Small and medium-sized business require funding, especially at the early stages. The main source of financing is usually non-formal investors such as friends, family and so-called “business angels.
In the United States, 55%-72% of “business angels” mostly invest in start-ups or at the earliest stage of development. The same situation is in Great Britain where 50-65 % of business angels invest in small and middle sized enterprises at the above mentioned stage.
Who are “business angels”? The terms “business angels” and “angel investors” have the same meaning. In many countries “business angels” are the second way to finance newly created ventures and (high-risk) enterprises. For Georgian entrepreneurs, the main source of funding is a banking loan but access to this form of financing for start-ups is limited.
Perspective for Business Angel Network Development in Georgia
The government has been actively promoting start-ups in Georgia since 2015. The Small-sized Entrepreneurship Promotion Program promotes business development through financial support or consulting services. A total of 1,656 startups were financed by the Made in Georgia program in 2016 which comprise 58% of the total funded projects. Research has revealed problems vis-à-vis the accessibility of funds for start-ups in Georgia.
The problem of availability of financial resources was the main reason of creating and then implementing an action plan for the country under the project organized by the Swedish International Development Agency (SIDA). The Private Sector Development Strategy program involves representatives of 13 public schools and the private sector to set up the Georgian Business Angels Association which took place on March 22, 2017. The main idea of the association is to finance, small and medium-sized enterprises during their early stage of development by strengthening communication with investors.
The idea for the network idea and the business angels concept is innovative for Georgia. The Georgian Business Angels Association represents a platform where young entrepreneurs and investors can meet each other to change ideas and achieve successful results for both sides.
Since its establishment, the association has attracted significant interest from governmental, non-governmental and private sector representatives who can become business angels or angel investors. The benefits that this association can bring for entrepreneurs and business angels are different. For small and medium-sized enterprises, the association can provide financial support for start-ups and share knowledge and experience vis-à-vis building and developing successful a business. At the same time, however, there is the issue of risks for Georgian investors concerning start-ups. The motivation for the “business angels” network can be financial benefits, social responsibility, supporting the production of goods and services for the public and job creation, among others.
Role of the Government
While „business angels” market is in the early stages of its development in Georgia and t needs special support from both the state and the private sector.
First of all, it is important to increase the awareness of business angels in Georgia and encourage wealthier and high-income people to become an angel investors, also Cooperation with foreign business angel networks. Problems such as Georgia’s underdeveloped capital market, the high risk surrounding investment, the promotion of entrepreneurial skills for local entrepreneurs need to be solved.
Even though the concept of the “business angels” network is is brand new to Georgia, there is a high potential for its development. With the support from the state and a high level of activity from the private sector and investors, the Association of Business Angels may become an important platform for start-up entrepreneurs to have access to financial resources and increase their entrepreneurial experience.
Shorena Tielidze, Co-founder of Georgian Business Angels Assosiation