7. Access to Finance and Mentor-ship: Business Angels

7. Access to Finance and Mentor-ship: Business Angels


Nine video interviews With people from different sectors What kind of support is available and
how can entrepreneurship be improved? 7. Access to Finance and Mentorship:
Business Angels Jovan Madzovski
(Regional Director of CEED Macedonia)
The topic of business angels is
relatively new, to be honest. It is relatively new for the
developed countries too. The trend and the developments
happened in the last 30 or 40 years. We are at the beginning,
however during those 30 or 40 years, practices have been developed,
experience has been gained and we know what works
or does not work. Vladimir Trajkovik
(Mentor at Newman’s Business Accelerator)
Business angels are people
who have funds; not only funds, but also knowledge and contacts.
They have knowledge about a type of business and they are prepared
to invest their knowledge, funds and contacts in a company
in order to make the company more successful in different ways.
In Macedonia the concept of business angels is in its infancy. Due to the way the market functions,
there are three types of companies in Macedonia. The first type
are the companies working for the public sector.
Business angels, by definition, are not interested in investing
in these companies. The second type are the companies
that offer outsource services to companies in or outside Macedonia.
Business angels are not very much interested in investing
in the second type of companies. The third type are the companies that
offer their own services and products. Business angels find this type
of companies the most suitable place where they can help or function.
But, the third type of companies is the smallest in number, to be real.
Business angels in Macedonia, local business angels generally
finance this type of companies and unfortunately, their investment,
their exit strategy is long-lasting, or it has been like that so far.
The reason for that is that they had to break into the new market
segment in Macedonian conditions together with the companies.
I hope that the emphasis on startup community in the last
year or two will improve the situation. . Namely, to my knowledge,
business angels in Macedonia want to invest mostly in a complete
product, in the production of something tangible,
something that can be seen. I believe in this due to the fact
that in these cases it is very easy to calculate the potential
of the product, to calculate the number of products
that can be sold. It is relatively simple to calculate
the interest or the returned funds after a certain period of support
or a certain investment. In certain areas such as the creative
industries or the IT area, when it comes to service which
is on the Internet or a creative work it is more difficult to do
the calculation. In these areas business angels still feel
somewhat insecure. One good thing is that lately,
there are foreign business angels in Macedonia who, unlike our
business angels, are interested in investing in that area. Jovan Madzovski
(Regional Director of CEED Macedonia)
We created this club of bushiness
angels at their request and according to their need because they are more
experienced in the business and most of them have already
invested within their own businesses several times or they have invested
in subsidiary businesses. The intention was to pass on
the trend that exists everywhere in the developed countries
and that is to help companies at a very early stage when it is
the most difficult to find support, not only money,
but any kind of support. Fortunately, and we are proud
to say that only talking and education led to the first investment in a local,
Macedonian company in November. It is interesting that the company
had existed before, which means it was not a start-up. Today,
we got a final confirmation, again the timing is interesting.
We got a final confirmation from the fourth business angel
who was thinking about it and he confirmed his investment.
He confirmed the amount within the whole investment.
So, the second investment has been confirmed by the angels
and the entrepreneur. The percentage has been agreed upon.
Today, we sent the first information to the lawyers in order to start
the preparations for the agreement. These investments are in the range
between 30,000 to 50,000 euros which is sufficient to start
or to continue the business. For your information,
the previous week we had a big pitch, a presentation
of new business ideas. I think we set the first record
in Macedonia. 21 business ideas were presented
to the business angels. It was a marathon, although each
presentation lasted 5 minutes plus the questions. To listen
to 21 ideas and to make a decision about which one is interesting
for the next phase or for an investment is a serious
effort and a great success for our entrepreneurs and
business angels, taking into consideration
the fact that we have existed only one year as
a business angels’ club. The beauty is in the fact
that this is not only a conversation; we do not talk about experience
from America, we do not talk about experience from Slovenia,
Bulgaria etc., we talk about something that is here,
about the local entrepreneurs who understand the concept
of business angels and they have already proved that they
are prepared to invest and share the risk with the other,
younger entrepreneurs. The club of business angels
has members who are the most influential members of the companies
and they have done a lot for the exchange of experience
and they have helped other companies. This club
educates them how to be business angels because it is not something
that you can learn from others in Macedonia. Literally,
we have to import that knowledge and we did it by visiting other
countries, bringing business angels from America etc. We have been
working all year on educating business angels about what business
