BUSINESS ANGELS: THE IMPORTANCE OF INFORMAL VENTURE CAPITAL FOR THE DEVELOPMENT OF INTERNETECOMMERCE

1
BUSINESS ANGELS THE IMPORTANCE OF INFORMAL
VENTURE CAPITAL FOR THE DEVELOPMENT OF
INTERNET/E-COMMERCE STARTUPS IN
GERMANYPresentation MaterialAccompanying the
Discussion Paper

• Center for Entrepreneurial Studies
• EUROPEAN BUSINESS SCHOOL
• Oestrich-Winkel, January 2000

2
RESEARCH METHODOLOGY

• During the first half of 2000 the project team
  identified and analysed about 12,000
  Internet/E-Commerce companies located in Germany.
  Besides company databases, trade fair catalogues
  and associations, a number of online sources was
  used (search engines, newsfeeds, supplier
  lists...). All data was updated and made
  comparable in August/September.
• About 9,000 companies were identified as startups
  that were founded with a focus on
  Internet/E-Commerce, mostly from 1993 onwards.
  These firms were invited to participate in an
  online survey in November 2000. This analysis is
  based on 1,172 valid questionaires filled out
  mostly by company founders.
• Separately, German VC firms were invited from
  July to September 2000 to participate in a
  written survey. Of 332 firms, 116 gave valuable
  data about their locations and portfolio
  companies. The data was used to adjust results
  and compare informal and formal venture capital
  markets.

3
INFORMAL AND FORMAL VENTURE CAPITALComparison
Investments by Business Angels and VC Firms
Business angels
Venture capital firms(1)
Non-fin. support
Financial backing
Total
Number of startups financed resp. supported
345
750
1,005
1,350
Share of total active startups financed resp.
supported(2)
2.3
5.1
6.8
9.1
Number of engagements in active startups
730
1,220
3,720
4,450
Share of co-investments/ co-engagements
48
46(3)
58
55
Number of individuals active in the area of
Internet/E-Commerce
300 BAs(4)
217 VC-Ges.(5)
1,060 BAs(4)
1,360 BAs(4)
Investments per year (in 1999)
DEM 1.3 billion
-
DEM 0.7 billion
DEM 0.7 billion
Total capital invested in active startups (per
7/2000)
DEM 3.5 billion
-
DEM 1.8 billion
DEM 1.8 billion
Total time invested by active business angels per
year (in 2000)
-
110,000 h
510,000 h
620,000 h
(1) Base 1,300 investments in 800 VC-backed
Internet/E-Commerce companies. Of these 6 were
established companies and had to be excluded (2)
Base 14,850 active startups per 7/2000 (3)
Defined as share of startups that were funded by
more than one investor. Figures for VC firms do
not include investments by public co-investment
firms (4) Assumption BAs are investing in
Internet/E-Commerce startups only (calculatory
figure for illustration) (5) VC firms only,
that have invested in Internet/E-Commerce
startups (of 384 VC firms identified) Source
Survey with 8,989 Internet/E-Commerce startups,
analysis of 1,178 valid responses, survey with
332 VC firms in Germany, segment sizes estimated
4
STRUCTURE OF BUSINESS ANGEL INVESTMENTS Profile
of the Average Engagement
Remark Numbers were calculated from the survey
participants' responses Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
5
PROFILES OF STARTUPS SUPPORTED BY BUSINESS ANGELS
Comparison Business Angels' and VC Firms'
Portfolio Companies
Year founded Average age of startups Revenues
(expectation for 2000) Permanent employees
(10/2000)(1) with 2 locations in Germany
with location(s) abroad expecting profits in
2000 Break even expected in with growth
expectations of more than 100 (in 2001)
Remark Revenue figures and profitability
expectations are based on participants replys
(1) Permanent employees occupied in Germany
only Source Survey with 8,989 Internet/E-Commerce
startups, analysis of 1,178 valid responses
6
CONTENT

• Sizing the informal venture capital market
• Structure of business angel investments
• Characteristics of active business angels
• Characteristics of companies financed/supported
• Spatial aspects of business angel activity
• Opportunities for activating potential business
  angels
• Appendix Definitions and background

