Business Angel Networks in Europe Their role and rationale

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Business Angel Networks in Europe Their role
and rationale
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The Business angel profile

• According to Kelly and Hay (1996), 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

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• Informal private investor with smart money
  (financeexpertise)
• Investment 25 000 - 250 000 euro
• Willing to share their managerial skills,
  specialist knowledge and networks
• Often prefer to invest in their region of
  residence
• Seeking profit, but also fun

4

• Male, rarely female
• Aged between 35 and 65 the older they are, the
  more they invest both in terms of the number of
  deals and in the amount
• Successful experience as an entrepreneur or
  manager
• BA activities are not new, BANs are new tools

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Guide to becoming a successful business angel

• The portfolio approach
•  Stick to your knitting 
• Assess the management and look for relevant
  experience and track record
• Timing buy cheap and sell high, which can be a
  combination of luck and judgement

• The  wow  factor
• Make independent input at board level as an
  active investor by participating in the strategic
  management of the company
• Experienced personnel
• Exit do not be afraid to take profit
• Cash is king
• Take a risk and invest

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A financial chronology of Amazom.com
(1994-1999)1
 
Founder Jeff Bezos starts Amazon.com  He invests
10,000 and borrows 44,000
1994 July 94 -Nov94  
.001
Family Founders father and mother invest a
combined 245,500
Price/share
1995 Feb95-July 95  
.1717
August 95 December95  
Business Angels Two angels invest a total of
54,408
.1287- 3333
Angel Syndicate Twenty angels invest46.850 each
on average, for at total of 937.000
.3333
1996 Decr95-May96  
Family Founders siblings invest 20.000
May 96  
.333
  June 96    
.23417
Venture Capitalists Two venture capital funds
invest 8million
Initial Public Offering Three million shares are
offered on the equity market, raising 49.1
million
1997 May97  
.18
Loan and Bond Issue 326 million bond issue is
used to retire 75 million in loan debt and to
finance operations
1998 December97- May98  
.52.11 (exercise price on loan
warrants) 1,327.50 (in April 1999, adjusted for
two stock splits)

1 Source MM.Van Osnabrugge and Robinson data
partially adapted from Smith and Kiholm
(forthcoming)
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Return on investment for the BA

• The main findings of a study conducted on UK
  angels in 1998/1999 by Professor Colin Mason from
  the Hunter Centre of Entrepreneurship in
  Strathclyde are
• 34 of investments involved total loss
• 6 involved partial loss
• 8 broke even
• 7 had a return of under 10
• 7 had a return of 10-24
• 13 had a return of 25-49
• 25 had a return of over 50

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Business Angel syndication

• The gathering of several business angels into an
  informal consortium for the purpose of creating a
  critical mass of funds above what each business
  angel couldor would be prepared toinvest. This
  term also applies to the pooling of competencies
  in order to offer more managerial skills than any
  individual business angel could display.

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The benefits of syndication

• Increasing the level of financing of a project
• Diluting the risk to take for individual
  investors
• Broadening the panel of possible investment
  sectors
• In some countries syndication allows for
  eligibility to a fiscal regime equivalent to that
  of formal risk capital investors.

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EQUITY GAP

• Banks look for collateral (intangible assets are
  not security)
• Formal Venture Capital investing in higher and
  higher amounts
• Gap in the start-up and seed phase
• Business angel financing is one of the solution
  to close the gap

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Integrated Finance for an entrepreneur

• Investment readiness
• What are the financial tools available
• How to present a business plan / idea to an
  investor
• Investment Guidance Panels (Banker, V.C, private
  investor, corporate-venturing UK, general
  advisor, sector specialist)
• Advisory services as a follow up of the two other
  components

