WIPOINSME INTERNATIONAL TRAINING PROGRAM ON THE ROLE OF INTELLECTUAL PROPERTY IN RAISING FINANCE BY

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WIPO-INSME INTERNATIONAL TRAINING PROGRAMON THE
ROLE OF INTELLECTUAL PROPERTY IN RAISING FINANCE
BY SMALL AND MEDIUM-SIZED ENTERPRISESjointly
organized byWIPO and INSMETheme 9 Role of
Business Angels in Supporting Your Innovation
Plans
Mr. Paolo Anselmo President of the Italian
Network of Business Angels (IBAN) Member of the
Executive Committee of the European Network of
Business Angels (EBAN) Member of the INSME
Association Board Geneva - July 12, 2006
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FINANCING OF THE PROJECT

• DEBTS
• PUBLIC FINANCING
• VENTURE CAPITAL
• Formal Venture Capital
• Informal Venture Capital (business angels)

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FINANCIAL SUPPLY CHAIN
Banks Guaranties Leasing Factoring
Grants Micro-credits Other public support
Prerequisites

Own resources
FFF
VC
Loans on trust Pre-seed Loans for
investors Reimbursable advance payments
IPO
BA Corporate Venturing
Seed capital
Infrastructure business angels networks,
incubators, etc.
Advice investment readiness program, tutorship
Expertise professional fund managers
Tools
FFF Family, Friends, Fools BA Business
angels VC Venture capital IPO Initial Public
Offering
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THE ENTERPRISE FINANCING PROCESS
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THE ENTERPRISE FINANCING PROCESS
Efforts made by financiers
Cash flow
Risk
Time
Innovation Seed Capital Funds and Public funding
Private Investors and Business Angels
Transfer
Idea
Start-Up
Market introduction
Growth
Maturity
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THE ENTERPRISE FINANCING PROCESS
RD
Start-up
Early growth
Accelerating growth
Sustaining growth
Maturity growth
Stage in Cycle
Proof of Concept Funding
Seed Corn
First Round
Second Round
Development Capital
Replacement Capital MBO / MBI Development Capital
Type of Funding
Public Sector
Founders, family and friends
Business angels
Source of Funding
Venture capital funds
Corporate venturing
Public listing / IPO
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IS A COMPANY READY?

• Business plan?
• Stage of development of the company
• Type of investment?
• Valuation?
• Management team ready?
• Has the management team enough time and energy
  to raise funds?
• Is the team shaped to talk to investors?
• Does the company know where to go?

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VENTURE CAPITAL (formal informal)

• Institutional operators (formal venture capital)
• Private subjects
• Banks
• Insurance
• Corporate venture capital
• Non-institutional operators (informal venture
  capital)
• Business Angels

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BUSINESS ANGEL (BA) - definition
A Business Angel is a middle aged male with
reasonable net income, personal net worth,
previous start up experience, who makes one
investment a year, usually close to home or
office, prefers to invest in high technology and
manufacturing ventures with an expectation to
sell out in three to five years time. (Kelly and
Hay, 1996) Business angels (informal investors,
independent investors) are investors who provide
risk capital directly to new and growing
businesses in which they have no prior
connection.(Harrison and Mason, 1996)
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BUSINESS ANGEL (BA)
Attitudes, behaviour and characteristics

• male, rarely female
• successful experience as an entrepreneur or
  manager
• high net worth individual and / or sophisticated
  investor
• have a declared propensity to invest and to risk
  in a start-up firm
• invest their own money (around 50K 250K euro)
  (part of their cash capital 20 - 30 )
• Seeking profit, but also fun (seeking minimum
  20 return)
• are willing to share their managerial skills and
  their enterprise background
• often invest in their region of residence
• make one investment a year
• prefer high-technology and manufacturing
• take a minor participation medium term
  investment
• are willing to wait for an exit for 3-5 years

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ANGELS success stories
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ANGEL STRATEGY
High-growth start-ups new businesses that are
likely to see sales grow to around 1M and
employment to between 10 and 20 people in early
years and export oriented. Key selection
criteria of risk capital investors (generally)

• New products or technological improved products
  in an existing market
• A product or service that can be taken to market
  without further development (i.e. past the
  initial concept stage)
• Creation of new markets
• Companys growth should expected to be higher
  than market growth
• Increase of market share against competitors
• Superiority regarding competitors