7
SIZING THE INFORMAL VENTURE CAPITAL MARKETKey
Results for the Internet/E-Commerce Segment

• Business angel investments have seen exponential
  growth in Germany during the last two years
• Opening of the Neuer Markt as an additional exit
  opportunity in 1997
• Growing share of B2C and B2B concepts with high
  need for financing from 1998 onwards
• As a result, a broad basis of private investors
  exists in the new segment
• About 1,300 active angels with 4,450
  investments/engagements
• 1,005 companies received financing and 345
  management support only
• With total investments of DEM 1.8 billion the
  informal market in the segment is about half the
  size of the formal venture capital market of DEM
  3.5 billion
• Business angels are important, especially for
  growth-oriented startups
• Estimate 3.700 active angels with about 13,000
  investments

8
BUSINESS ANGELS PROVIDED FINANCING FOR A LARGER
NUMBER OF COMPANIES THAN VENTURE CAPITALISTS DID
Question "Which sources of financing did your
company use ?"
Founder's own funds
Cash-flow
Bank credit
Government-sponsoredfinancing schemes
Business Angels
Venture Capital
Other companies as investors
S985(1)
Other sources offinancing
Remarks Multiple entries were possible. The
question was not focused on specific stages of
development. (1) Cash-flow" was introduced after
pre-test. In this case the number of data points
is 923. Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
9
BA INVESTMENTS FOLLOWED THE INTERNET "GOLD RUSH"
Key Drivers Opening of the Neuer Markt in 1997
and Increased Share of B2C and B2B Concepts With
High Demand for Financing
Question "When was your company founded?"
Question "When did your company enter the
Internet/E-Commerce market?


"Non-financial support" S 30 Ø 2,1 years
"Non-financial support" S 38 Ø 1,5 years
"Financial backing" S 126 Ø 1,7 years
"Financial backing" S 125 Ø 1,3 years
and earlier
and earlier
(Q12(1))
(Q12(1))
Remark Founders were not asked when BA
investments were made. Year of founding and
market entry are used as indirect measures (1)
Due to the selected sampling methodology
(pre-selection of companies), the figures for
2000 are not exact and should be used as an
indication only Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
10
BUSINESS ANGEL ACTIVITY WAS LAGGING FOUR YEARS
BEHIND THE FIRST WAVE OF STARTUPS
1997 Opening of Neuer Markt
No. of BA-backed firms founded p.a.(3)
No. of firms founded p.a. (1)
Non-financial support
Estimate(2) Active and non-active startups
(incl. mergers, acquisitions and closings)
Financial backing
Active startups
e
(1) Projection based on 9,000 identified
startups (2) Based on a sample of 800 companies
closings accounted for 5 p.a., mergers
acquisitions for 4 p.a. of which half has lost
its independence and was integrated by the
acquiring company. It was therefore assumed that
7 of active startups are going out of business
per year (3) Projection based on 116 BA-backed
startups. Companies were analysed and first
investments taken from company history Source
Survey with 8,989 Internet/E-Commerce startups,
analysis of 1,178 valid responses, own estimates
for total segment size, analysis of 9,000
startups
11
CONTENT

• Sizing the informal venture capital market
• Structure of business angel investments
• Characteristics of active business angels
• Characteristics of companies financed/supported
• Spatial aspects of business angel activity
• Opportunities for activating potential business
  angels
• Appendix Definitions and background

12
STRUCTURE OF BUSINESS ANGEL INVESTMENTSKey
Results of the Analysis

• Business angels tend to syndicate investments to
  use a broader base of experience and share the
  risks involved
• 58 of startups are funded resp. supported by two
  or more business angels
• Larger consortia consist of up to 10 or more
  business angels, currently the average is 3.7
  angels per company
• In 34 of cases, startups are also backed by VC
  firms, in 16 of cases by a strategic investor
• Due to a strong tendency to co-invest, business
  angel investments often reach size orders of
  early stage VC firm's investments
• On average BAs invested DEM 1.8 million per
  company (VCs about 4-5 million)
• With 3.7 BAs per company, each angel invested DEM
  0.5 million on average
• Business angels as "smart investors" spend a
  significant amount of time supporting portfolio
  companies
• Angels spend 3.2 h per week supporting and
  monitoring portfolio companies
• In 2000 all business angels invested 620,000
  hours, equalling 410 man years, supporting and
  developing Internet/E-Commerce startups

