This document discusses opportunities and risks for angel investors co-investing with venture capital firms (VC's) in early-stage financing. It provides an overview of Nicolas Berg and Redalpine Venture Partners, including their investment focus and portfolio examples. The document also discusses the early-stage financing gap, differences between angel and VC investors, successful investment strategies combining angels and VC's, and lessons learned from case studies.
Booking open Available Pune Call Girls Talegaon Dabhade 6297143586 Call Hot ...
Stockholm svca 27okt2010
1. Early-stage financing!
Opportunities & traps for angels
co-investing with VC’s!
Nicolas Berg, Redalpine Venture Partners!
7th EBAN Winter University !
Luxembourg – 31. October 2008!
Affärsängeldagen 2010
Stockholm 27 okt 2010
Successful early-stage investing:
Combine the best practices of
business angels and VCs
2. • About me + Redalpine 01
• Early-stage venture zone 02
• Investment process 03
• Case studies: XING, others 04
• Learnings 05
• Q&A 06
00 Agenda
3. • Founder of 8 start-ups since 1984
Borsalino 1998; 64 angels + 1 VC; sold 2000
• Angel investor in 16 start-ups 2000-2006
e.g. XING Angel Investor 2004, IPO 2006
• Partner Redalpine venture fund 2007-2015
• XING CM CH; journalist; coach@venturelab
• Swiss with norwegian roots, M.Sc. (BA)
01 About me
Nicolas Berg, Redalpine Venture Partners
4. • Redalpine invests $200k-2m in 12-15 highly
scalable European start-ups 2007-2015
• Track-record Partner: 5 trade-sales + 1 IPO
2006-2008 (multiples 7-35), 340 new jobs/$1m*
01 About Redalpine
*) Initial investment (excl. co-investors & following rounds)
5. • Restorm.com – right clearing between musicians and
creative producers
• Veeseo.com – SEO for TV & video platforms by real-time
speech to text indexing („google“ TV)
• Poken.com – digital business card connecting people,
objects and places at events
• Biognosys.ch – next generation proteomics platform to
enable personlized medicine
• Redbiotec.ch – produces virus like particles to enable
better and safer vaccines
• Insphero.com – 3D tissue production for faster and safer
drug development
01 Redalpine portfolio examples
6. • because start-ups difficult to evaluate
(you must judge people rather than paper)
• post-investment: high support need per $
• small transactions ($150k-2m)
> small fund > small management fee
• but: higher multiple if successful (>10, goal >30)
• and: 340+ new jobs per $1m initial investment
(2000-2006)
02 Early-stage financing gap
Valley of death: financing need $500k-2m
7. • Top in EU25 innovation ranking:
1. Swi, 2. Swe (EIS 2009)
• Among top 50 in world ranking of universities:
Zurich ETH (18.), Karolingska, Uppsala
• Quite good PISA results 2006 (2003):
Swi (7. math), Swe (7. reading)
• active start-up scene & top bluechips (Nestlé,
Volvo, Ericsson, Astra, Roche, Novartis, UBS)
• small home market > export oriented
02 Sweden and Switzerland
Almost equal conditions
9. 02 Angels invest more than VCʻs
VC‘s
Start-up investment iceberg
• 90% from government grants, foundations,
and – first of all – angel investors
• 10% from VC funds, corporate funds or banks
• Unexploited potential: only 1 out of 200‘000
Swiss millionaires are serial angels
Start-up = (inter)national, highly scalable, innovative/high-tech company
90% from angel investors
10. • Virgin angel: low
• Fulltime angel & ex serial entrepreneur: medium
• Amateur angel, corporate manager: low
• Managing angel, hands-on: low
• Angel club without sidecar fund: low
• Angel club with sidecar fund: low to medium
• Angels co-investing with top VC fund: higher
02 Type of investors
Success rates uneven
11. • Most angel networks show a negative
performance: true for Switzerland 1999-2009
• Most angels are not successful: true
• Angels may kill a good deal: true - if VC didn‘t
enforce a proper shareholder agreement
• Angels act more emotional: true – so what?
• Avoid angels: wrong - good angels do much
more good things for start-ups than most VC‘s
02 Why some VCʻs distrust angels
Top 5 prejudices
12. • VC is rich & will say no (true - odds are 1 : 99)
• Most VC‘s don‘t invest in early-stage (true)
• A VC‘s will force you to sign his terms
(true- if he recognizes that he is the only one)
• Most start-ups will never get funded by a VC
(true - but most start-ups would fail anyway)
• A VC will not add value to our start-up
(wrong - best 25% improve odds for top exit)
02 Why most people hate VCʻs
Top 5 prejudices
13. • successful VC funds are
• managed and financed by successful former
angels/serial entrepreneurs
• systematically invite super angels for co-
investments or co-invest with them
• successful angels
• systematically co-invest with successful VC‘s or
invite them to co-invest
02 Successful combinations
VCʻs co-investing with top angels
14. • Investment Managers: Serial entrepreneurs
• Stage: early
• Business model: highly scalable
• Capital need: $500k-2m, $500k-7m in total
• Region: Zurich/Stockholm, Switzerland/
Sweden, Nordics/DACH, Europe, World
• Sectors: ICT, Life Sciences, Greentec
• Exit multiple goal: >20 bis >30 / deal (1:10)
02 Successful investment strategy
Highly scalable & diversified
15. • Sourcing: get access to deal-flow 500-1000
• Selection: Pre-screened pitches only
1. top team. 2. unique & disruptive idea.
