Facebook, Instagram, Twitter, Google, Airbnb, Uber... These ventures that are such integral parts of our lives today might have disappeared at the initial stages if it weren’t for angel investors. All great projects begin with a bright idea. These bright ideas need financial support to become lucrative business ideas that have a long-term vision. Angel investors help young investors, who experience the most trouble at the initial stage of their projects, to take the first steps and start obtaining venture capital. This article summarizes everything you could want to know about angel investors.
What is an Angel Investor?
An angel investor is a high-net-worth individual who provides financial support for small ventures or start-ups that have the potential to grow but lack the funds for it. Angel investors offer support in exchange for ownership equity in the company, and they provide not only funds but also their knowledge and experience to help the company succeed.
What is an Angel Investor? An angel investor is a high-net-worth individual who provides financial support for small ventures or start-ups that have the potential to grow but lack the funds for it. Angel investors offer support in exchange for ownership equity in the company, and they provide not only funds but also their knowledge and experience to help the company succeed. Angel investors are a key component of the entrepreneurship ecosystem. Many ideas around the world and in Turkey have been realized through the funds provided by angel investors. These funds can be a one-time contribution or regularly provided to help support the development of the venture. One-time financial support is typically provided by the family and friends of the entrepreneur.
Where Does the Term Angel Investor Come From?
Investing in an idea by providing financial contribution, knowledge and experience has been a support mechanism used throughout history.
Calling these private investors “angels” came about when wealthy donors funded the Broadway theaters that were about to close down. Later, William E. Wetzel, a professor in the Finance Department at the University of New Hampshire was the first to use the term in a study on entrepreneurship and finance models, where he called businesses investors whose motives went beyond simply making money, “angel investors”.
While the term “angel investors” is commonly used in the US, European businesses call these people “business angels”. In Turkey, the system has been institutionalized, and these investors are referred to as “Bireysel Katılım Yatırımcısı”.
Qualities of Angel Investors
- Angel investors typically support innovative companies or entrepreneurs in the initial stages of their business, when they have difficulty obtaining funds from corporate investors.
- Angel investors are flexible. They can support business individually or together with other angel investors. Multiple angel investors mean more funding.
- They typically support businesses that would generate 25% or more return on their investment, compared to traditional investments.
- Angel investors prefer to invest in business areas they are experienced or interested in, and they choose to be actively involved in their investments and provide consultancy for them.
- Qualified angel investors provide more than financial support. They also allow a business to use their network and share their experience and time. While they can invest in any industry, they most commonly invest in new age tech companies.
- The biggest difference between angel investors and a venture fund is that angel investors focus on helping the entrepreneur take their first step, instead of focusing on returns or profits. Their goal is to act as a leverage for the business they invest in and to create added value with the hope that the company they invest in will grow large enough to one day make its own investments.
Benefits of Angel Investors
- Angel investors provide the funds necessary to launch a business idea and to create leverage.
- Most angel investors are people who enjoy taking risks but are aware of the risk they’ve taken and know how to manage this risk.
- After an angel investor invests in a venture, the chances of this venture getting support from other financial providers increase.
- Angel investors share the risk of the investment they make. If the venture fails, they do not expect the amount they invested to be returned.
- The recommendations given by the angel investor play a major role in overcoming problems in the early stages of the business.
The Disadvantages of Having an Angel Investor
- Although the high-risk tolerance of angel investors creates an advantage, their high expectations can be considered a disadvantage.
- The most difficult aspect of working with an angel investor for a young entrepreneur is the transference of some of their own power to the investor.
- If the angel investor crosses their boundaries while sharing their experience and opinions, it would be hard for the business owner to take the right steps.
- Angel investors do not only share the risks but also the profits. If the venture succeeds and makes profit, the angel investor will share the revenue. The business owner should not disregard this fact and remember that the angel investor is investing in the possibility of the business idea succeeding.
What Are the Risks of Being an Angel Investor?
Investing in an early stage of a venture inherently carries many high risks, particularly in financing, marketing, and technology. When analyzing projects for funding, angel investors do not only look at the potential yields but also for ways to decrease these risks and provide support mechanisms.
What Do Angel Investors Look For?
- The growth potential of the venture idea must be great.
- The service, solution or the product offered needs to fill a need in the market, have qualities that will differentiate it from its competitors and aim for the global markets.
- The business plan must be realistic, well-prepared, and clearly show the shares it will provide for the investor.
- The venture team must consist of people who are experts in their field and open to communication. Angel investors pay attention to the qualities of team.
- Members of the founder team must explain the product/market fit, provide financial analyses and express the goals and plans of the company to the investor in an effective presentation.
How Can You Become an Angel Investor?
