Business Angels and business angel networks in Europe

1

Business Angels and business angel networks in
Europe
EBAN The European Association of Business Angel
Networks
Claire Munck General Manager European Business
Angel Network
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Topics

• Characteristics of Business Angels
• Characteristics of Business Angel Networks
• Where Angels sit with regard to other finance
  sources
• European Angel market statistics, composition and
  trends
• Case studies
• How Angel Networks can add value
• Angels and intellectual property
• About EBAN

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Foreword

• There is an asymmetry of information between
  entrepreneurs and investors
• Its not only a question of access to money but
  also a question of life cycle of a company and
  about sales and market penetration
• Investment readiness is needed
• All money is not the same

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About Business Angels
Business Angel Private individual investing own
wealth in early stage businesses AND own
expertise and network of contacts

• Investment 25 000 - 250 000 euro
• Willing to share their managerial skills,
  specialist knowledge and networks
• No sector preference
• Often prefer to invest in their region of
  residence
• Seeking profit, but also fun
• Usually total investments below 25 of wealth
• Can become involved in the business (active
  Angel) or not (passive Angel).

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About Business Angels
Characteristics that Business Angels are seeking

• Current comprehensive Business Plan
• Strong committed Management Team
• High growth / scaleable / strong business
  forecast
• Developed product / service with sales
• Angel involvement welcome
• Realistic pre-money value
• BUT Entrepreneurs qualities are most important

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Angels and Other Finance Sources
Capital Needs
IPO
High Risk
Low Risk
Formal Venture Capital
Business Angels
Angels help fill the Equity Gap
Friends, Family Founders
Time
0
Early Growth
Start-up
Sustained Growth
Seed
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Venture capital in Europe
3878
3273
Source EVCA
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About Angel Networks
Private or semi-public body whose aim is to
match entrepreneurs looking for equity with
Business Angels

• Membership Business Angel investors
• Fees Annual membership fee and sometimes
  success fee
• Seeks filters applications from entrepreneurs
• Allows selected entrepreneurs to pitch to
  investors
• May also provide training (to entrepreneurs and
  Angels), opportunities to syndicate

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About Angel Networks
Entrepreneur
Business Angel
Contact of BAN
Identification
Business plan evaluation and validation
Training
Confronting offer and demand
Identification of investment priorities
Drafting of business plan summary
Circulation of Business plan
BA added to database
Investment readiness programme
MATCHING
Participation in investment forum/club
Preparation of a presentation
Leverage funding, co-funding, bank loans
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Source EBAN Winter University, 16/11/05 Rudy
Aernoudt
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European Angel Market Characteristics

• 2006 data, 49 response rate

• Crucial point actual Angel activity is far
  larger than these statistics can measure

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European Angel Market Characteristics

• Very varied level of development
• UK has the most mature market in the EU 34
  Networks, thousands of Angels, hundreds of deals
  (UK tax break scheme is the most extensive)
• France, Germany, Sweden, Belgium, Finland,
  Netherlands
• Smaller players, e.g. Italy, Spain, Norway
• Very small markets, Slovenia, Greece, Portugal
• Different types of founders
• Varied level of Government support
• National trade associations sometimes represent
  the market
• Rapid growth

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European Angel Market Characteristics
Number of Business Angel Networks
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European Angel Market Trends

• Increasing size of deals but decreasing size of
  investment by individual investors (Mason 2006)
• More small investments
• Investing increasingly in syndicates
• BANs offereing more packaged deals and value
  added services
• Organisation of the market (vs sophistication?)

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Case Study UK
One of Europes most developed Angel markets.

