ISET Economist Blog

How Businessmen Grow Wings
Monday, 17 April, 2017

Everybody knows Bakar and Tengo (BATE Generals), two businessmen from a very popular Georgian TV series, 'My wife's best friends' ('ჩემი ცოლის დაქალები'), who became incredibly rich from a start-up with a seemingly 'nonsense' idea to export the 'tails' of khinkali (traditional Georgian dumplings) to Bulgaria. Later on, BATE Generals created a special office for ideas, where their relatives and unemployed friends of their friends were solicited to generate promising business ideas. BATE Generals is paying a fixed amount to the idea generator and a small share of the profit from the operation of the idea, which is how BATE Generals came up with successful business projects, such as a website for husbands of pregnant wives and a taxi with a bed.


The tradition – and, in most cases, the only way – for Georgian entrepreneurs to finance their businesses and ideas is bank lending, so-called debt financing. However, this source of financing is very limited for start-ups and early-stage businesses, due to the high level of risk involved, the unavailability of collateral assets, and high loan interest rates1, which are almost unaffordable for companies that do not generate sufficient returns yet. Alternative ways of business financing are less popular and underdeveloped in Georgia.

In this blog, I want to discuss equity financing, when a company offers a portion of ownership to investors in exchange for cash and the ability to materialize and prototype the idea. This type of financing exists in Georgia to some extent, but still doesn’t have any organized or formal form. The most popular equity financing methods around the world are illustrated below (the first two being very crucial for seed and early-stage ventures):

Founders, friends
and family
Angel Investors
Typical investment size:
USD 25000 - 500000

Venture capital funds

Typical investment size:
USD 3-5 million

Seed stage investments Early-stage investments Later stage investments

Source: Financing High-Growth Firms, OECD, 2011

The first form of equity financing is quite developed in the country. Georgians, as with people of other Caucasian nations, have a very 'tied' social infrastructure, which refers to close relationships with their family and other relatives; usually, these people become the main source of financing business ideas in seed or early stages. However, not everyone with a great business idea has rich relatives or the significant amount of money required, therefore, in many cases, entrepreneurs have to find other ways to make their dreams come true.

The second form of equity financing, angel investors, is almost non-existent in Georgia or, if it does exist, it is so rare and entirely informal, that it's hard to find a true example. An 'Angel Investor' or 'Business Angel' is an experienced entrepreneur, mostly with a high net worth, who directly invests part of his or her personal wealth in a new, growing company at the seed or early stage. Most importantly, besides capital, the business angel provides business management experience, skills and contacts for the entrepreneur.

The European Trade Association for Business Angels, Seed Funds, and other early stage market players (EBAN) provides the key characteristics of a business angel:


• An individual investor (qualified as defined by some national regulations).

• Invests directly (or through his/her personal holding) his/her own money.

• Is financially independent, i.e. a possible total loss of his/her Business Angel investments will not significantly change the economic situation of his/her assets.

• Invests predominantly in seed or start-up companies with no family relationships.

• Makes his/her own (final) investment decisions.

• Invests with a medium to long term set time-frame.

• Ready to provide, on top of his/her individual investment, follow-up strategic support to entrepreneurs from investment to exit.

• Respecting a code of ethics including rules for confidentiality and fairness of treatment (vis-à-vis entrepreneurs and other Business Angels), and compliance to anti-laundering.

As can be noticed, not every wealthy person satisfies these characteristics. Angel investors do not only invest capital, but share their experience with new entrepreneurs and help them to build new companies. Thus, some investors can be considered as financial investors but not angel investors. In addition, in some countries, investors have to get accreditation to show that they satisfy all the requirements and regulations defined by securities laws, which vary between countries. The main purpose of the status designation is to protect potential investors from risk. The assumption underlying accreditation is that individuals who qualify will have sufficient financial knowledge and experience to understand and take on the risks associated with investing in a start-up business.

It is also worth mentioning that business angels can invest individually or in a group, known as a syndicate. The creation of syndicates demands less capital from each individual investor and gives opportunities to diversify investment portfolios, as well as increases the likelihood of start-ups surviving by providing versatile managerial expertise, skills, and networks. Usually, a syndicate is led by one of the business angels or managed externally.

As discussed in the OECD report “Financing High-Growth Firms”, based on 32 countries' overview of equity financing markets, business angels are the largest source of outside equity funding, after family and friends, in newly established ventures. They play a significant role in providing risk capital and increasingly contribute to economic growth and technological advances. Business angels fill a financial gap in the seed and early-stage financing market.


The business angels market is partially informal in many countries and there are probably cases in Georgia when wealthy people have invested in the ideas of others and acted as business mentors, using their experience, skills, and contacts in the business sphere. However, these cases are rare and mostly happen through relatives and private networks, and in a completely unorganized way.

With the idea of developing the business angels market in the country and making it more formalized and organized, in March 2017, the Georgian Business Angels Association2 was founded. The main objectives of the association are the following:

• Raising public awareness about the business angel market and the success stories of investments, which should stimulate building of the market.

• Address the problem of information asymmetry, to make it easy for entrepreneurs and investors to find each other.

• Provide training and coaching for both entrepreneurs and investors. Even if angel investors are considered to be experienced entrepreneurs and businesspeople, investing in start-ups differs from other types of investment and requires specific skills and knowledge. Thus, training and mentoring conducted by experienced business angels for new angel investors are important for developing a healthy industry. Start-ups in their turn should be prepared to meet angels, as the way in which business ideas are presented and advocated for may play a crucial role in decisions over financing the idea.


Public policies can include both supply and demand-side measures. Two popular and successful government policies, to address the seed/early-stage equity financing gap and encourage business angels, are providing tax incentives and launching co-investment funds, which match public funds with angel investments. In many countries, governments also support (financially and legally) business angel associations and network groups, as they consider they play a very significant role in coordinating, promoting and developing the market. In the case of a small country such as Georgia, the government could enlarge the market of investors, with experiences in various industries by the establishment of links with the Georgian diaspora.

Demand-side promotion policies should include the development of an entrepreneurial culture and ecosystem in the country, as well as the provision of programs to increase entrepreneur investment readiness. Over the last couple of years, the Georgian government introduced programs and concepts, such as the “Business Incubator Fab Lab”, ” Start-up Georgia” and “Tech Park”, which address the above-mentioned factors to promote the demand side of the business angel market.  Some of these government programs have the aim of popularizing the idea of “angel investment” and creating precedents for the commercialization of ideas. For example, ten Georgian start-ups were chosen to be presented in Silicon Valley (in the US state of California) and to try and find financing there. The scale is tiny, and the process was mostly oriented on foreign investors, and totally subsidized by the government, which will not be a sustainable practice in the long run.

While much work is being done by the government to promote and support start-ups, further policies are needed to popularize an entrepreneurship culture and to arouse the interest of local investors to participate in the business angel market. The establishment of the Georgian Business Angels Association is the first step forward, and government support of this association – as well as the introduction of a legal framework and infrastructure – will further support the business angels market development.

1 12% in GEL and 9% in USD, the average for 2016, National Bank of Georgia

2 Georgian Business Angels Association was founded in a framework of “Country Action Plan for Private Sector Growth” developed by 2017 cohort of two parallel SIDA’s International Training Programs: “Private Sector Growth Strategies” and “Strategic Business Management”

The views and analysis in this article belong solely to the author(s) and do not necessarily reflect the views of the international School of Economics at TSU (ISET) or ISET Policty Institute.