ROLE OF BUSINESS ANGELS

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• ROLE OF BUSINESS ANGELS

Christophe Beaud
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CONTENTS
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1. Who are Business Angels
2. Angel Capital Market
3. Types of Angel Investment Strategies
4. Key Success Factors
5. Supporting Innovation
6. Business Angel Networks
7. 10 Lies and 10 Tips
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WHO ARE BUSINESS ANGELS
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• Definition
• Business Angels are private investors who invest
  in unquoted small and medium sized businesses.
  They are often businessmen and women who have
  sold their business. They provide not only
  finance but experience and business skills.
  Business Angels invest in the early stage of
  business development filling, in part, the equity
  gap. EBAN website

Motivation

• Expectation of high financial return
• Playing a role in an entrepreneurial process
• Satisfaction of being involved in an
  entrepreneurial firm

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WHO ARE BUSINESS ANGELS
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Main Differences Business Angels Venture Capitalists
Personal Entrepreneurs Money managers
Money Invested Own money Fund provider
Firms funded Small, early stage Medium to large
Due diligence done Minimal Extensive
Location of inv. Of concern Of lesser concern
Contract used Simple Comprehensive
Monitoring after inv. Active, hands-on Strategic
Involvement in mgt Important Of lesser concern
Exiting the firm Of lesser concern Highly important
Ten3 website, business angels
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ANGEL CAPITAL MARKET
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• Definition of Private Equity
• Private equity investing may broadly be defined
  as "investing in securities through a negotiated
  process". The majority of private equity
  investments are in unquoted companies. Private
  equity investment is typically a
  transformational, value-added, active investment
  strategy. It calls for a specialised skill set
  which is a key due diligence area for investors'
  assessment of a manager. The processes of buyout
  and venture investing call for different
  applications of these skills as they focus on
  different stages of the life cycle of a company.
  EVCA Website

Seed
Start-up
Expansion
Replacement Capital
Buyout
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ANGEL CAPITAL MARKET
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ANGEL CAPITAL MARKET
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ANGEL CAPITAL MARKET
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Returns
EVCA website
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ANGEL CAPITAL MARKET
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European Survey 2004
Number of analysed  business plans  per business angel and per year  26 43
Number of interviews done per business angel and per year 9.1 9.7
Number of first round investments per business angel and per year 2.3 2.5
Invested amount in Euro per deal et per business angel 133069 77534
EBAN, Dec 2004
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ANGEL CAPITAL MARKET
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European Survey 2004 (cond)
Investment per Stage
Seed 20
Start-up 39
Expansion 30
Buyout 11
Write-off 49
Sale to the entrepreneur 9
Sale to another shareholder 29
Trade sale 12
IPO 0
Type of EXIT
EBAN, Dec 2004
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TYPES OF ANGEL STRATEGIES
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• Active Angel Investment Strategies
• Lead angel investment strategy -gt experienced
  angel
• Manager investment strategy -gt looking for a
  job
• Corporate investment strategy -gt owners of
  companies
• Acquisition investment strategy -gt strong need
  to control
• Professional services business -gt business
  development development investment strategy

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TYPES OF ANGEL STRATEGIES
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• Passive Angel Investment Strategies
• Angel consortium coinvestment -gt follow-on
  investor strategy
• Barter investment strategy -gt providing
  assets
• Socially responsible investment -gt social
  conscience strategy
• Fund-based investment strategy -gt PE for the
  masses
• Benjamin Margulis, the Angel Investors
  Handbook, Bloomberg Press, 69-94

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KEY SUCCESS FACTORS
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1. High deal flow
2. Knowledge of the business and particular
skills or contacts
3. Full trust in the management team
4. Own due diligence of the market and of the
technology
5. Clear understanding of the revenue model
6. Realistic valuation of the company
7. Perfect understanding of the liquidity risk
8. Planning of sufficient financial reserves for
future rounds
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SUPPORTING INNOVATION
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Angel Point of View Knowledge of
industry Knowledge of technology Knowledge
of revenue model Scalability of the project
First mover advantage Timing of
commercialization Other investors
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SUPPORTING INNOVATION
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Entrepreneur Point of View Competences of
Business Angels Complement competences
Sharing experiences Short due diligence
Longer investment horizons
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BUSINESS ANGEL NETWORKS
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BUSINESS ANGEL NETWORKS
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• Regional Associations
• EUROPE European Business Angel Network (EBAN)
• CH Association of Swiss Business Angels Network
  (ASBAN)

• Private Networks in CH
• BAS Business Angels CH, www.businessangels.ch
• Bisange SA, www.bisange.ch
• BrainsToVentures AG, www.b-to-v.com
• Club Valaisan des Business Angels,
  www.bizangels.ch
• MSM Investorenvereinigung, www.fininco.com
• Start Angels, www.startangels.ch
• Venturix AG, www.venturix.com

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TOP 10 LIES BUSINESS ANGELS
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1. Tomorrow I will tell you if I am interested or
not
2. My due diligence will take only few days
3. My shareholder agreement is simple and held in
one page
4. I feel absolutely comfortable with your
company valuation
5. I will have plenty of time to help your company
6. I know personally several potential clients
7. I know in details your business niche
8. I will not interfere in your management
decisions
9. I have excellent relations with retail banks
10. I will help you to find additional money for
future rounds
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10 TIPS FOR ENTREPRENEURS
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1. Appreciate the significance of time vs. money
2. The patent is not everything
3. Selling starts at the earliest possible
opportunity
4. Economics of pricing the value of the
customer
5. Fail earlier, fail faster and fail often
6. 2 sources of negotiating strength execution
competition
7. The value of partnerships
8. Complete financing plan the strategic view
9. Plan funding around externally significant
milestones
10. Structuring the investment economics vs.
control