Timestamps:
5:26 - What is a business angel
30:47 - The investment process
42:15 - Whether angels accept board mandates
46:05 - Managing a portfolio of over 30 investments
59:29 - Why angels are important for the ecosystem
The Episode in 60 seconds
What you need to know about angel investing in Switzerland.
The most common mistakes of new angel investors:
- Accepting the first deal they are offered: many new angel investors fall into the trap of investing into the first deal they are offered without due diligence. Even if the founders are people you know, this can still end very badly and potentially destroy friendships and/or your future ability to invest.
- Failing to consider the business model: too much excitement about the team or idea can cover up a lack of a working business model that will allow the company to scale and be sold at a profit.
The investment process:
- First contact with a pitch deck and fact sheet
- Meeting to get to know the team and clarify questions
- Proposal / term sheet: details of how much money is getting raised at which valuation
- Due diligence
- Notarizing the issuance of new share capital
- Great templates for most of these steps can be found at SECA
Make sure you are covered — the shareholders agreement:
- The shareholders agreement sets out the rights and obligations of shareholders and is an important part of any investment deal.
- If you hold less than 50% of the shares, it should include some type of minority protection so you have a say on important business decisions such as the business moving abroad or changing the business purpose.
- It should also include a liquidation preference for shareholders, meaning that if the company goes bankrupt, shareholders will be paid out any remaining capital first before the founders receive any money.
Full-time business angels:
- It’s possible to be a full-time business angel i.e. to live from the returns you get on your investments.
- This takes some ramp-up time because there may be a considerable gap between your first investment and your first successful exit that allows you to live off of the returns.
- Diversification is key. It is unavoidable that some investments will be lost. Diversification protects you from losing your entire investment.
Advantages angel investors bring to a business:
- Experience: angel investors are often former entrepreneurs themselves, so they’ve "been there, done that" in most of the situations a young company encounters.
- Credibility: an angel investor on the board can give other investors confidence to invest.
- Network: especially if the angel investor has a large portfolio, they may be able to connect their companies amongst each other so they can benefit from shared learnings.
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