13
BA's SYNDICATE 58 PERCENT OF ENGAGEMENTSAverage
2.1 resp. 3.7 Business Angels per Company
Question "How many business angels are or were
actively involved in your company ?"
"Non-financial support"
"Financial backing"
No. of BA'sper company
No. of BA'sper company
13
0
0
1
0
0
0
4
4
3
5
3
3
6
15
16
24
10
52
42
S83 Ø3,7 BA's(1)
S33 Ø2,1 BA's(1)
(1) For "10 and more" a figure of 12 business
angels was assumed to calculate averages
Source Survey with 8,989 Internet/E-Commerce
startups, analysis of 1,178 valid responses
14
BUSINESS ANGELS ARE CO-INVESTED WITH VC FIRMS IN
34, WITH STRATEGIC INVESTORS IN 16 OF CASES
Co-investments of business angels and VC firms
Co-investments by business angels and strategic
investors (other companies)
34
16
VC- fin.
2
35
60
1
17
66
SI- fin..
26
47
812
27
65
806
Venture Capital
Strateg. investor
No in-volve-ment
No in-volve-ment
n985
n985
Non-fin. support
Finan. backing
Non-fin. support
Finan. backing
No involvement
No involvement
Business angels
Business angels
Source of financing used "Other companies as
investors (e.g. partner companies taking shares
in the venture)"
Source of financing used "Professional risk
capital (venture capital firms)"
Remark When asking for sources of financing
used, no distinction was made between stages of
company development or rounds of financing
Source Survey with 8,989 Internet/E-Commerce
startups, analysis of 1,178 valid responses
15
BAs INVESTED AN AVERAGE OF DM 1.8 M PER COMPANY
Misleading Responses by Some of the
Participants(1)
Question "How much did all business angels
together invest until today ?"
"Non-financial support"
"Financial backing"
Size of total investment
Size of total investment
0
8
0
26
6
16
6
28
3
11
12
6
73
5
No investment
No investment
S34 Ø67 Tsd. DM
S82 Ø1,8 Mio. DM
(1) Selection "Yes, but we are only receiving
support free of charge from industry experts or
experienced managers (without financial
participation) (2) To calculate averages, a total
investment of DEM 8 million was assumed for "DEM
gt5 million" Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
16
BUSINESS ANGELS INVEST ABOUT THREE HOURS PER
WEEKIN SUPPORTING AND MONITORING PORTFOLIO
COMPANIES
Question "How much time did/does each business
angel spend on average supporting your company ?"
"Non-financial support"
"Financial backing"
Time spent
Time spent
More than 10 h per week
More than 10 h per week
6
8
5-10 h per week
5-10 h per week
15
8
2-5 h per week
2-5 h per week
32
31
Less than 5h per month
Less than 5h per month
47
43
No support
No support
0
10
S34 Ø3,5 h per week(1)
S82 Ø3,1 h per week(1)
(1) Calculated by multiplying the number of
business angels per category with the average
value For "less than 5 h per month" 0.75 h
per week and for "more than 10 h per week" 12 h
per week were assumed Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
17
CONTENT

• Sizing the informal venture capital market
• Structure of business angel investments
• Characteristics of active business angels
• Characteristics of companies financed/supported
• Spatial aspects of business angel activity
• Opportunities for activating potential business
  angels
• Appendix Definitions and background

18
CHARACTERISTICS OF ACTIVE BUSINESS ANGELSKey
Results of the Analysis

• Angels that are not financially involved, focus
  on operational support
• Founders prefer experienced managers with
  industry experience and networks
• 70 of startups found BAs with management
  experience, 58 with own startup experience
• Financially-involved BAs are expected to secure
  funding of the new venture
• 84 of founders stated that financing was the
  reason to involve angels
• Besides financing, management support is as
  important for companies that were funded as for
  those that only received non-financial support
• Using the business angel's name and prominence is
  an important factor, since it implies a sort of
  "quality mark" for little-known companies
• 27 resp. 42 of startups rated this criterion as
  important
• Family and relatives are not a sufficient source
  of experienced business angels
• Only 30 resp. 16 of all startups are supported
  by family and relatives
• Of all business angels only 15 resp. 8 belong
  to this group

