European Experience developing Business Angel Ecosystem by Paulo Andrez


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European Experience developing Business Angel Ecosystem by Paulo Andrez

  1. 1. EuropeanExperiencedevelopingBusiness AngelEcosystemsPaulo AndrezBusiness AngelPresident of Cascais Business Angel Club (PT)EBAN President (EU)Moldova, 17thApril, 2013
  2. 2. Start Ups Valley of DeathtimeCash flowStart-up
  3. 3. Imagine that you have 1.000.000 MDL in a safe bank,and you have 8% of interest rate for your deposit.Would you invest in a start upwith no clients, no provenbusiness plan…if the most youcan get as return, would be 9%annually ?Hi, My name is Zephyr,and I want you to investin my new fantastic StartUp ! I guarantee you 9%annually.
  4. 4. But if the World Bank guarantees you that ifZephyr’s new venture doesn’t pay you the 9%, theywill pay it immediately to you, would you invest ?
  5. 5. 0,00%20,00%40,00%60,00%80,00%100,00%0% Mitigated Risks 100%ProbabilityofanentrepreneurtoraisemoneyfrominvestorsorfrombanksGOALRisks: Market, Team, Legal, Financial e OperationalBankMutualGuaranteeVentureCapitalBusinessAngelsFamily, Fools & Friends and State100%
  6. 6. Capital NeedsTimeSeed Start-up Early Growth Sustained GrowthHigherRiskLowerRiskFriends,Family &FoundersBusinessAngelsVentureCapitalFundsIPO0Angels help fill the‘Equity Gap’Early stageand seedventure fundsEquity Gap
  7. 7. European Angel market size is bigger than the Early StageVC market
  8. 8. BusinessangelnetworksFederationsof networksIndividualangelsAssociatemembersIn Europe, it is estimated that the Early Stage Investors...... invest 5 Billion Euros per year in start ups.Seed funds
  10. 10. EBANCreated in 1999 by Eurada with the supportof European Commission+ 100 members (BANs, Federations…)…and growing28 countries123Not for profit organizationbased in Brussels44
  11. 11. 12 Congresses and 11 WinterUniversities
  12. 12. Part IIThe Business Angel
  13. 13. Business Angels’ value chainSource: EBAN RESEARCH COMMITTEE
  14. 14. A VERY COMPETITIVE PROCESS100DealsBusiness Plans receivedDue diligenceInvestment1-5 InvestmentsPre-screeningScreeningTerms Sheet
  15. 15. • Membership: Business Angel investors• Fees: Annual membership fee and sometimes % success deal fee.Sponsors, grants from the governments, BA certifications, services....• Seeks & filters applications from entrepreneurs• Allows selected entrepreneurs to pitch to investors• May also: provide training (to entrepreneurs and Angels), opportunitiesto syndicateBANs - “Private or semi-public body whose aim is to matchentrepreneurs looking for equity with business angels”
  16. 16. • More Deal Flow, means reducing the risk of the investments• Share the workload of due diligence, terms sheet negotiations...• Share knowledge in specific areas of expertise• Get specific training• Learn with more experienced angels investors• Get co-investors in the BAN, in the Country or internationally• Get information of the market (laws, new co-investment funds...)• Peers networking can facilitate exits (start ups)Advantages to be member of a Business AngelNetwork
  17. 17. An Early Stage Investor can invest• Alone directly in the start up• Through a personalinvestment holding• With Other investors directlyin the start up• Through an Angel Fund• Equity or quasi equity• Loan• Giving assets as collateralsAlone/together Types of investments
  18. 18. BA life cycle and the purpose of a BANRipeningprocessMEGA-ANGELMILESTONESVIRGINAngelSTARTINGAngelReadingarticlesFirst Investment4/5InvestmentsBAN orBA ACADEMYPortfolioManagementACADEMYLOSS-EXPERIENCEDAngelNETWORKINGAngelSYNDICATIONAngelFirst lossSource: Rudy Aernoudt, EBAN Winter University 2005
  19. 19. • Loan (partial). If it is a pure loan (or Bonds) with fixed interestrate, it is not considered an Angel Investment• Convertible Debt• Equity deal or priced Rounds (usually common stock)• Preferred Shares and liquidation preference(e.g. 3X,6X)• Options Based• Revenue CapitalAgreements between Angels and Entrepreneurs.Pre-Money valuations.