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Integrated Finance for a region the supply chain
Making sure that one instrument can be the
raw material for the next one. BANKS PUBLIC
SUPPLIERS F.F.F B.A SEED V.C
I.P.O IN FRASTRUCTURES EXPERTISE
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V.C Industry in Europe
Stage of distribution of the amount invested
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Leverage Effect of BAExample of the North
Bavaria Region
Source Netzwerk Nordbaryern, 2004.
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BA FINANCING
GROWTH
CAPITAL NEEDS
IPO
HIGH RISK
Formal Venture Capital
Business Angels
LOW RISK
Friends, Family, Fools
TIME
SEED
START-UP
EARLY GROWTH
SUSTAINED GROWTH
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BASIC FACTS

• It is difficult for new companies to raise funds
  because they do not have the necessary guarantees
  and track record
• Business angels and venture capital organisations
  have difficulties in finding good business plans
• Due Diligent costs are increasingly expensive
• Need for Business Angel Networks

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BUSINESS ANGEL NETWORK

• Private or semi-public body whose aim is to
  match entrepreneurs looking for equity with
  Business Angels
• -Business angels are an old tool-
• -Business angels networks are new tools-

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The SME success depends on

• The Business Plan
• The amount of equity and appropriate finance
  available
• The skills of the entrepreneur
• The guidance available
• Markets turn over through sales

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SERVICES PROVIDED BY BANs

• Creating awareness of the Business Angel concept
• Identification of BAs
• Assistance to entrepreneurs and BAs
• Training activities for BAs
• Matching BAs and entrepreneurs

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MATCHING BY THE BAN
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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THE SECRETS OF A DEAL The 5  C  of the
angel vs the 4  C  of the entrepreneur

• ANGEL s 5 C
• Cooperation will he become a real member of the
  
• management team?
• Commitment can the team do what is in the
• Business Plan?
• Competence of the management team
• Charisma will the BA be able to transfer his
• know how and not to impose it?
• Chemistry Does the BA believe that he will
  cooperate with the entrepreneur?

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• ENTREPRENEURS 4 C
• Chemistry
• Competence
• Conditions active participation responsible,
  modalities of the involvement, objectives of the
  B.A)
• Network of Contacts

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BUSINESS ANGEL NETWORKS IN EUROPE
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BANS BY COUNTRY
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DIFFERENT BANS

• Non-profit organisations or public initiatives,
  free standing or integrated in the economic
  development organisation
• Private sector initiatives, public limited
  liability companies

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Types of founders

• Business Schools - Vlerick Solvay (B)
• - BANC (E)
• Regional authorities - LINC Scotland (UK)
• - InvestEssor 92 (F)
• - Nutek (S)
• QANGOs - Entreprise Ireland (IRL)
• - Sitra (FIN)
• BICs - Italy (I), Walloon Region (B),
  Dublin (IRL).

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• Private individuals - Nebib (NL)
• - Banow (D)
• Private (i.e. diversification) - BAMS (B)
• - Leonardo Finance(F)
• R.D.As - CIDEM (E)
• - W.D.A (Xenos UK)
• Science Parks - Sofia Antipolis (F)

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TOOLS OF BANs

• For the Business angel
• Training programs (BA academies)
• Organisation of investments forums/clubs
• Information bulletins, magazines, newsletters
• Database of potential good projects
• Personal introductions
• Access to regional deals flow
• Possibility of co-financing with other BA
• Links with other networks

• For the entrepreneur
• Identification of potential investors
• Preparing the contact with BA
• Financial advice
• Visibility
• Assistance for the matching
• Information on additional fund raising
• Investment readiness

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Typical Organisation of a B.A AcademyTarget
B.A, potential B.As and anyone whishing to
enhance this industry

• What is a business angel?
• Financing enterprise creation the role of the
  B.A
• Due Diligence
• B.A-Entrepreneur relations
• Becoming a business angel
• The shareholders Pact
• Practical Case
• Business angel investment in unquoted companies