19
MAIN REASON FOR INVOLVING BUSINESS ANGELS IS
SUPPORT IN OPERATIONAL MANAGEMENT OF THE VENTURE
Question "What were the main reasons for
involving one or more business angels ?"
"Non-financial support"
"Financial backing"
Reasons/motives
Reasons/motives
Support/suggestions for operational management
Support/suggestions for operational management
Access to BA's network and contacts
Access to BA's network and contacts
Industry experience, e.g. products and process
Industry experience, e.g. products and process
Name/prominence of BAs are used
Name/prominence of BAs are used
Secure funding of the new venture
Secure funding of the new venture
n33
n33
Share of replies
Share of replies
Remark Multiple responses were possible.
Participants not picking one of the answers
suggested were excluded Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
20
FOUNDERS PREFER ANGELS WITH GENERAL MANAGEMENT
KNOW-HOW AND PERSONAL STARTUP EXPERIENCE
Question "To which of the following criteria
would you assign these business angels ?"
"Non-financial support"
"Financial backing"
Criteria
Criteria
Worked as executives/ managers for some years
Worked as executives/ managers for some years
Previous experience with own personal startups
Previous experience with own personal startups
Industry experience in Internet/E-Commerce
Industry experience in Internet/E-Commerce
Firms33 BAs71
Firms75 BAs289
Belong to family or are relatives
Belong to family or are relatives
Share of companies with at least oneBA matching
the given criteria
Share of all business angels matching the given
criteria
Remark Multiple answers were possible Source
Survey with 8,989 Internet/E-Commerce startups,
analysis of 1,178 valid responses
21
CONTENT

• Sizing the informal venture capital market
• Structure of business angel investments
• Characteristics of active business angels
• Characteristics of companies financed/supported
• Spatial aspects of business angel activity
• Opportunities for activating potential business
  angels
• Appendix Definitions and background

22
CHARACTERISTICS OF THE COMPANIES SUPPORTEDKey
Results of the Analysis

• Investment strategies of business angels and VC
  firms show strong similarities
• Growth-oriented businesses expecting high returns
  are preferred
• Service companys' (multimedia firms, ISPs,
  integrators) chances to get funded are generally
  lower. Due to their smaller investment sizes and
  lower return expectations business angels seem to
  be the more appropriate source.
• The two different types of BAs prefer different
  company sizes to invest in
• Business angels not financially involved support
  small and large startups
• BAs funding new ventures prefer larger companies
  only
• Funding by BAs and VC firms as well as
  non-financial support accelerates the
  development of portfolio companies
• More employees, stronger revenues and higher
  growth expectations
• But profitability had to be sacrificed for
  ambitious growth targets
• Only 19 (BAs) resp. 9 (VCs) of portfolio
  companies expect to be profitable in 2000
  compared to 67 of the companies without BA and
  VC involvement

23
COMPANIES SUPPORTED BY BA'S AND VC'S ARE
SIGNIFICANTLY YOUNGER THAN THOSE NOT SUPPORTED
Reason Internet/E-Commerce Investments Were
Only Recently Getting Attractive
Question "When was your company founded ?"

Without BA/VC involvement
Non-financial support by BAs
Fin. backing by BAs
Fin. backing by VCs
n1,009 Ø2.8 years
n37 Ø2.0 years
n125 Ø1.8 years
n95 Ø1.8 years
and earlier
(1.H)
and earlier
(1.H)
and earlier
(1.H)
and earlier
(1.H)
Remark Founders were asked to state the year in
which the company was started, not when it was
registered officially (e.g. as Ltd.) Source
Survey with 8,989 Internet/E-Commerce startups,
analysis of 1,178 valid responses
24
SPIN-OFFS AND FIRMS ARISING FROM MERGERS WITH
BETTER CHANCES OF FUNDING THAN NEW STARTUPSDo
Company's History and Existing Networks Provide
Better Opportunities?
Question "How was your company founded ?"
Non-financial support
Financial backing
VC-funded companies
Type of startup
Type of startup
Newly-founded (by private indiv.)
Newly-founded (by private indiv.)
1,059
1,059
Spin-offs (byest. companies)
Spin-offs (est. companies)
49
49
Spin-offs (by Int./E-Commerce)
Spin-offs (Int./E-Commerce)
22
22
New firm arising from merger(1)
New firm arising from merger(1)
29
29
Share of BA-supported startups
Share of VC-backed startups
(1) Companies that were founded by merging two
previously existing, mostly smaller companies in
the legal form of GbRs (company constituted under
civil law) Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
25
INVESTMENT STRATEGIES OF VCs AND BAs SHOW
SIMILARITIES IN TYPES OF BUSINESS MODELS FINANCED
Share of companies funded/supported by business
model
37.6
34.5
33.2
33.0
32.5
21.4
20.5
19.7
13.9
12.8
11.9
10.9
10.2
9.6
9.6
8.3
5.3
1.5
1.6
0.9
Navigation/Information(fin. by ads)
B2C-Transaction
B2B-Transaction
E-Comm. Services
Multimediafirms
Internetservice providers
Inte-grators
Specializedservice providers
Software (manu- facturers)
Infra- structure (manuf.)
(1) Available data points for BA-supported
startups. An adjustment factor of K0.8 was used
to project total shares by business model from
sample results (2) Available data points for
VC-funded startups. Projected to total share by
business model based on identified
investments Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses, survey with 332 VC firms in
Germany, segment sizes estimated
26
STARTUPS FUNDED BY VCs OR BUSINESS ANGELS SHOW
STRONGER GROWTH ORIENTATIONA Large Share Wants
to Double Revenues in 2001
Question "How much does your company expect to
grow from 2000 to 2001 ?"