  20. 20. 1. Alternatives are so risky as investing in start ups: real estate,sovereign debts, stock market investment, gold, oil…have the sameor higher risk than early stage investing2. Scarce Credit : Good entrepreneurs that before the crisis would relyon credit, are approaching angels bringing good deals. Profitablecompanies that without credit can not grow, are approachingangels3. Talent widely available at low cost: It is easier to recruit good staffat lower costs than 3 years ago4. Pre-Money Valuations are lower : Valuations done by theentrepreneurs are much lower than 3 years ago and entrepreneursare more flexible on the terms sheets5. Negotiation Power is bigger before suppliers : It is cheaper to buyequipments and services from suppliers. And they are moreavailable to share some more risks than 3 years ago5 Reasons to start investing today, as a Business Angel
  21. 21. Part IIIPolicy Maker
  22. 22. • Does the country need new companies ? New jobs ?Does the country need to export more ?• Who is going to fund the new innovative start ups ? TheGovernment ? The Banks ? The VCs ? Or the BusinessAngels ?• It is important to incentivise wealthy people that investin non productive assets (real estate, stock market,derivatives, sovereign debts...), to invest in start ups ,creating jobs...Rationale for the policy makers to support initiatives forthe development of the Business Angel Communities
  24. 24. OECD study launched in December 2011
  26. 26. WHAT CAN POLICY MAKERS DO?By priority orderSUPPLYBringing moreinvestorsDEMANDQuality deal flowMARKETImpact and sustainability6.Fiscal incentives 4. Investment readiness(incl. sector specific)1.Support the creation ofBANs2. Co-investmentfunds9. Teachentrepreneurship andaccess to finance veryearly in schools10.Data collection5. Investor readinesstraining sessions8. Have incubators andother facilitators toeducate and prepareentrepreneurs6.Local BA/VC forums7.Media campaigns 3.Light regulation for earlystage investment market
  27. 27. • If in any country per each 100.000 euros that a companyinvests, the state receives 30%-40% in taxes during the firstyear, it means that the state can implement a BA tax breakof 30%-40% without loosing revenues• Instead of giving companies, grants for free, countries cantransform it in VC money, creating Co-Investment fundswith Business Angels and Early Stage VCs.Rationale for the policy makers to support initiatives forthe development of the Business Angel Communities
  28. 28. Note: This is a pessimistic scenario. But the State always gets its money back…State return in € per each € invested by State ina BA Co-investment schemeState Tax level/Rate ofReturn for State in theCo-Investment Fund 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%30% 1,20 € 1,30 € 1,40 € 1,50 € 1,60 € 1,70 € 1,80 € 1,90 € 2,00 € 2,10 € 2,20 €35% 1,40 € 1,50 € 1,60 € 1,70 € 1,80 € 1,90 € 2,00 € 2,10 € 2,20 € 2,30 € 2,40 €40% 1,60 € 1,70 € 1,80 € 1,90 € 2,00 € 2,10 € 2,20 € 2,30 € 2,40 € 2,50 € 2,60 €45% 1,80 € 1,90 € 2,00 € 2,10 € 2,20 € 2,30 € 2,40 € 2,50 € 2,60 € 2,70 € 2,80 €Source: EBAN 2013Scenario (50% of the investment is done by BA+CO-investment fund. Start up ceasesactivity after the investment)
  29. 29. Do you want to know more ?
  30. 30. Michelson DiagnosticsWhile, some wait for the Future, theBusiness Angels are creating it!