With low rates, market uncertainties, the attractiveness of the world of innovation/start-ups, private investors may be tempted to invest in the companies of tomorrow. Luxembourg with a robust ecosystem is no exception. Becoming a Business Angel is a journey that requires particular thinking.
Before starting to become a Business Angel, you may ask some essential questions and define an investment strategy. That means define at least your motivation, your objectives, your budget, the duration/time, the type of investments and the working model you would like to work with the start-up. Let’s go over these points together.
The first step is to start with your drivers, objectives and reasons to stop if any. If your only driver is money, you better stop reading here. Different other elements may have more or less importance in your reflexion: take part in an entrepreneurial adventure, support the new generation of businesses, provide added value/expertise/ experience/networking, diversification of the investment portfolio, stay up to date with the latest market trends, stay active during the professional or personal transition period. Then, you need to decide the time and money to invest. We must acknowledge that early-stage start-up investing is a high-risk activity. Investments in start-ups can result in profits as well as losses up to the full amount invested. As a Business Angel investment network, we recommend not spending more than 2-5% of personal wealth, to build a portfolio approach and also starting by calculating the typical amount per investment/round. Start-up investments are illiquid, and often take 4-6 years to generate realised gains, if any.
When you start to invest in start-up, you need to be clear on the type of investment you are willing to do. You can decide to invest in your name or your (investment) company’s name, as well in equity or debt or debt convertible to equity. There are other considerations to take into account: Do you want to support a social profit enterprise or a traditional business, in which industry, what stage of development should the company be (seed, early start-up or start-up and size of financial need now and in total)? On top of that, you need to ask your self the type and timing of « Exit » and analyse some critical evaluation criteria(people, product, market, uniqueness, business model, values, sustainable development or risk/reward profile and mix). The working model you would like to work with will also define the relationship with the start-up (passive, active or very active). A recent survey from EBAN and BAE, shared that the average monthly hours per Angel dedicated to start-ups is 23.5 hours (Nov 2019).
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