Without BA/VC involvement
Non-financial support by BAs
Fin. backing by BAs
Fin. backing by VCs
n745
n32
n68
n50
Growth
Growth
Growth
Growth
Remark These figures are the startup's
expectations and are aggregated across all
business models Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
27
BA INVOLVEMENT ALLOWS COMPANIES TO PURSUE LONGER-
TERM GOALS TO INTRODUCE INNOVATIVE BUSINESS
MODELSMajority of Companies Plan to Reach Break
Even in Less Than Two Years
Question "Will your company make a profit this
year (2000) ?" If "no" "When do you expect to
reach break even ?"

Without BA/VC involvement
Non-financial support by BAs
Fin. backing by BAs
Fin. backing by VCs
n723 Ø0,6 J.
n37 Ø0,9 J.
n72 Ø1,4 J.
n82 Ø1,8 J.
Year
Year
Year
Year
Remark These figures are the startup's
expectations and are aggregated across all
business models Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
28
COMPANIES USE FUNDING TO EXPAND THEIR NETWORKS
AND ENTER INTERNATIONAL MARKETS
Question "How many offices/locations does
your company have in Germany ?"
Question "How many offices/locations does
your company have in foreign countries ?"
Share with offices/locations in foreign countries
Share with more than one office/location in
Germany
Fin. backing by VCs
Fin. backing by VCs
95
95
Fin. backing by BAs
Fin. backing by BAs
125
125
Non-financial support by BAs
Non-financial support by BAs
37
37
Without BA/VC involvement
Without BA/VC involvement
1,009
1,009
Source Survey with 8,989 Internet/E-Commerce
startups, analysis of 1,178 valid responses
29
BUSINESS ANGELS WITH FINANCIAL INTEREST FOCUS ON
LARGER RESP. FASTER GROWING VENTURES
Question "Which revenue category would you
allocate your company to (expectation for 2000) ?"
Distribution by revenue categories
Share of BA-supported companies
DEM 100 M
DEM 100 M
Non-financialsupport S26
DEM 50-100 M
DEM 50-100 M
Fin. backingS68
DEM 10-50 M
DEM 10-50 M
DEM 5-10 M
DEM 5-10 M
DEM 1-5 M
DEM 1-5 M
DEM 0.5-1 M(1)
DEM 0.5-1 M(1)
DEM 100-500 K
DEM 100-500 K
DEM 50-100 K
DEM 50-100 K
Non-financialsupport S26
DEM 10-50 K
DEM 10-50 K
Fin. backing S68
DEM 10- K
DEM 10- K
(1) The sample of all survey participants also
shows a smaller share in this size category. A
reason for this phenomenon could not be
identified Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
30
VC- AND BA-FUNDED STARTUPS OCCUPY MORE EMPLOYEES
TO MEET AMBITIOUS GROWTH TARGETS
Question "How many permanent (non-permanent)
employees does your company occupy in Germany
(outside Germany) ?"
Permanent employees in Germany
Permanent employees outside Germany(1)
Non-permanent employees in Germany
n88
n85
n42
Fin. backing by VCs
n73
n27
n71
Fin. backing by BAs
n26
n26
n3(!)
Non-financial support by BAs
n742
n730
n39
Without BA/VC involvement
(1) Average number of employees for participants
with office/location outside Germany only (not
refering to total number of companies) Source
Survey with 8,989 Internet/E-Commerce startups,
analysis of 1,178 valid responses
31
CONTENT

• Sizing the informal venture capital market
• Structure of business angel investments
• Characteristics of active business angels
• Characteristics of companies financed/supported
• Spatial aspects of business angel activity
• Opportunities for activating potential business
  angels
• Appendix Definitions and background

