before the finished product can be available.
In this phase, business angels are welcome investors. As private investors, they are ready to invest substantially in a business idea. In return, they obtain ownership shares in the start-up and, as entrepreneurs, at best, also gain a knowledge advantage over competitors. Business angels examine new business ideas very carefully. Their list of important things includes a good team, an innovative, scalable offer, and a large or addressable market. In the end, however, a business angel's entrepreneurial sense often decides whether they will invest.
What does a business angel have to offer?
- Risk capital for further development steps.
- Personal commitment, network and entrepreneurial experience.
- Industry knowledge – not necessarily, but very often.
What does a business angel expect?
- Ownership shares in the company.
- A dedicated team, working hard on the business idea.
- Information and open communication about business development.
40 members in the new Business Angels Club Aargau
How can a start-up company find the right business angel? One possibility is to fearlessly approach potential investors and explore networks. On the other hand, however, there are business angel organizations that provide contacts.
The new Business Angels Club Aargau was founded in 2018, on the initiative of Aargau Services. Based at the Technopark in Brugg, the club has the simple purpose of connecting capital-seeking start-ups with business angel investors. It sees itself as a platform for holding “pitching events” three times a year. The events enable selected start-ups to present themselves to the club members. The focus is on young companies in Aargau with new business ideas in the seed and start-up phases.
After pre-selection by Aargau Services, the start-ups are chosen by the club’s executive committee. In this context it is important that the young companies should be equipped with a good team, an innovative business idea with recognizable market potential and advance contributions in the form of investments (by the five Fs or initial seed investors). The members of the club are people who are entrepreneurially involved in up-and-coming start-up companies. Business angels are in a position to make substantial investments, typically between CHF 200,000 and 2 million in financing rounds, usually with individual investments of CHF 50,000 or more. Business angels often have a personal affinity to the project, the technology or the industry. It is not unusual for them to also serve on the administrative boards of start-ups.
The Business Angels Club Aargau currently consists of almost 40 members. The first four start-up presentations are planned for June 18. It will be interesting to see whether the young companies find the risk capital they are looking for.
Florian Gautschi, Project Manager at Aargau Services and Secretary of the Business Angels Clubs Aargau.