The business angels – more often used option for business beginning sponsorship

February 17, 2011

Wealthy individual investors or group of such who have experience and available funds

“The alternative ways for financing a business, mainly private equity and venture capital, as well business angels are becoming more popular recently”, said Teodor Georgiev for interview for BTA.  He is manager of MBAcademy – Management & Banking Academy.

According to MBAcademy team, we should expect an increased interest from companies towards private equity because traditional ways for financing such as bank loans and bond issues are hard to access in crisis times.

Teodor Georgiev told BTA that the most popular non-traditional ways for financing business projects are the private equity funds and business angels.  Georgiev is financial advisor and organizer of various banking and financial training courses and seminars.

The business angels are wealthy individuals or a group of investors with experience and available cash resources.  They invest in early stage of the business development.  Usually they step into new or growing businesses with high potential and receive stake of the company in return, explained Georgiev.

The private equity funds are collective investment schemes, created to purchase equity participation in different companies.  Depending on their strategy, private equity funds are classified as venture capital, growth/development fund, such that provide mezzanine financing, debt (loan) capital, funds for management buyouts (MBO and MBI) and others.

The difference between the funds and the business angels is that the latter finance companies at an early stage, while private equity funds provide resources in a more advanced stage when business already has history and results, said Georgiev.

Although the alternative ways for financing were not very known and used by Bulgarian companies until recently, now the companies are already searching for substitute of traditional bank financing, explained Georgiev.

The reason for this interest is that few years ago the business has used only bank loans as long-term financing solution for its operations and didn’t need alternatives.  On the other hand small number of private equity funds looked at Bulgarian as interesting investment destination waiting for the EU acceptance of the country providing harmonization of local legislation with that of the Union.

An entrepreneur needs a long-term capital if he wants to develop the company as financially stable with no liquidity problems.  Such LT capital can be obtained as debt or equity, said Georgiev.  Many entrepreneurs prefer to get bank loans instead of giving part of their companies.  This may never be feasible and selling share capital turns out to be the only source for the company’s financing.  

Likewise the business angels, the venture capital funds also offer capital for early-stage companies, when there is no other financing solution.  Such funds would not only provide the money but often also have the needed know-how, experience and contacts, explained Georgiev.

The presence of a strong partner in the company can help for attracting new money in the future, provides access to new markets and could be a positive signal on the market that this is a good company and thus it could easier to find good employees and new customers.  According to the MBAcademy team equity investors (including venture capitalists) are becoming more active towards Bulgaria.  There are many funds actively seeking investment opportunities in Bulgaria and the CEE region, said Teodor Georgiev.

In Bulgaria are represented also international organization whose main job is to support the development of industry sectors – such are IFC, EBRD, Black Sea Trade and Development Bank, added the expert.

Each company with interesting product or service that can offer good absolute returns could attract venture capital, Georgiev said.  Most interesting are sectors that are traditionally strong in Bulgaria – Information technology, software development and support, energy (incl.  green energy), but also agriculture and tourism, said the manager of MBAcademy.

Georgiev thinks that Bulgarian companies should mostly focus on developing new technologies and business models than to become subcontractors of their Western competitors.

Business angels usually would invest Euro 25 000 – 250 000 for minority stake in the company.  However, in Bulgaria such investors would participate with much smaller amount with the expectation for majority in the business, Georgiev added.

The MBAcademy team expects increase in the startup investments in Bulgaria.  On one hand, there are exceptionally creative young entrepreneurs who would not have other options to finance their good ideas.  On the other – there are already different new programs and initiatives by the Bulgarian Business Angels Network (BBAN) and The Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA), said Teodor Georgiev.

Despite the introduction of alternative ways for financing the companies will not give up bank credit, in most cases both forms of financing go together, explained MBAcademy’s team.

MBAcademy is organizing “Advanced Private equity & Venture capitalseminar in Sofia on 25-27 February.  The training will be led by Gavin Ryan – a longtime investment banker with experience from different European financial organizations and managing partner at investment holding company, investing in emerging European markets.  The seminar will introduce the role and operations of venture capital and private funds, as well as the industry workings.

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