Paolo Berra CERN Alumni Conference 2018 slide presentation

FROM R&D TO
ENTREPRENEURSHIP:
AN ANGEL INVESTOR’S
PERSPECTIVE
Paolo Berra, PhD
CERN Alumni
First Collisions Event, 2-3 Feb. 2018
© Paolo Berra 2018

CNAO Ion Synchrotron for Hadrontherapy
(TERA Foundation, Politecnico di Milano).
ATLAS Experiment.
All highly technical: Beam Physics, Mechanical Engineering, Project
Management, Cancer Therapy.
MY EXPERIENCE
@ CERN
LIBO Proton Linear Accelerator for Hadrontherapy
(TERA Foundation and CERN-KT, UCB Lyon I).

EPFL PRIVATE INDUSTRIES
ENTREPRENEURSHIP: From R&D to Management
Business School: First
interactions with private
equity.
First interactions with
start-ups and
innovation.
Mature industrial sectors.
IAG: The largest Angel
group in Italy (Milan);
IASSP: Institute for
Advanced Strategic and
Political Studies (Milan).
HARVARD
Paolo Berra, CERN Alumni, First Collisions Event, 2-3 Feb. 2018

INNOVATION
• Improvement of existing or creation of entirely new products, processes, or services.
• Creation of new value for the world.
• Transformation of existing conditions into preferred ones.
• Core driver of modern economic growth.
• Source of 90% of the variation in the growth of income per worker across Western nations.

SUSTAINING INNOVATION
Constant improvement
Reliability
Scale
Responding to trends
TYPES OF INNOVATION
BREAKTHROUGH INNOVATION
New solutions
Unexpected surprises
Experimentation
Leveraging trends

DIGITAL ARTIFICIAL INTELLIGENCE SENSORS
SECTORS OF BREAKTHROUGH INNOVATION
LIFE SCIENCE

VIRTUAL REALITY DRIVERLESS ROBOTS
HEALTHCARE
AND GENOME PROJECTS
3D PRINTERSDRONES FINTECH VOCAL INTERACTIONS
TRENDS OF INNOVATIONS FOR START-UP COMPANIES

FROM INNOVATION TO BUSINESS:
ALL STARTS WITH ENTREPRENEURS
All processes must be led by entrepreneurs. They are the leaders, and everybody else – universities, governments,
VCs, Angels, lawyers, accountants, and bankers – are the “feeders”.
Feeders are essential but cannot themselves create an entrepreneurial community.
Entrepreneurs need to take a long-term view. Everybody must adopt a philosophy of inclusiveness.
People need to hold substantive activities and events that engage the entire entrepreneurial stack.
Breakthrough innovation essentially comes through
start-up companies that:
1) must be founded by entrepreneurs,
2) funded by someone, and
3) fed by a correct ecosystem around them
(Universities, Research Laboratories, etc.).

ECOSYSTEM
Entrepreneurs, Start-ups
Government
Angels, Venture
Capitalists, Banks,
Specialised Lawyers
Universities, Research
Laboratories
INNOVATION
Market

Stanford,
NASA,
Lockheed,
HP, Defense.
Shockley Semiconductor,
Fairchild Semiconductor,
Intel, Etc.
Xerox, Apple. Netscape, Cisco,
Google.
LinkedIn,
Facebook,
social media.
The best example of innovative ecosystem
… I will tell you two stories …

Big Science started in Berkeley in mid ’30s, thanks
to development of the first high-energy particle
accelerators, the cyclotrons, invented by Ernest O.
Lawrence.
E. Lawrence was a scientist with entrepreneurial
mind, that found the right ecosystems, the future
of Silicon Valley, to feed his research (Universities,
Laboratories, VCs, Foundations, IP offices, etc.).
Beginning of Federal Funding of “Big Science”.
Where Big Science was born …
… Story 1 …

The first use of particle accelerators for cancer
therapy started soon thanks to Ernest Lawrence’s
brother, John.
Lawrence mother's life had been saved by radiation
therapy, using the only million-volt X rays machine
available in the world at that time and installed by his
son.
After Mrs. Lawrence had been told by many specialists
that she had an inoperable tumor, she was treated,
more or less in desperation. At the time of her son's
death, she was still living in Berkeley, twenty-one years
after the treatment.