The Ministry of Treasury and Finance drafted the Law No. 4059 on “Individual Participation Capital” in 2012 to create a legal framework for angel investing. The regulations regarding the law were published and put into effect in 2013, and angel investors that complied with the conditions were licensed.
After the law went into effect, angel investors and investor networks were given incentives and tax advantages, which raised the number of licensed angel investors from 155 in 2013 to 500 in 2021. This number is still much lower than that in Europe and the US. However, with the developments in the entrepreneurship ecosystem, an increase in the number of angel investors and the number of investments made to ventures in their early stages is predicted.
To become a licensed angel investor, you need to submit an application to the Undersecretariat of Treasury. The license is given under two categories, “High Income Investors” and “Experienced Investors”, and these categories have their own evaluative criteria.
To obtain a license as a High Income Investor, you need to have a gross income of 200,000 TL for the past two years, or your personal wealth should equal 1 million TL or more in assets.
The license for Experienced Investors focuses more on experience than wealth and has more required criteria:
The person applying must have held a managerial position at a financial institution or venture capital company for at least two years, or they must have held a deputy general manager position or higher at a company with a minimum annual revenue of 25 million TL, for at least two years during the last five years.
Other requirements include being a member of an angel investor network in Turkey for at least one year, having at least two years of experience in an incubation or a technology center in Turkey, and having invested a minimum of 20 thousand TL each to at least 3 companies in their initial stages when working at an incubation or technology center.
How Can You Find an Angel Investor?
How Can You Find an Angel Investor? The most effective way to connect with angel investors is through angel investor networks. Contacting these networks that are established by and/or consist of prominent angel investors in Turkey is a great way to reach out to multiple angel investors at once, and to obtain training and mentorship support while developing your business. The important step here is to conduct the necessary research in order to connect with an angel investor network that is most suitable for your venture. You can find the list of angel investor networks in Turkey at the link here provided by the Turkish Ministry of Treasury and Finance.
Prominent Angel Investors in Turkey
Hasan Aslanoba
One of the most powerful angel investors of Turkey, Hasan Aslanoba, resigned from his corporate career, which had started in 2012 at Erikli Su, where he later served as CEO, and decided to focus on internet-based, innovative business models. Since then, he has been investing in international start-ups, and some of the ventures he has supported include Bitaksi, İncir, Alwaysfashion, BuldumBuldum, and Modacruz.
Fırat İşbecer
Starting his business life as one of the founding members of Pozitron, Fırat İşbecer became the MEA General Manager of the company after it was purchased by the British company, Monitise, and managed its Eastern Europe, Middle East and Africa operations. In 2017 he left the company and founded Commencis, where he still serves as the CEO. A member of Galata Business Angels, the first angel investor network in Turkey, Becerer is considered one of the most active angel investors.
Nevzat Aydın
One of the leading entrepreneurs and angel investors in Turkey, Nevzat Aydın established Yemeksepeti.com in 2001. The company was sold to Delivery Hero, the world’s largest online food delivery company, for 589 million USD in 2015. Aydın still serves as the CEO of the company and continues to invest in promising ventures as an angel investor and member of the Galata Business Angels. Some of the companies he has supported include Lidyana, BuldumBuldum, Modacruz, Uplifers, Vispera, and Pilates Akademi.
Sina Afra
The founder and CEO of Tiko.es, Sina Afra is also the President of the Board of the Entrepreneur Foundation. Afra has founded Markafoni, Turkey’s first online fashion website, and has been supporting young entrepreneurs since 2007. Sina currently has 36 investments in many countries, mainly in Turkey, but also in Germany, US, Netherlands, UK, South Africa and Switzerland.
Emre Kurttepeli
Founder and CEO of Mynet, Emre Kurttepeli has also founded and invested in more than 25 internet and technology companies. Emre Kurttepeli currently serves as the President of Galata Business Angels and Endeavor Turkey and has supported many ventures, including Evidea.com, Sporcum.net, Mobilecraft, and Hazinem.com.
Arda Kutsal
Arda Kutsal is the founder and CEO of Webreazzi, a successful online media outlet for technology ventures in Europe, the Middle East and Africa. As an active angel investor, Kutsal has a portfolio of many successful ventures, including two Unicorns.
Melih Ödemiş
One of the founders of Yemeksepeti.com and serving as the Founding Partner and Technology Director at the company, Melih Ödemiş works with Galata Business Angels to support entrepreneurship in Turkey. He also continues to be actively engaged in business through the E-Tohum Foundation and Food Banking Association.
Burak Büyükdemir
Having started his career in the banking industry, Burak Büyükdemir continues to work with technology companies. He is the founder of Startup Turkey, Startup İstanbul and Turkey’s leading seed investor organization, E-Tohum. Among his investments that contributed to the development of Turkey’s entrepreneurship ecosystem are Evidea.com, and PembePanjur.com.
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