32
SPATIAL PATTERNS OF BUSINESS ANGEL ACTIVITYKey
Results of the Analysis

• The distribution of BA-supported companies
  reflects the regional variation in Internet/
  E-Commerce startup activity
• Belt of higher startup density from Rhine-Ruhr
  region via Frankfurt and Stuttgart to Munich
• Lower activity in Northern Germany and the five
  new federal states
• Startups financed by risk capital prefer
  metropolitan areas as location
• 72 of BA-funded and 75 of VC-funded companies
  are located in cities with more than 100,000
  inhabitants
• Business angels in key cluster regions show
  different activity levels
• Example 31 of Munich startups are BA-supported,
  14 in Berlin and only 4 in Düsseldorf (city
  areas only)
• Startups and business angels prefer to be located
  in the same region
• 73 of BAs providing non-financial support live
  in the same city
• If BAs are funding the new venture, up to 5 BAs
  per startups 81 live in the same city.
  Increasingly, distant BAs get involved, reducing
  the share to 81

33
Non-financial support (n36) Financial backing
(n92)
Startups supported by business angels (survey
participants only)
34
STRONG REGIONAL DIFFERENCES IN BUSINESS ANGELS'
ACTIVITY LEVELS
Bundesland
Inhabit.
Inhabit.
VC-
VC-
Not
Not
BA-
BA
Share
in K
in
funded
funded
supp.
supp.
supp.
BA
suppor- ted
(federal state)
in
by BAs
in
in
support(1)
Brandenburg
2,542
3.1
8
1.5
9
0.9
0
0.0
-
(1) A ratio is only given with more than 10
participants per federal state Source Survey
with 8,989 Internet/E-Commerce startups, analysis
of 1,178 valid responses, survey with 332 VC
firms in Germany
35
BUSINESS ANGEL COMMUNITIES SEEM TO BE ACTIVE IN
CITIES WITH A HIGH NUMBER OF LOCAL VCsEven With
a Limited Number of Data Points Differences are
Obvious
Top 5 locations by number of BA-supported
companies (survey participants only(1))
Ranking of top locations by share of BA-supported
companies(2)
No. of data points
85
23
36
90
53
21
23
S123
S1,086
(1) For illustration only. The ranking can be
distorted by different participation rates (2)
Only cities with more than 20 valid survey
responses were included Source Survey with 8,989
Internet/E-Commerce startups, analysis of 1,178
valid responses
36
FOUNDERS AND BUSINESS ANGELS PREFER SHORT
DISTANCESWith an Increasing Number of BAs,
Syndicates Are Also Expanding Geographically
Question "How many business angels live in the
same city or within a distance of less than 20 km
?"
"Non-financial support"
"Financial backing"
Number of BAs in the same city
Number of BAs in the same city
Data points
Data points
Average 73
10
1
Average 46
0
1
3
1
4
1
1
4
4
10
5
4
12
23
S60 Ø46
S24 Ø73
(1) For calculating averages for "10 or more" a
number of 12 business angels was assumed Source
Survey with 8,989 Internet/E-Commerce startups,
analysis of 1,178 valid responses
37
BA-FUNDED AS WELL AS VC-FUNDED COMPANIES PREFER
LARGE CITIES AS THEIR LOCATION
Number of startups
880
32
82
90
96
Share
Size category ofstartup's location ( of
inhabitants)
lt10,000
10-20,000
20-50,000
50-100,000
gt100,000
Type of involvement
Source Survey with 8,989 Internet/E-Commerce
startups, analysis of 1,178 valid responses, list
of cities taken from Regiograph 5.0
38
CONTENT

• Sizing the informal venture capital market
• Structure of business angel investments
• Characteristics of active business angels
• Characteristics of the companies
  financed/supported
• Spatial aspects of business angel activity
• Opportunities for activating potential business
  angels
• Appendix Definitions and background

39
OPPORTUNITIES FOR ACTIVATING POTENTIAL BUSINESS
ANGELSKey Results of the Analysis

• Most founders get in contact with business angels
  via their personal network
• This source proved successful for 85 of startups
  receiving management support only and 75 of
  those funded by business angels
• Only in 18 resp. 35 of cases did an active
  search deliver the expected result
• Opportunities to activate potential business
  angels will therefore have to focus on the larger
  and more important area of potential BAs that are
  not yet registered
• Providing information about angel's role,
  potential profits and risks involved
• Relevant practical experience from a German
  context may interest more potential angels and
  lower barriers for entry
• Matchmaking services offer an organized and
  efficient alternative for those startup teams not
  possessing an extensive personal network
• About 1,000 potential BAs are already registered
  in business angel networks
• These structures mostly still in set-up
  should be strengthened and, due to the regional
  nature of BA investments, should cover all of
  Germany

