In recent years, interest for investing in startups has been on the rise in the Republic of Serbia, and one of the key components of this process are business angels.

According to the provisions of the Innovation Activity Law, a startup is a newly established business entity or entrepreneur engaged in innovative activities with the potential for rapid and significant growth, while business angels are investors in innovative activities who invest financial resources in startups. They are individual investors who decide to direct a portion of their assets towards startup companies as a form of personal investment. It can be said that startup founders provide the business model and complementary business plan, while business angels provide the funds with which that business model is validated in the market. This process can take a longer period of time (usually several years) and can occur through several stages, ultimately resulting in business success or failure. In addition to providing funding during the earliest stages of development, business angels can also contribute to startups through active participation in their development.

In the Republic of Serbia, there are several initiatives that support startups and business angels, such as the Innovation Fund and the “Serbia Innovates” project, jointly implemented by the United States Agency for International Development, ICT Hub, and the “Digital Serbia” Initiative. These initiatives offer various forms of support, including education, mentorship, networking, and other resources needed to help startups succeed. Business angels and angel networks are an important factor in the capital markets of all developed economies and have a strong influence on the successful development of new companies. Accordingly, the “Serbian Business Angel Network” (SBAN) was established in the Republic of Serbia. Such associations aim to promote entrepreneurship and investment in small and medium-sized enterprises; identify, select, and evaluate projects; educate entrepreneurs; collaborate with relevant organizations within the country and from abroad; organize meetings between entrepreneurs and interested investors.

The Board of Directors of the Innovation Fund has adopted the Rulebook on the Registry of Subjects in the National Innovation System. The Rulebook defines a startup as a legal entity whose establishment is not more than 10 years old and which has earned its first business income no more than 5 years ago. Registered business angels who possess expert knowledge of the risks involved in investing in startups can be included in the Registry of Subjects in the National Innovation System. A domestic or foreign individual applicant may be included in the Registry as a business angel if they meet certain conditions, namely if they possess appropriate expertise to understand the investment risk, if it is in line with their investment goals, and if they have invested a minimum of 5,000 euros or equivalent value in another currency in one or more startups based in the Republic of Serbia in the last three years.

The Republic of Serbia has recognized the importance of developing the startup business model, which has resulted in the adoption of the Strategy for the Development of the Startup Ecosystem of the Republic of Serbia for the period from 2021 to 2025. The aim of establishing public policy in this direction should result in accelerated growth of the startup ecosystem, encourage innovation in the economy of the Republic of Serbia, and provide economic growth based on the knowledge economy. In line with the measures of the Strategy, a business angel has been defined as an individual who invests funds in excess of 5,000 euros in the capital of a startup, and who, in addition to financial resources, can also invest their own knowledge, experience, and network of contacts to support the development of the startup, but is not employed or engaged full-time in the startup.

Business angels are widely present globally and mostly represent wealthy individuals who support startups by investing money, time, contacts, and knowledge in developing their innovative activities. Their investments in a single startup usually range from 20,000 to 500,000 euros, and it is common practice to gain a share in the company’s capital of 10% to 30% based on the investment. The percentage of ownership that business angels acquire through investing in startups generally corresponds to the level of risk taken, which is entirely in line with what we see in practice, as a significant number of startups, by nature, never achieve their initial goals.

From the perspective of a startup, the primary value of working with a business angel is access to necessary sources of financing that can be used to realize investment plans and achieve business goals. In addition to this primary objective, startups can also benefit from business angels in other ways. For example, in the case of technology startups, financial management and planning functions are often underdeveloped, which is why business angels actively participate as advisors or strategic partners. Additionally, business angels use their business contacts to participate in the processes of business networking and building relationships with other relevant market participants. In short, it is a kind of mentorship relationship that is in the interest of both parties, as the startup improves its business in a particular segment based on the support of the business angel, while the business angel simultaneously achieves an increase in the value of their investment.

Business angels are very important for startup ecosystems in the early stages of development because they are willing to support startups in the initial phases when the risks of failure are high and when most investors are not willing to invest in them. However, the importance of business angels goes far beyond their ability to finance the development of startups. They play a crucial role in transferring knowledge, sharing contacts, and connecting the community. Their activities contribute to promoting the startup culture and the culture of investing in startups.

Considering the significant trend of launching startups in the Republic of Serbia in recent years, as well as the recognized importance of business angels’ activities, especially in the early stages of venture development, it is necessary for the state to pay special attention to regulating their position. Although the Law on Innovation Activity and the adopted Strategy for the Development of the Startup Ecosystem of the Republic of Serbia for the period from 2021 to 2025 represent a good basis for further growth and development of the startup ecosystem, the activity of business angels is not explicitly regulated by law. Therefore, in order to ensure continuous growth of the startup ecosystem, taking into account the significance of business angels in this process, it is necessary for the state to adopt regulations that will significantly encourage their activity in terms of investing and supporting startups.