In this article on business angels clubs you will see :
- At what stage of development of the project to call a business angels club : in the seed phase for most startups.
- Where to find a business angels club : after a google search, many clubs appear : France angels, Euroquity, Femmes business angels…
- How much can you expect to raise from the clubs : from 300 000€ to 500 000€ (an average of 20 000€ per business angel according to BPI France)
- How long does the fundraising process last : between 6 and 9 months
- The different stages of the process : contact, submission of the file (pitch deck and business plan), pitch to a jury, audit, negotiations on the entry into the capital, closing (signature of the shareholders’ agreement).
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Business angels clubs are particularly active in financing startups in their early stages. However, in order to prevent the risk of failure of the startups, the criteria of selectivity have increased with time and are close to those of the investment funds in “early stage”.
In this article, we will review the different steps and questions to ask in order to obtain financing from a business angel club.
When to call upon a business angels club
As a general rule, business angels intervene in the seed phase when the startup acquires its first users. Business angels intervene early in the financing phase just after the love-money (financing by friends and family), public aid (competitions, honorary loans) and non-dilutive participative financing (participative financing with or without counterpart). Thus, business angels intervene towards the first year of creation, which is a very critical phase for entrepreneurs and risky for investors. The amounts invested by the business angels allow the entrepreneurs to support the small-scale deployment of the entrepreneurial project and to test the solution on the market.
Business angels invest early in the capital of a startup. Therefore they have to trust the entrepreneur and his team with the limited market feedback. Often business angels invest by “coup de coeur”, i.e. if they like the entrepreneurial project, and/or if the team seems solid and complementary to bring the project to term. Thus, as at this stage of the project, the startups generate little revenue and have little evidence of traction in the target market, the business angels make their decisions on subjective rather than objective criteria.
Where to find a business angels club ?
There are many clubs. Just google “Business Angels Club France” which will lead you to clubs such as : Euroquity, France angels, Femmes business angels… However, the problem is choosing which club to join. In order to determine which club to join, the procedure to follow is as follows :
In an excel file, make 6 columns with the following titles :
- Club name : Enter the name of the business angel club
- Club Specialty : Does the startup’s activity correspond to the club’s sector of specialization?
- Geographic area of investment : Where is the club located and in what geographic area does the club invest ?
- Contact information : Phone number, e-mail address. All types of contact information to get in touch with the club
- Initial contact : Date of first attempt to make contact
- Negotiation follow-up : Include feedback from the club, documents requested
With all the information entered in the table, it becomes easier to choose which clubs to contact.
How much to expect to raise from a business angels club
According to the BPI, by going through a club the entrepreneur can hope to raise from 300 000€ to 500 000€ (an average of 20 000€ per business angel). The amount invested is quite low because the phase in which the business angels intervene is very risky. However, this is an average, so some business angels and business angels clubs invest much more than 20 000€. For example, the business angel Jonathan Herscovici, a French entrepreneur in bitcoin and fintech, is part of a club with other entrepreneurs and invests between €10,000 and €50,000 per startup (see Maddyness article).
The advantage of joining a business angel club for the entrepreneur is that he can easily double the amount of money raised because instead of having a single business angel investing in his project, he may be able to convince 2 or 3. Thus, he is sure to obtain the necessary amount or even more and, for the business angels, the advantage lies in the mutualization of the risk as well as a signal of confidence because if they are several business angels to invest in a project then it testifies to the fact that several of them see the growth potential of the startup.
Timing of fundraising from clubs
The amounts raised are certainly less important than startups in the pre-series A phase and beyond, but the timing remains the same. It takes between 6 and 9 months to raise funds from a business angels club. The fundraising process can take more or less time depending on several parameters (the reactivity of the team, the reactivity of the club, exogenous obstacles (crises etc…). Thus, the timing is important for entrepreneurs who wish to approach clubs.
The different steps of the process
Making contact and submitting the application
The first contact is made by sending the investor documentation. Some business angels clubs use online platforms in order to facilitate the processing of applications. By convention, the documents to be sent are : the financial forecast and the pitch deck. Depending on the business angel club, other documents will be requested from the entrepreneur such as the breakdown of the financing needs and others. Since the business angels clubs receive a large number of applications, it is important to have a neat documentation in order to make a good first impression. Therefore, using a fundraiser, such as Advimotion, to stand out from the crowd from the beginning and to obtain quality documentation can be a beneficial strategy.
Presentation of the project in front of a first jury of business angels
If the financial documents of the startup succeed in arousing the curiosity of the club, the entrepreneur can present his project orally in front of a jury of business angels. This is called a “pitch session”. In fact, there can be several pitch sessions during the investment process. Indeed, there is the elevator pitch which is very short with the objective of convincing the audience in a few tens of minutes and a pitch in plenary session with a question and answer session. The business angels will not hesitate to ask for as many meetings as necessary with the entrepreneur and his team in order to obtain all the information they need to facilitate their decision making.
The audit phase
If the project has been well received during the pitching phase, the business angel club begins an audit phase of the company. The objective is to dig into the important points before a final investment decision is made : breakdown of turnover, market size, complementarity of the team, etc.
During this phase, the entrepreneur and his team must be as frank and transparent as possible. Indeed, if the business angels notice that some information does not correspond to what was presented during the presentation, the whole fundraising process will be questioned.
Finally, the audit phase requires the entrepreneur and his team to be reactive and to move quickly. Indeed, many documents will be requested. If the entrepreneur does not respond quickly to the club’s requests, the fundraising process may be delayed.
Negotiation on the entry in the capital of a business angel
During this phase, the parties must agree on the financial aspects as well as the non-financial aspects. The financial aspects concern the amount released, the use of the funds, the exit horizon, the exit (purchase of the company, IPO…), the expected return on investment. The non-financial aspects concern everything that the business angels can bring to the startup apart from money (provision of their personal network, help in structuring the business model, help in the operational strategy, organization and management of the company etc.). Indeed, because of their experience, business angels have other skills that they can bring to the entrepreneur to maximize the startup’s chances of taking off. These entrepreneurial experiences are as important as the financial contribution.
The process of raising money with business angels clubs is very similar to the process of raising money with investment funds (same expectations from investors, same steps, same timing, same financial documents). The only difference is the level of risk and the amount of money invested. But, in both cases, it is necessary to be well prepared beforehand to be sure to exit the process with the desired amount.
In order to put all the chances on your side, don’t hesitate to contact Advimotion, startup fundraiser and startup coach in the achievement of their financial goals.
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