"Angel investors" finance and advise developing businesses

Finding the financial support a business is just starting or is in the early phase of development is among the biggest challenges to entrepreneurs. When lacking one’s own financial means and being unable to get a loan from a bank or other sources, angel investors can be an alternative source of financing of businesses.

Angel investors are successful entrepreneurs who invest their money and time, and share their knowledge and experience with those who either only have a business idea or are leading a business they want to develop further. Such investors are usually in the same profession as the business they are supporting, and aside of money, they help with contacts in the business community, as well as provide business advice.

Even though there are different types of support for women-owned businesses, in Bosnia and Herzegovina they are, in general, significantly leaning on informal support when starting their businesses, such as financial support of family or friends, reveals an unpublished study on resilience to crises of businesses owned by women in BiH. The study was conducted in 2021 within the project „Economic empowerment of women – rebuilding better” which is being implemented by UN Women and Foundation 787 with the financial support of United Kingdom government.

Among the ways of financing a business, women entrepreneurs in Bosnia and Herzegovina have access to gender sensitive programmes of international donors through commercial banks and microcredit organisations, reveals the study, adding that additional ways of financing are needed.

Amra Humačkić - Omeragić

„Women turn to crowdfunding as well, even though  possibilities for that are limited in BiH, due to legal regulations which don’t allow for such financing. The time needed to get a loan in a bank with expensive documentation and bureaucratic demands makes the women entrepreneurs in BiH turn to microcredit organisations as alternative sources of financing”, the study finds, adding that “there is a lack of investment such as angel business investors, venture capital, etc., which constrains specifically younger businesses in their scale-up.“

Network of business angels in BiH

A community of business angels in Bosnia and Herzegovina still doesn’t exist formally, but this year a significant move was made towards its creation. Organised by Foundation 787, the Business Angel Summit 2022 was held in Sarajevo in February, and gathered representatives of companies from Bosnia and Herzegovina, the region and potential international investors. One of the goals of the gathering was to set up a network of business angels in BiH which would largely help make investment partnerships happen in the future, but also promote such possibilities to both those who invest and those who seek financial support for their business.

The director of Foundation 787, Dajana Džindo, explains that business angels usually invest in early phases of development of a business and finance even those who only have a business idea or someone who just started working, but still don’t have a company which can be financed in a typical way. She adds that such investors usually invest smaller amounts, from 10.000 to 100.000 BAM or USD, and it is possible also for several investors to unite in an investment into a small business.

Fondacija 787

„What is characteristic for them is that they are not only giving money but also their time, knowledge and contacts. They are opening the doors to new markets and they are open to sharing their success and contacts. The companies often look for angels from a certain market they want to get in. It is a lot easier when you have a business angel in a country where you want to do business,“ Džindo says. „Angels often primarily invest in businesses from their own countries and most often have a few sectors in which they are most relaxed and where it’s easiest to invest, which does not mean they would not invest in other sectors.“

There were attempts to formalise an association of angel investors in the past, but such an initiative did not live on. In the meantime, there were investments on a similar principle like angel investment, but on an individual level and through personal connections. The idea of forming a network of business angels is useful for setting up connections and communication of companies that need investment and those who would invest their money and advice gained from their own experience.

„It will still not function in a way that it will be publicly known who the angel investors are. They mostly do not want to be very exposed. Instead, there will be a channel of possible communication with them, and businesses which seek funds will know who to ask,” Dajana says, adding that the first steps were made through the Business Angel Summit.

During this two-day event there were more than 20 business angels and potential angels from Bosnia and Herzegovina and additionally about 30 from the region and abroad. In preparation for the summit, Foundation 787 examined their affiliation to gather information on the framework of their capacities and readiness to invest.

„Less than 30 of them said they were ready to invest more than two million BAM in this year,“ she says. „On the Business Angel Summit there were people who already invested, some of them want to do it, but all of them agreed they want to join a network and soon we will have the first meeting to see how it will function. For now, Foundation 787 is the facilitator in terms of communication with start-ups and businesses.“

Finances for starting and developing a business

In Bosnia and Herzegovina, there are insufficient opportunities to finance starting or developing a business in the early-stage from public funds, while getting a loan from a bank usually requires positive business reports, which is difficult for many beginners.

“Many who want to start a business are leaving BiH because they can get an incentive for start-ups elsewhere,” says Dajana. “Angels fill this space between banks, the state and other incentives.”

„But also, if we create stories that will turn out to be successful, we are already creating the interest of others who want to create start-ups and we are thus developing the market. The same happened in Germany – people were leaving for the USA, so there were measures to make Germany attractive as well“, says the director of Foundation 787 which implements different support and education programmes for women and young people in business. Even though the concept of investments of business angels is not created for women entrepreneurs nor is it in any way specifically adjusted to them, it represents an alternative way of financing which can be used.

„I think that it creates a possibility which women entrepreneurs currently do not have. It is not easy, but from the beginning of this initiative we made sure that there are also women investors, and we do have them, which means a lot, both for the success of the network and the diversity in the context of involving businesses led by women,“ concludes Dajana Džindo.

This article was made possible within the project “Women Economic Empowerment in Bosnia and Herzegovina – Rebuilding Better” which is implemented by UN Women in BiH with financial support of United Kingdom government.