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ANGEL DUE DILIGENCE PROCESS

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PRIORITIES FOR EQUITY PROVIDERS
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FORMAL AND INFORMAL EQUITY PROVIDERS
Source van Osnabrugge, 1998, p.2
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FORMAL AND INFORMAL EQUITY PROVIDERS

• VC
• Easy to find via directories
• Your request is only one among many hundred a VC
  receives
• Can often via syndication provide large
  investment
• Thorough and formal due diligence and investment
  process
• Exit route very important

• BA
• Difficult to find
• Request often strong personal involvement
• Limited amount to invest
• Investment decisions often quick and less formal
• Syndication more and more usual
• Exit route less in focus

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OBTAINING RISK CAPITAL

• Advantages for the science based enterprise
• acquisition of financing for development
• operative and financial consultancy
• growth in prestige and visibility at
  international level
• attraction of talents with stock options
• reinforcement of negotiating power with the
  credit system, clients and suppliers
• possibility for way out and positive
  re-evaluation

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THE IRREGULATITY OF THE INFOMRATION AVAILABLE

• THE IMPORTANCE OF THE INFORMATION NEEDS OF THE
  INVESTORS IN THE EVALUATION OF THE PROJECT
• to evaluate the yield of the investment
• to reduce the risk of requests from opportunists
• WHAT AND HOW TO EVALUATE
• Economic and financial information
  (quantitative/consumptive)
• Business plan (quantitative/prognostic)
• Qualitative judgment of the confidence of the
  project

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THE FIRM-ORIENTED APPROACHES

• 1st Criteria approaches based on costs
  (historic and/or substitutions)
• 2nd Criteria approaches based on value
• ??.., what is the OBJECT of the evaluation?
• Immaterial and non-patentable factors
• Intellectual property (importance if the
  scientific dimension vs the economic/financial
  dimension)
• Prospective revenues (strong influence of the
  state of development of the product/service with
  respect to the market)

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THE INDIVIDUAL-ORIENTED APPROACHES

• Approaches based on qualitative variables
  (subjectiveness of the proposers)
• Demographic variables of the entrepreneur
• Social variables such as political editorials
• The context academic or industrial origin
  (technical-scientific and managerial capacity)
• N.B. THE CRITERIA OF EVALUATION DEPEND ON THE
  TIMING OF THE FINANCIAL INTERVENTION
  (enterprises phase) QUALITATIVE JUDGEMENT OF
  THE INDIVIDUALS (human capital) QUANTITATIVE
  ESTEEM OF THE ENTERPRISE (the reputation of the
  enterprise).

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ROLE OF THE SCIENTIFIC COMMUNITY

• () the KNOWLEDGE WORKERS attracted, why?
• opportunity to increase technical competences
• opportunity to enrich ones CV
• to increase the visibility in ones community
• access a global scientific network
• able management of eventual elitist attitude
• (-) the intrinsic mobility of KNOWLEDGE WORKERS
  (generation of a risk of unstable knowledge
  and/or cessation of know how to third parties)

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THE REPUTATION OF THE ENTERPRISE

• An extremely important resource in phase of start
  up in order to limit the environmental pressures
  and to attract the necessary resources
• How it is constructed
• Collaborated vertical agreements (University,
  enterprises)
• Relational systems and participation in networks
  (social capital)
• N.B. More social relations form an enterprise,
  the potential for the reputation and confidence
  should mature over time.

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LEGITIMIZATION STRATEGIES

• SEARCH FOR CONSENT - RELATIONAL CONTEXT (in order
  to increase the level aperture towards the
  outside world)
• Access to scientific networks (in order to
  acquire qualified human resources)
• Access to financial networks (to acquire
  financial resources)
• Access to business networks (in order to acquire
  managerial resources)
• STRATEGIES
• Passive attitude (patenting of research results)
• Active attitude (localization near innovation
  locations)
• Proactive attitude (communication of the
  scientific successes obtained)

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BAN THE NETWORK

Venture Capital, Business Angels and Banks
Network of Intermediaries and
Universities

BAN
Universities, Research Centers and technology
companies
Professional Services and Business Support
Organizations
Thank you for listening!
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Thanks for your attention
Ing. Paolo ANSELMO IBAN Italian Business
Angels Networks c/o Centro Sviluppo Spa Via
Lavoratori Vittime Col du Mont, 24 11100 Aosta
Italy T 39 0165 305511 F 39 0165
305540 e-mail presidenza_at_iban.it www.iban.it ww
w.eban.org