Startups always start small; a team of 2–5 people has big visions but few resources. This is the everyday life I experience as a business angel. The challenge is to get support externally where the small team’s own skills are not enough. There are two options to choose from: consultants (classic management consultants, lawyers, coaches, rainmakers, etc.) or business angels. Below I will highlight the differences and similarities to facilitate the decision. For this I rely on my own experience as a management consultant (28 years) and as a business angel (14 years) plus the exchange with many experienced Angels in the Swiss club Business Angels Switzerland.
These are mostly companies that have special expertise (e.g. strategy development, process optimization, drafting contracts) and have a specific training and a toolbox with suitable methods. Advisers always charge money for your work, usually based on a daily rate for work accomplished. Rather rarely, a success component is also possible (e.g half a daily rate plus bonus when achieving the target, also in the form of shares).
The Business Angel
Angels bring money (or working time) to the fact that they “may” work in a start-up. For this purpose, they will receive shares in the company (usually in the form of stock) and also a seat on the advisory board or board of directors. They are always individuals who invest their private money. In addition, they bring in a network of relevant contacts for acquisition (new customer acquisition) or for outsourcing of activities (e.g. software development).
Although both groups have the goal of developing and making startups better, they differ considerably in the way they do so:
1. Time commitment
Consultants: Short (3–6 months)
Rarely do consultants stay in a startup for a long time, because as long as they are active there, they cost money. So to speak, “pay-per-use”.
Business Angels: Long (2–5 years)
Angels are committed to the long term, they are “paid” with shares at the beginning and then work until the success is there — or the end. A „flat-fee“, so to speak.
Consultants: Give time
Consultants reserve a certain time budget for a project and if that is finished, renegotiation is required.
Business Angels: Give money and time
Angels give as much time as they just have available, so are not well predictable. But they also give their own money, which greatly increases the attachment to the startup. This makes them more engaged.
Consultants: Knowledge, analyze
Consultants are experts in the field for which they were engaged. They analyze the situation thoroughly and develop a solution based on it, in which all their knowledge is incorporated.
Business Angels: Try out (good experiments)
Angels have specializations, especially in certain sectors. Angels do not know everything, but they can ask the right questions and help the startup get data for the answers.
They are more like a boat builder: they can easily break down problems into individual parts and develop cleanly structured concepts. They often have their own methods (frameworks) that they use for this purpose.
Business Angels: Focusing
Angels are more like the pilot in shipping: they show a way and ensure that the right priorities are set. They accompany the startups along this path.
The service is provided according to the order, with defined delivery objects and in clear phases. At the end of the project, the commitment also ends.
Business Angels: Entrepreneurial
The mandate of an Angel is more vaguely defined, it is about profitable growth in the broader sense. This mission is never really accomplished, so the commitment should take as long as it makes sense for both sides.
6. Relationship with Startup
Consultants: Loose, demand
The relationship of individuals to the start-up takes place mainly at the factual level and is also much looser due to changing consultants. When consultants need something from the startup (data, a decision, etc.) this is formulated as a requirement.
Business Angels: Close, motivate
The personal bond is quite close, the relationship level is equally important to the factual level. That is why Angels need to use more motivation and incentives.
When it comes to innovations, new ideas, they are developed by consultants and presented to the start-up.
Business Angels: Develop
Angels have to develop their ideas together with the start-up, they arise in dialogue and are therefore changed several times in the process.
Which one to choose ?
There are some important differences. For a startup to decide, it needs to be clear whether it has — or wants to use — the budget for external consultants and how close the relationship should be. On its own, hardly any founding team can do it, true to the motto: “If you want to go fast, go alone; if you want to go far, go with others”.