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Target B.A.N Managers

• Presentation of a model B.A.N
• Presentation of a specific B.A.N
• Overview of American B.A.Ns
• Experienced relations between the entrepreneur
  and the investor
• Investment readiness
• Relations between B.A and entrepreneurs Legal
  aspects
• Investors marketing of the network
• Creation of networks of investors (informal and
  formal)
• Fiscal issues
• Evaluation of projects
• Shareholders Pact Practical case
• Legal and responsibility issues of the B.A.N
  itself
• The concept of B.A.N theoretical and practical
  aspects
• Evaluation of the BANs and relations with local
  partners

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FUNDING OF BANSBUDGET and FEES

• Average Budget 250.000 Euro - Staff 2 to 3
  equivalent full time staff
• Some take no fees from BAs or entrepreneurs
• Fees charged vary according to a BAN, from 50
  euro to 500 euro
• Fees can be charged upon event registration,
  subscription to bulletins, a membership fee for
  one year (BA), a success fee after a deal
  (2.5-5)
• Some BANs started taking an equity share in
  companies

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FUNDING OF BANS SPONSORS

• Banco Ambrosiano - Grupo Intesa (IBAN)
• Deutsche Bank, German Venture Capital Association
  (BAV)
• All major UK high street banks (NBAN)
• SchmidtBank and Rödl Partner (NBA)
• Düsseldorf Stock Exchange (WIN NWR)
• Deutsche Börse, KfW, Investitionsbank Berlin,
  Deutsche Ausgleichsbank (BAND)

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Network of Networks

• Lobbying of national administration
• Awareness and visibility of the industry
• Best practice and dissemination
• Ethical rules Codes of Conduct
• Increases the matching opportunities agreement
  between BANs that if a good project does not find
  its BA in one particular BAN, they will pass the
  profile to a colleague
• Dissemination of the profile through newsletter,
  bulletins, magazines, investment forums

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Standard information on a business profile
published by NBAN

• Sector of activity
• Amount of financing requested
• Short description of the project or company
• Stage of the company
• Region of investment
• Contact person.

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Examples of business profiles disseminated by NBAN

• Finance broker/500.000/Birmingham/Early Stage
• Medical device/1.270.000/North
  London/Development-Expansion
• Replica aircraft engineering-flying
  club/100.000/mid Wales/Start up or innovation
• Caribbean cuisine market/300.000/Outer
  London/Development-Expansion
• Gold Course service/500.000/Home Counties/Start
  up or innovation.

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What can a region do to strengthen BA activities?

• Awareness campaigns
• Financial support to BANs
• Support to integrated finance and investment
  readiness programs
• Promoting codes of conduct for BANs and BAs
• Integration of BAN activities in the regional
  entrepreneurship strategy

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What can be done at state level

• Fiscal environment
• - Capital gain or loss exemption from tax
• - Income revenue taxation for individuals if
  they invest in start-ups
• Administrative environment
• - Prospectus and financial services provision
• - Support to BANs

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EBAN

• Established in 1999 by EURADA and with the
  support of the European Commission
• Non-profit association
• Encouraging the exchange of experience among
  business angels networks and encouraging best
  practice
• Promoting recognition of BANs
• Contributing to working out and carrying out
  local, regional and national programs of
  assistance to the creation and development of a
  positive environment for business angels
  activities.
• Lobbying

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Benchmarking ReportBest Report No1-2003

• Raising Awareness of BA and BANs
• Collecting data from the BA market place
  regularly
• Creating a BA panel to discuss topical issues
  affecting the angel community
• Paying attention to the effects of taxation on BA
  activity
• Ensuring public financing of BAN operations
• Promoting high ethical standards of BANs

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For more information

• CLAIRE MUNCK
• EUROPEAN BUSINESS ANGEL NETWORK
• Avenue des Arts 12, Bte 7
• B- 1210 Brussels
• T. 32 (0)2 218 43 13
• F. 32 (0)2 218 45 83
• info_at_eban.org
• www.eban.org