Angel Investing Takes Foot in Czech Republic

Financing business ideas in the Czech Republic

Written by Michal Kohoutek
Angel Investor Association

What do you do when you have a great business idea and you don´t have enough money to realize it, nor do your friends or your family? In the United States and in Britain, you would look for a so-called “business angel,” a wealthy individual who wants to invest his or her own money in a bright and promising idea. In Europe, and especially in the Czech Republic, if you have a business idea – however bright it might be – you usually give up, because you have no idea (no pun intended) how you could finance it.

You might think of a bank. But you´ll soon discover no bank is willing to risk its money by lending it to somebody who can in no way guarantee he´ll pay the money back. Unless you have a house, an expensive car or already a business with a proven track record that will serve as a guarantee, the bank will at most give you a personal loan, around €7,000. No good to start a business. And you give up again.

But business angels do exist in Europe, and in the Czech Republic as well – you only have to look for them. Although there have been several attempts at creating a functioning business angel network which would match investment-seeking entrepreneurs with angels, only one has really taken off. The official start of Czech angel investing has been last year, when in April the Angel Investor Association, a Prague-based non-profit, hosted the annual conference of the whole European Business Angel Network. That event put Czech private investment on the European map.

Yet the mindset of Czechs fancying about setting up their own business hasn´t been transformed yet. “It is too hard. Where would I get the money? What if I fail?“ – people will say in the end. It is the way of thinking about failure, says sociology professor Ronald S. Burt of the University of Chicago, that sets the American entrepreneurial mentality apart from the European “job-security” one. Mr. Burt, who was a teacher of AIA board member Richard Seewald, claims that risk-averseness is what keeps potential European entrepreneurs from stepping into the perilous waters of self-made business and ultimately succeeding. Americans, he says, love challenges, they see risk as an opportunity to prove themselves. If they fail, they stand up again and try another time. Not so for most Europeans – failure is seen as an ultimate judgment of their inner worth. And they hate it.

Somebody who might challenge this perception is Mr Michaels (his true name is disguised on request), an American-born and Prague-based entrepreneur, who two years ago started his own business from personal resources, and has been looking for an angel since. Mr Michaels heard at the beginning of this year that AIA was involved in a European entrepreneurship project, and that one selected entrepreneur would be able to present his business idea to almost 200 investors at a forum in Helsinki in June. He decided this was the opportunity he’d been waiting for. He joined the association, and submitted his tourism- and internet-based project. At that time, it consisted of a local site alone, where visitors could enjoy its unique and revolutionary features.

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Mr Michaels believed in his project, no matter what others were saying, and he was chosen. At the beginning of June he flew to Helsinki along with 21 other entrepreneurs from all around Europe. Overcoming his nervousness in front of more than one hundred experienced investors, he delivered his pitch with a historical voice – convinced he was presenting to them something that would revolutionize the way things are viewed on the internet. This attitude paid off. Mr Michaels won. Investors voted at the end of each presentation, and he received the highest number of expressions of interest from them. The day after, inside an upscale hotel meeting room, he sit with ten of them negotiating the terms of the investment. His dream was coming true.

There may be many other Mr Michaels in the near future, as the angel investor milieu takes off in the Czech Republic. But that will not happen until the risk-averse mentality of Czech people changes to embrace risk as a challenge and as an opportunity. But when people are faced with more and more entrepreneurs like Mr Michaels who succeed in the face of risk and danger, this might change. And then Europe will be able to catch up with the American dream.

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