Business angels Korean style… Why not?

By Michael L. McManus

There are few words that perk up the ears of entrepreneurs and business starters as much as the words “business angels.”

Business angels are private individuals who act alone or in small groups to invest private capital in new businesses or startups. They are not formal venture capital people or firms, though they may have close relations with same. In the United States, the business angel networks cluster in Silicon Valley, Seattle, Los Angeles/Orange County, San Diego (Silicon Beach), Boston, Washington D.C., and Atlanta. Most angels are former entrepreneurs (or as some would say, non-retireable, inveterate, and habitual entrepreneurs), and most are also over 60 years in age. Some angels specialize in industries they know about, and there are special niches. One network funds startups dealing with social and environmental themes.

I became interested in who these people are, what makes them tick, and what their rules for engagement are. This was over 30 years ago. Over these years I have interviewed and collected data on business angels and their networks in many countries from Europe to Asia. I think my fascination derives from my earliest hunches. Namely, I thought these people are really special. They are absolutely private, sometimes quite secret. When you need one, they are nearly impossible to find. They never seek out projects or people. They are rather the sought after. They represent huge wealth and power in an economic system or country, if developed.

And there is a strain of some kind of humanism in the very essence of the idea. Not what we usually encounter in the business world. There is a maverick quality. Business angels everywhere do not follow trends, nor formal rules of industry or even traditional investment models. This maverick quality is sometimes missing in non-American business angels. For example, years ago, in the late 1980s I was a professor at the European Business School (EBS) in Germany. There was a need for me to be “habilitated” or to go through the European academic credential hurdle of defending my post-doctoral research and work.

My Ph.D. from Cornell was good, but I needed another step to become a “Professor Doctor McManus” as the Europeans would say. I presented my work on business angels and the rules they follow. The visiting professor who was my chief examiner made a profound statement after my presentation, “I don’t know about this angel stuff you say…here in Germany, we do it the old fashioned way…BANKS!!” I passed the test and became for life a “Professor Doctor,” but I am not sure my research meant much in Europe.

My hunches led me to interview many business angels and some famous ones and many not interested in fame. The data is quite interesting. I was able to classify three basic types of motivation behind their activity:

1. “Money angels.” These business angels think like venture capitalists. They look at an investment rather coldly, using mostly numbers and projected net profits as a major yardstick. They rarely get too wrapped up in the individual entrepreneurs, or the intricacies of the actual product itself. They are motivated by money and getting the inside track on fruitful ventures.“

2. Product angels.” These angels love the product and appreciate its details, niche, and potential. Many would have had their own experience with similar product or technology; therefore, they love the advancement of what they already know about. When they invest, they do so out of a love of the advancing of what they also did in their career.

3. “Mentor angels.” These are rarer, but the dream of young entrepreneurs. These are people who enjoy the mentoring process. They stay very active with the startup and the people behind it. They typically have people who have mentored them early in their life. Their rules are stringent. If they ever catch the entrepreneur lying, exaggerating, hiding the truth, even if it is bad news, they fall away and pull their backing away. If they feel they like the entrepreneur, they may be acting on more faith than the other types of angels. Faith is part of the formula.

With my exposure to Korean culture and investment in recent years, it seems like a fourth type of motivation has emerged. It is not uniquely Korean, yet it fits very well into the sociological matrix of Korean life and belief. And it is quite interesting to describe.

Thus, a wise Korean investor may have limited access to startup champions, since the financial and investment environments are full with chaebol investing and SMEs are just beginning to receive attention in Korea. So how might a Korean business angel think? I would call it “angels of national pride,” yes, Korean pride.

The angel would be quite private and almost secret. The perception of the angel is likely to be driven as much by the fact that the investment is an investment in a Korean, and a hoped for successful Korean new firm. Affinity to product and industry would also operate strongly as investor angel confidence.

Graduate Business Schools can play a key role in developing business angel networks and interactions for the future. By their nature, business angels will never be regulated or captured, but they can be a driver of the economy. Korean investors have all the qualities to make this happen as part of the wave.

Michael L. McManus, Ph.D., is founder and president emeritus of the California International Business University in San Diego, Calif. Currently, he is a guest professor at the Hankuk University of Foreign Studies (HUFS) in Seoul. He can be reached and welcomes comment at mcmismism@aol.com.