Business angels networks

Business Angels Networks
Helsinki, February 14, 2007
Markku Sjöstedt
InvestmentDirector, Sitra Ventures
Sitra, the FinnishInnovationFund

Contents
Background
Business Angels and Angel Networks
Cross-border

Sitra’s objectives for co-partnering
Need to create a strong Business Angel domain
Establish a functioning pre-Venture Capital market
Reduce the discontinuity in exit routes
Address BA domain as part of the VC chain
Improve Sitra’s success rate in BA syndicates

Business Concept
Start-up
Company
Human Resources
Capital
It’s not all about money

LIKSA
INTRO
DIILI
Focus on acquiring market information
20 … 70 k€ and up to 24 months
Resulting in a high quality business plan
Sitra and Tekes financing in cooperation
2000 – 2006
Sales competence as sweat equity
Resource: Experienced business professionals
Objective: To speed up the investment process
PreSeed concept
Marketplace for early stage investments
Private persons (business angels) as investors
Aiming at syndication

Stepping stone to venture capital
Microsoft IP Venturestechnology
DIILI sweat equity
resources
VERIFICATION
Businessangels
Internet access
Venture forums
Investment negotiations
Syndicates
Deal flow
INTRO
PUBLIC
Co-funding 100 M
Dealflow
LIKSA fundingbusiness plans
Private
VC-funds
20
40
200

INTRO – a true value-adding market place
Funding the business plans
Addressing sales forces on sweat equity basis
Screening enterprises – business angels – sales forces
Conducting the investment process
Legal support – shareholders’ agreements
Stepping stone to VC markets
Public/private syndicates

Icet Oy / Fleet Innovation
Specialises in providing Finnish companies with solutions to their fleet leasing and fleet management needs
Founded in 2007 by 3 professionals
Investors:
Business Angels
Aloitusrahasto Vera Oy
Management team

Background
Business Angels and Angel Networks
Cross-border

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

MEGA-ANGEL
Portfolio
Management
4/5
Investments
ACADEMY
BAN or
BA ACADEMY
First loss
First Investment
END of BA
Reading
articles
VIRGIN
Angel
STARTING
Angel
LOSS-EXPERIENCED
Angel
NETWORKING
Angel
SYNDICATION
Angel
MILESTONES
Ripening process
EBAN Winter University, 16/11/05 Rudy Aernoudt

Classification of companies
Venture capital investors are only interested in companies with high growth prospects, which are managed by experienced and ambitious teams who are capable of turning their business plans into reality.
high
Stars
Constrained
Innovation
Ambitious
Economic
core
low
Growth
high
low
Kirchhoff’s innovation-growth classification

Various Investment Strategies
Developer
Sector expert and developer
Business Angel
Business focus
Institutional Investor
Value Style Investor
Financial Style Investor
Portfolio focus
Short
Long
Span

Business angels in the value chain
GROWTH
NEED FOR CAPITAL
IPO
RISK
Venture Capital
Business angels
Friends, Family, Fools
TIME
Seed
Start-up
Early growth

Benchmarking Angel Activity

About Angel Networks
Private or semi-public body whose aim is to match entrepreneurs looking for equity with Business Angels
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

EBAN, the European Business Angel Network
Established with collaboration of European Commission, 1999
EBAN’s objectives include:
Exchange experience & encourage best practice
Promote & create positive environment for Business Angels
Push forward the informal investment agenda
Organisation’s members include:
National Federations of Angel Networks
BANs with Local / Regional / National coverage
Other organisations inc. non-European Angel Networks

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

Case Study:UK
In 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, BBAA

Adding Value
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

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?)
European Angel Market Trends

Background
Business Angels and Angel Netwoks
Cross-border

EASY-project
European-wide cross-border network of business angels and investment companies, 2007-2008, 17 Partners, 5,2 M€ Budget
Future potential: cross-border investments

EASY key activities:
Facilitate access to risk capital through the six cross-border investment events across Europe
Develop tools and common procedures to support international deal- structuring
Raise awareness among stakeholders and policy makers on the importance of the role of BAs and Seed Funds
Promote policies and tools to stimulate the early stage investment market across Europe

EASY Investment Forum, Italy, 26th February 2008
22 selected European companies
150+ investors expected to participitate

Co-investment Funds
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

In summary
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.

Useful links:
www.eban.org/
http://www.bbaa.org.uk/
www.angelcapitalassociation.org/
www.pitchtheangels.com/
www.earlystageinvestors.org/
www.easyinvestmentforum.org/
www.sitra.fi +358 9 616 991 Itämerentori 2, PL 160, FI-00181 HELSINKI

Business angels networks

by Markku Sjöstedt on Jul 06, 2011

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