40
EXISTING CONTACTS ARE MOST IMPORTANT SOURCE FOR
BAs To Win BAs, Matchmaking Events and Support
Schemes are Less Important
Question "How did you get in contact with your
angel(s) ?"
"Non-financial support"
"Financial backing"
Sources
Sources
Existing personal contacts
Existing personal contacts
Active search for suitable individuals
Active search for suitable individuals
Referral by business angel networks
Referral by business angel networks
Support/advice by local technology centers, IHK,
...)
Support/advice by local technology centers, IHK,
...)
Business plan competitions
Business plan competitions
Founder fairs, conferences, events
Founder fairs, conferences, events
n34
n81
Share of responses
Share of responses
IHKIndustrie- und Handelskammer (chamber of
industry and commerce) Remark Multiple responses
were possible. Participants not answering were
excluded from this analysis Source Survey with
8,989 Internet/E-Commerce startups, analysis of
1,178 valid responses
41
CURRENTLY, ABOUT 1,000 BAs ARE REGISTERED BY
NETWORKSA Number of Initiatives are Sill in
Set-Up or Restructuring
Number of registered private individuals in
business angel networks
Background/development
Number of BAs in network
11
Public initiative
Priv. initative (support)
Priv. inititative (profit-oriented)
n/a
25
Focus of initiatives
37
11
16
Focussed BA networks
Advisors, also offeringBA matchmaking
Other types
In set-up mode
n19 S923 BAs Ø49 BAs(1)
(1) These figures also contain double countings.
Some business angels are registered in more than
one network Source Telephone interviews with
business angel networks, network Web sites,
figures on the BAND Web site (www.business-angels.
de)
42
CONTENT

• Sizing the informal venture capital market
• Structure of business angel investments
• Characteristics of active business angels
• Characteristics of companies financed/supported
• Spatial aspects of business angel activity
• Opportunities for activating potential business
  angels
• Appendix Definitions and background

43
THE STUDY'S FOCUS IS BUSINESS ANGELS ACTIVELY
INVOLVED WITH INTERNET/E-COMMERCE STARTUPS
. . .
Materials
Industry
Systems techn.
Biotech
E-Commerce
Internet
Non-financial support
Activebusinessangels
BusinessAngels
Financial backing
Latent Angels
Inactive businessangels
Virgin Angels
Foreign companies with office in Germany
Companies foun- ded in Germany with focus on
Internet/E-Com.
Established companies also active in
Internet/ E-Commerce
Companies supported
44
SEGMENTATION USED FOR INTERNET/E-COMMERCE
BUSINESS MODELS
Internet-related services (Internet)
Products and services via the Internet (E-Commerce
)
Internet technology (Internet)
Internet users
Information
Infrastructure
Internet Service Providers (ISPs)
Navigation
Content

• BinTec Communications AG
• Tixi.com GmbH
• PolyTrax Information Technology AG
• Teledis AG

• Web.de AG
• Endemann!! AG
• Hurra.com GmbH
• Allesklar AG

• C2day AG
• Urbia.com AG
• Gatrixx AG
• Ciao.comAG

• ISION Internet AG
• Cybernet AG
• Strato Medien AG
• Schlund Partner AG

Multimedia firms

• Kabel New Media AG
• Pixelpark AG
• I-D Media AG
• WWL Internet AG

Transaction
Integrators
Software
B2C
B2B

• Intershop Communi-cations AG
• Brokat AG
• living systems AG
• Hyperwave Information Management GmbH

• Articon Information Systems AG
• GFT Technologies AG
• GEDYS Internet Products AG
• Avinci AG

• Ricardo.deAG
• Artnet.comAG
• Vitago.de AG
• Buecher.de AG

• goindustry. com AG
• Newtron AG
• DCI AG
• Web2CAD AG

Specialized service providers

• Webmiles AG
• DocCheck GmbH
• Webvertising AG
• Link4Link GmbH

Proximity to Internet users and customers
Competence in marketing sales
Technological competence
Remark Company names were used for illustration
purposes only