Business Angels and Love Money Investors
Angels and Love; these two words from the classic fairy tales have found a meaning and definition in the financial world. These words are to children in the fairy tales as they are to infant companies/businesses in their early stages in the financial world. The following essay seeks to describe how.
Business Angels are investors who invest in start-ups or in businesses in their early stages using a high-risk, high-return matrix. Business Angles are of two types- affiliated and non-affiliated. Affiliated angels are investors who are either personal contacts of the entrepreneurs or have some personal interest related to the company. Non-affiliated angels have absolutely no connection with the business or company. They are usually bigger companies, or influential investors who are willing to take the risk.
Investment by love money investors on the other hand, are described as investment made in budding entrepreneurs by those with the closest connections to them: family and friends.
Even though love money investors and affiliated business angels sound like similar concepts, the two investor groups slightly differ. While love money investors are informal investors, whose investment (as the term defines) comes out of the love for the people involved with the business in question, affiliated angels are professional investors who happen to be from the entrepreneur’s friend/ family circles. Where love money investors, do not invest with the expectation of a high return; affiliated angels (or any angel for that matter) invest with the expectation of a high return.
For love money investors, the decision to lend money and the terms of the agreement are usually based on qualitative factors and the relationship between the two parties, rather than on a calculated risk analysis. While angels always calculate their risks and returns, and invest accordingly. Also, unlike love money investors, business angels require certain superior rights, privileges and preferences for their investment.
A start-up/ a business in its early stages, has huge investment requirements that entrepreneurs are often not be able to fulfil themselves. Raising money, through normal investors or venture capitalists, becomes difficult for such entrepreneurs.
However, for survival, they do need the money. Hence, business angels and love money investors, having interests larger than just safe returns, are a huge boon to such businesses, when other normal investors are either not willing to invest in them, or are demanding too much.