• January to June 2006 12.8 m invested in 188
  entrepreneurs (survey of 20 networks only)
• 32 networks, 5112 Angels,
• Highly supportive tax break scheme, Enterprise
  Investment Scheme
• Income tax rebate equal to 20 of investment up
  to 600k
• Exemption from capital gains on Angel investments
• Income tax relief of 40 on failed investments
• Larger average deal size syndication becoming
  prevalent
• Commercial networks more prevalent than elsewhere
• National trade association, British Business
  Angels Association

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Case Study Sweden
An expanding and well-developed market. Key
characteristics include

• 23 networks, 5000 Angels, 100 deals, 200 m
  invested (2005
• Few commercial networks
• Government support NUTEK (Swedish Agency for
  Economic Regional Growth) has supported
  creation development of regional Angel networks
  BUT no favourable tax incentives
• National body Swedish Private Equity Venture
  Capital Association (SVCA)

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Case Study Portugal
A very young Angel market. Key characteristics
include

• A national trade body (FNABA) and 6 local
  networks
• No official and legal framework for this type of
  investment
• Governmental support picking up
• Hosting EBAN Annual Congress 2007

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Benchmarking angel activity
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Best Practice Adding Value
Angel Networks can increase supply demand for
Angel Investment in other ways

• Investment Readiness programmes get
  entrepreneurs ready for investment
• e.g. Business Planning advice, Presentation
  Training etc.
• Can be a structured programme or provided just
  before the investment pitch to enhance
  performance
• Investor Readiness programmes educate investors
  in the basics of Angel investment
• e.g. Legal Issues advice, meet with existing
  Angels, learn about tax break schemes

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Best Practice Adding Value
Angel Networks can increase supply demand for
Angel Investment in other ways

• Syndication can be encouraged/facilitated by
  networks
• (Syndication many Angels investing together)
• Increases amount of money available
• Increases Angels bargaining power
• Enables coordination of legals, investment terms
• Enables greater cooperation during Due Diligence
  and subsequent monitoring of investment

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Best Practice Adding Value
Angel Networks can increase supply demand for
Angel Investment in other ways

• Co-investment funds can operate alongside the
  network
• (Co-investment fund fund that can only invest
  alongside Angels on the same or better terms)
• Increases amount of money available
• Helps coordinate deals on Angels behalf
• Exploits Angels expertise only invests where
  Angels invest
• Exploits Angels monitoring of the company

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How to encourage angel activity?

• NATIONAL LEVEL
• Fiscal environment
• - Capital gain or loss exemption from tax
• - Equity guarantees
• Non-financial incentives
• Syndication opportunities
• Business Angel Academies
• Investment readiness
• Promoting codes of conduct for BANs and BAs
• Integration of BAN activities in the regional
  entrepreneurship strategy

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Angels and intellectual property

• Valuation of the intangible assets of a company?
  Third party involvement for the valuation.
• Intellectual property defines the value of the
  company
• Managing the intangiblesmanaging the team
• Need to focus beyond patents as
• - Intellectual capital is the intellectual
  property
• - Ownership can be discontinued
• - Focus on networking i.e. franchising and
  licensing

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Angels and intellectual property (2)

• gtIP must be in BP when presenting to potential
  investors
• gtIP must be scaleable
• gtClarity of IP ownership
• gtImportance of university spin-outs (IP owned by
  company)
• gt IP as a financial instrument to access finance

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About EBAN

• Established with collaboration of European
  Commission, 1999
• Organisations goals include
• Exchange experience encourage best practice
• Promote create positive environment for
  Business Angels
• Push forward the informal investment agenda
• Organisations members include
• National Federations of Angel Networks
• BANs with Local / Regional / National coverage
• Other organisations inc. non-European Angel
  Networks

54 members, 20 countries
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Conclusions

• Business Angels are an important addition to
  available European sources of finance
• European market is growing - some countries
  already very well-developed
• National European-level trade associations can
  help enhance the market lobbying, encourage
  best practice etc.
• Angel Networks can add further value by providing
  investor / investee readiness support,
  facilitation of syndication etc. but also
  dissemination activities.

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EBAN - European Business Angel Network
Contact details
Thank you for your interest!
info_at_eban.org www.eban.org