An outline of the key angel investment syndicates in Scotland and where they are investing.

1. Business Angels …more than just money Brian Hale LINC Scotland
www.lincscot.co.uk

2. The Scottish Early Stage Investment Market
•One of the most mature business angel marketplaces in Europe
•Angels the dominant investors in spinouts
•Emergence of structured groups / syndicates in recent years
•Growing public sector and institutional interest in co-investing
•Young Company Finance Guide to Finance
•www.ycfguide.com

3. So What Is ‘Angel Investment’?
•Not family and friends
•Objective, direct investment in unquoted companies by private individuals
•Active participation & value added
•Funding usually in the “Equity Gap” (in the UK this = £20,000 to £500,000)
•Larger sums from syndicates

4. Business Angel ‘Syndicates’ What Do We Mean?
•‘Syndicates’ = structured co-investing groups by and for angels
•May be ‘Manager Led’ or ‘Member Led’
•Can include ‘private offices’ if investment decision made by those who own the wealth
•Shift of balance in Scotland over 8 years: from 400 individuals & 5 syndicates to c.100 individuals and 20 syndicates (900+ angels)

5. Reasons for Emergence of Syndicates
•Diversification of risk
•Value of shared experience
•More efficient use of time
•Increase capital available to sustain company
•Larger rounds can negotiate more attractive terms and valuations
•Group social benefits

6. The Funding Gap
Founder, Friends & Family Grants
Stage of Development
Seed
Start - up
Early Growth
Established
Business Angels
Venture Capitalists
Quoted Markets
Banks

7. The Funding Gap
Founder, Friends & Family Grants
Stage of Development
Seed
Start - up
Early Growth
Established
First Customer
Venture Capitalists
Quoted Markets
Banks

8. LINC Members Activity 2013
68 deals with £18.2M invested by private investors
Overall investment £27M inc other leverage
Average angel deal size = £169,502

9. LINC Members Activity 2014 (30 June 2014)
38 deals with £11.2M invested by private investors
Overall investment £15.8M inc other leverage
Average angel deal size = £252,000 (£116K)

10. •Angels invest close to home
•Assessment and negotiation will take an average of 4 months
•Company will need 3 or 4 further rounds
•6 years to a (successful) exit
•Have potential for high returns--(5X to 20X)
Characteristics of ‘Professional’ Angel Deals

11. Event Probability
Sufficient capital 80%
Capable management 80%
Successful product development 80%
Sourcing and manufacturing successful 80%
Competitors behave as expected 80%
Customers want product 80%
Pricing predicted accurately 80%
Patents issued and enforceable 80%
Combined probability of success 17%
The Probability of Success?

12. •10 in 100 proposals worth looking at
•Of the 10, invest in 2 or 3
•Of every 10 investments:
•5 will crash and burn
•3 will return the value of the investment
•2 will pay out big
2 in 100

13. •Basics - defining the business model
•Choosing your angel
•Understanding diligence
•Understanding the investment process
•Manage the Investor’s Risk
Improving Access to Angel Investment

14. Likely scope of Diligence
Market Technology PR Size Technical Risks Patents Trends Competing Technologies Trademarks Competition Product Manufacture Know-how Oppts & Threats Design Rights Sales & Marketing People Value Proposition Management Business Model Key Staff Sales Forecasts Roles & Responsibilities Routes to Market Operations Finance Legal Product Delivery Balance Sheet Staff Customer Support Cash Flow Premises Systems/Controls P&L Suppliers Health, Safety Management Info & Customers Environment Internal Controls

15. What Companies Need to Demonstrate
•High calibre of team that will listen
•Large growing market
•Real understanding of customers
•Scalable and sustainable revenue model
•Scope for at least 5X money return
•Shared vision on direction and exit
•Manage Investor Risk

16. Survey of LINC Members on Key Factors Influencing Decision
Tax breaks - 22%
Business Plan - 30%
Sector - 39%
Advisors - 2%
Investor opinion of Entrepreneur / Team - 89%

17. Tax Environment Enterprise Investment Scheme SEED EIS
•Must be eligible company
•30% / 50% income tax relief at point of investment
•Relief on losses at highest personal rate
•Tax free gains if held for qualifying period
•SEED EIS – since April 2012

18. Not all angels are the same so think about :
•Sector relevance – contacts and market knowledge
•Experience and skills
•Investment capacity – can they follow on?
•Their role in your business
•Understand Shareholders Agreement
•Understand EIS
Choosing Your Angel

19. Truisms of Valuation
•It’s only worth what someone will pay!
•What company is now more valuable than a future promise
•All assumptions are subjective
•Supply of Capital always wins – Angels don’t have to invest
•“Blow” your own credibility!!!

20. Other Options
• Online matching services for example
www.fundingcircle.com
www.syndicateroom.com
www.angelsden.com
www.venturegiant.com
www.angelinvestmentnetwork.co.uk
• Crowdfunding etc
www.crowdcube.com
www.seedrs.com
www.sharein.com
www.squareknot.co.uk
• elite.londonstockexchange.com
• Local Connections