Insights from managing a business angel network
An interview with Dr. Robert Redweik, founder of Balis and the Munich Business Angels
Can you give us a short introduction about yourself? “My name is Robert and I am 36 years old. I studied Chemistry and Business Administration a long time ago at the TUM. Afterwards, I worked at the Siemens Technology Accelerator. At the end of 2006, I started the entrepreneurship center together with Andy Goldstein and Prof. Dietmar Harhoff. During this time, I also conducted my PhD at the LMU in the field of finance and the organizational success of Business Angels Networks. Subsequently, I founded a Munich Business Angel Network, which has around 130 investors by now and my own venture BALIS. At BALIS we invent, produce and sell lemonade drinks which are all made of natural ingredients. Besides my entrepreneurial background, I have been singing in a boys band and published a solo album.” What is the most memorable startup you have invested in or you have seen so far? “The most memorable startup for me is my own startup BALIS because I have the deepest connection with it and have seen all of the ups and downs of the startup journey. Besides that, I saw FlixBus from the first minute when they were still called GoBus. I could see how they formed their business and how fast they were growing afterwards.” How do Business Angels decide which startups to finance and how do they differ from Venture Capitals funds? “Business Angels, as the name already says, are indeed the creatures with two wings; they have a capital wing and a network wing. Angels have often earned their money through their own entrepreneurial activities and want to give back when investing in startups. Of course, they have the financial return in mind, but they also want to have the excitement and the thrill of building something new. They can also guide founders and provide them with useful contacts and reference to their own experience. In contrast to Venture Capital Funds, the investment process is often more personal and Angels typically invest earlier when the risk is much higher. They also invest their own money which means that they bear high personal risks. This also means that there has to be a strong belief in the founders and that the team can survive the challenges ahead — even unexpected challenges as the current situation.” What do Angels expect from startups other than a financial return? “This differs from Angel to Angel. There are some angels who love to be actively involved in a startup and even support the startups in their daily operations. Other Angels do not want to take an active role and consider a startup where they need to be involved as a bad venture. Other angels mostly think as a “money” investor and demand a lot of reporting and discussions. A growing number of angels also want to see the impact of the startup and consider social or environmental factors.” What is the biggest problem for Business Angels when they decide to invest in a startup? “One problem is that Angels deal with a lot of uncertainties when investing in a startup. You do not know if the team will be stable, if the business environment will change and if the business case will work out as planned — or that the most important things will work out as planned. It is also difficult to get a full overview of the venture, the founders and the market and to compare this with other ventures. This is also why Angels rely on their network, through which a certain selection takes place. But to fully evaluate a startup accurately is one of the toughest tasks for a Business Angel.” What factors should startups pay attention to when trying to find suitable Business Angels? How can they best approach them? “First, there are the basic factors which startups should fulfil in order to be investable. They should have a good, understandable and convincing business case and be able to communicate it. They need a strong pitchdeck and comprehensive financial planning of the next 3–5 years which shows a good growth story. This should include how much money needs to be invested, how the money will be spent, when the startup will need to fundraise again, the factors which drive the financial model and how the money will be returned. The startup needs to show that it can reach the size necessary to return the money with a corresponding multiple which compensates the risk profile. If the startup, for example, wants to raise $2 million but only expects to have $1 million in revenues after three years, investors will ask themselves how the startup could ever be a good investment. Secondly, founders should find angels with whom they want to work with and with whom they can build a reliable and trustworthy relationship. Every investor which you take in as a founder will have a share in your company. As a result, the investors have certain rights and influence over your decisions. For example, they need to sign the documents in later financing rounds before new shareholders can come in. Founders should also be careful with their promises because if they can not keep up with them they will be punished in the next round and the value of the company might go down. Obviously, the more founders relate personally to their angels the more fun it will be over time.” What is the best advice you have given to a startup? “That is a tough question. I have given a lot of advice to startups so far but I don’t know the best one. One advice I always give is to be prepared and to go for long-term stable connections instead of having a better valuation or more money in the short term.” What are the biggest mistakes of startups when they fundraise? “Not enough planning and short term thinking. It typically takes between 3–6 months to complete a round so if that round only gives you money for another 6 months you would need to start fundraising directly again. So as a startup you should always raise for at least 18 months. Another point is that you only have the money when you have the money in your bank account. Even if you have some capital committed you can use it once you have it. You should also consider your negotiation position when fundraising and think about the order of your potential investors. If you talk to the people in the right order and get them onboard you create momentum for your startup which makes it easier to convince other investors.” What advice would you give Angel Networks? “Be aware of the quality of your Angels and do not try to be a consultant. Also be aware of the quality of your startups, because that Angels will get bored if you present them with a lot of crappy ideas. For example, our startups are always recommended by one of our angels which means that we already have a pre-selection. This speeds up the selection process and increases the quality of startups. We also meet once a month for an Angels dinner where we hear new pitches and network with each other. We also update the angels which can not be physically present so that they do not miss an opportunity. For that, we use CDF which ensures that the angels have a full overview of the startups.” What was the funniest proposal which you have received from a startup? “I once received a proposal from a fortune teller app. It seemed a bit weird to me but I later learned that it had worked out and that they were quite successful.”
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