angels are, how they function, the way they think,
why they do what they are doing, whether they do it only for profit
or just to donate the funds etc. Regarding the range of investment
in our club of business angels, there are 16 business angels
and all of them have signed a statement that they are prepared
to invest a certain minimum amount of money every year;
the amount is not huge, but it is not small either.
So, there is willingness to invest. And we know them for some time,
they have been members of CEED for 5 or 6 years, although there are
a few new members in this club; due to the fact that they know
each other, there is trust for collaboration which is
one of the pre-conditions. They are prepared to invest money
and they listen to the business ideas as a group, but they make
the decisions by themselves. In some cases, three or four
business angels make investments but everyone makes
the decision individually. They possess the funds.
The money for investment is not on a joint account which
is actually the model of venture or equity capital. Usually
business angels possess the funds and they make individual decisions
to invest in companies. Business angels are people
who can invest. They have sufficient funds,
so even if they make ten investments and if all ten fail, their standard
of living will not become worse. What is more important than
finance is firstly their willingness to take a risk, something that banks
and other financial institutions are not prepared to do.
There is a logical reason for that because they work with deposits,
with someone else’s money and these people work
with their own money. In addition to the risk,
the second thing is their willingness to share their knowledge. When people in the world talk
about business angels, they talk about so called
“smart money” because you can get money from other places
like financial institutions, but you cannot get knowledge.
Business angels are people who are successful in the business.
Quite often they want or do not want to invest in the industry in
which they have been successful. We have a few investors from
the IT industry and they say that they do not want to invest
in IT; they want to invest in other industries. However,
the experience that they have in the business will be helpful
for the entrepreneurs with whom they will collaborate. Vladimir Trajkovik
(Mentor at Newman’s Business Accelerator)
Every business angel wants to have
a clear vision of the possible exit strategy; after helping
the company, how will it manage the time and the funds?
Once the company becomes successful, how will it return
the funds, how will it multiply the invested funds? There is interest,
but, at this moment, they are more attracted to the low price of
the labor instead of being attracted to the quality of ideas;
they way it should be. Due to the low price of the labor,
business angels are under the assumption that the level
of investment should be lower because here the price of
the development is lower. I think that business angels have
problems in understanding that they should help in
the development of businesses, making contacts, supporting
the scalability of businesses. In these cases the Macedonian
startup scene does not differ greatly from any other regional
or global startup scene. What I am about to tell you is
based on the conversation I had with the representatives of
the European network of business angels and experience
from several European countries. Generally, the easiest way is
if the government already has a fund for support of enterprises
then it can make a matching fund or a parity fund, an adequate fund
for each company that will find a business angel. If a start-up
by itself finds a business angel who is willing to invest then
the state can double the funds, thus relieving the business angel.
Business angels will also be sure that their funds have been
invested wisely because there are state control mechanisms.
On the other hand, the state everywhere in the world
has specific administrative procedures and it is more internal when
it comes to an agile process like supporting startup community;
this problem can be solved because the business angels will be quite
interested in making the start-up that they invested in more successful.
In that aspect, managing or monitoring the start-up, which is not regulatory
or legal, will be difficult for the state because every
start-up is a story of its own. That will be emphasized or left
to the private fund of a particular business angel. I think that this is a win-win
situation which might be functional and it already functions
in a few countries in Europe and it has shown certain results. Jovan Madzovski
(Regional Director of CEED Macedonia)
There is need for business angels.
Simply, one club will not do the job. I hope there will be other clubs;
I hope that we will have the opportunity to grow in number
of business angels who invest in more startup companies
and companies which are not start-ups or help them
develop their businesses and most importantly develop
their businesses outside Macedonia. This is the perspective
of the business angels. Very often, when the underdeveloped
countries try to copy the model of the developed countries,
they exaggerate with the regulation and instead of doing a favor,
they make it more difficult for something that is in a very,
very, very early stage of nascency; and if you regulate it,
it may cause additional disturbance. It has to be done very wisely
and carefully and during a certain period of time. According to me, that challenge
stands in front of us and in the next few years this will be
definitely happening and business angels will be additionally
motivated to reinvest part of their profit in other companies. The videos are made
within the project: INVEST The project is made
in collaboration with:

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