3. clear business model. 4. moderate valuation $1-3m.
5. multiple >30 in best-case exit scenario
• Negotiating: 1. Professional lead, 2. VC terms,
3. Simple structure (board of 3, angels pooled)
• Support: Active role of lead + 1 co-investor
• Harvest: Plan, seek & go for top exit from start
03 Investment process
Top 5 criteria of winning angels
16. • 500 times no within 5 min = $ 5‘000
• 450 times no within 30 min = $ 15‘000
• 50 times face-to-face (8h) = $ 30‘000
• 2-5 deals after due dilligence
technology, market & team = $ 50‘000
• Total $100‘000
03 Sourcing and selection
Deal-flow of 1000: Quantity provides quality
Annahme von CHF 500/Manntag (CHF 10‘000/Monat)
17. 03 Negotiating
Term sheet, due diligence, legal
• 4 days term sheet negotiation $ 4000
• 1-2 days lawier $ 3200+
• 1 day legal/financial due diligence $ 2000
• expenses $ 1800
• Total $ 10-20k
18. 03 Post-investment support
by lead investor till exit
• 0.5 - 1 days / week per portfolio company
• 5 investments = 50-100% job
• 10 investments = 100-200% job
• Total for 10 investments: $ 120-250‘000
19. 03 Total cost per portfolio of 10
annual cost of early stage investing
• Sourcing & selection $100‘000
• Negotiating & legal $ 20‘000
• Post-investment support $ 200‘000
• Total annual cost: $ 320‘000
20. • since 2001 we were pro-actively searching for
a social network (SN) investment opportunity
with a good business model
• After looking at 5 other SN, we met XING in
2004 and become lead angel (1st rd €500k)
• we developped model for world-wide roll-out
in Switzerland as XING Country Managers
• 2005 XING accepts €5m from VC in a pre-IPO
round – 2006 IPO at €200m valuation
04 Pro-active sourcing & support
Case study 1: XING
21. • Lead investor was an unexperienced angel
• Lawiers bill of >$ 50‘000 (!)
• Big3 company (!) mandated for accounting
• headhunter (!) mandated CMO & CFO search
• later early-stage VC took lead, initiated more
cost efficiency & tuned strategy, and syndi-
cated 2nd rd (VC, super angel, corporate VC)
04 Challenging examples
Case study 2: Project T
22. • 1st round by 2 angels (ex big pharma)
introduced by VC, they convinced a difficult
co-founder to leave and sell his shares
• Then early-stage VC joined first round and
added additional terms & shareholder agr‘t
• 2nd round with foreign VC and super angel
• after 3 years big pharma shows interest
beyond joint research (exit signals)
04 Challenging examples
Case study 3: Project Q
23. • Top angels and VC‘s hand in hand
• Outsource sourcing & pre-screening
• Check pre-selection, trust your intuition
• Check terms
• be active in post investment phase
• diversify in 10+, sectors, time-wise
05 Learnings for angel investors
Fulltime, quality, diversification
25. • follow serial entrepreneurs (ICT 25-50y, LS 35-70y)
• 7 years for angel investment learning curve
(faster in business angel network or with VC)
• Diversify on >7 start-ups
• keep 50% for next round
• talk with VC‘s (some are human beings)
• Read*, speak, publish
*) Amis: Winning Angels;
Guy Kawasaki: The Art of Start
06 Winning Angels
Bonus tips
26. Instrument Return* Risk Liquidity
Gold ?% quite high high
Cash** 2% low high
Real Estate 4% moderate moderate
Bonds-CHF 3% moderate medium
listed Equity 7% quite high moderate
VC-early 20% high low
PE-leverg 20% very high low
02 Risk and return
*) in the long run
**) your currency
27. • Team team team: Can it implement the vision?
• Product/market: No-brainer? Disruptive?
• Business model: Who pays whom how much?
• Can I provide an added value for this deal?
• When can I sell my shares to whom?
(multiple high enough? Higher than 20?)
06 Investment criteria
More bonus tips
28. • 50% eat too much and move to little
• Organic Food that keeps you smart & slim
• 50% of ads wasted – never again!
• Media: We spend 5 out of 10h with new media
• Multimedia- & Meta-Search (Mediaclipping, Swoodoo)
• Vertical Social Networks (Quevita, Triphunter)
• Connecting Devices & Toys (DoYouPoken)
• 3D Virtual Apps (WoW, 2L, Starfruit, vMeet, vLearn, vShop)
08 Trends for pro-active sourcing