WWII: The First Electronic War
Strategic Bombing of Germany
VS.
The German Air Defense System
Who Ran the Secret Lab and became
the Father of Electronic Warfare?
Fredrick Terman – Stanford, the Father of
Silicon Valley.
He encouraged his students, William
Hewlett and David Packard to start a
company.
… Story 2 …
Hidden in Plain Sight: The Secret History of
Silicon Valley, S. Blank

Terman’s Post-War Strategy
• Focus on microwaves and electronics.
• First Office of Naval Research contract (1946).
• By 1950 Stanford was the MIT of the West. Unclassified
research.
• Microwave Tube Start-ups: Klystrons, TWT (Varian,
Microwaves Electronics, etc.).
Changes the Start-up/Stanford University Rules
Silicon Valley, as We Know it, Starts Here
• Students encouraged to start companies.
• Professors encouraged to consult for companies.
• Terman and other professors take board seats.
• Technology transfer/IP licensing easy.
• Getting out in the real world was good for your
academic career.
• Failure was accepted as part of the culture.

FINANCING START-UPS
Hello friends this is a simple
and easy to modify the slide
which is a fashion trend of
the template
Hello friends Glad you
chose him I wish you a
happy life
Start-up companies can be financed by:
VC, Angel Investors:
Friends &
Family:
Funds:
€ 30/100K
“PRE-SEED CAPITAL”
€ 50/1.000K
PER SINGLE
INVESTMENT;
“STARTUP CAPITAL”
AND
INITIAL “EXPANSION CAPITAL”
€ 1.000/5.000K
PER
SINGLE INVESTMENT
“EXPANSION CAPITAL”
«Great plan. Could we get some more details?»

FINANCING START-UPS
Venture Capital Funds tend to lower the risk associated with investing in the start-up phase.
Friends & Family and single Angels have limited investment capabilities.
Stage Pre-Seed
Seed/
Start-Up
Funding Gap
€ 200.000
to € 1.000.000
per investment
Angel Groups
Early Later
Investors
Entrepreneur
Friends &
Family
Single
Angels
Venture Capital Funds
Investment
€ 50.000
to € 200.000
€ 1.000.000
to € 5.000.000
€ 30.000
to € 100.000
The Angel Groups manage to cover a significant funding gap.

High Innovation and
growth potential
BUSINESS ANGELS
Business Angels are individual investors who provide
their own capital to enterprises with high innovation
and growth potential, becoming shareholders
(generally minority) with related responsibilities
towards the enterprise. After years of investment the
Angels should have a profitable exit.
Business Angels are the first professional investors in a string of investments while developing
an innovative company, from the seed phase to being a significant player in the market.

Seed stage
Early stage
Expansion stage
Late stage
Angels are fundamental, especially in the early
stages of investment.
WHERE THE ANGELS INVEST

70,000 PROJECTS FUNDED IN THE USA
$ 25B INVESTED IN THE USA, € 5-6B IN EUROPE
AVERAGE TRANSACTION: $ 200-500K
PRE-MONEY AVERAGE: $ 2-3 MILLION
What is the current global trend?
+ resources, - deals, more selective
choices
ANGEL INVESTING: KEY FIGURES (YEAR 2015)

Group of Angels
Paolo Berra, CERN Alumni,
First Collisions Event, 2-3 Feb. 2018

RETURN ON
INVESTMENT

RETURN ON INVESTMENTS
Angel Investing is remunerative but
risky if implemented sporadically:
Average multiple per investment:
2,6x in 3,5 years (average IRR
27%).
50% of investments achieve a
loss (in 3 years).
30% of investments perform
fairly, with multiples between
1-5x (in 3,3 years).
20% of investments perform
well, over 5x (in 4,6 years).
Angel Investing:
Why create a Group
* Courtesy Aurelio Mezzotero, IAG

ANGEL
INVESTING
STRATEGY
Ability to invest in at least 10 deals.
Basic availability of around € 100-250k
allocated to start-ups (high risk).
Access to a good deal flow.
Ability to negotiate favorable terms/conditions.
THE FINANCIAL RETURNS
ARE NOT CASUAL
SUMMARY OF CRITICAL CONDITIONS
TO BUILD A
QUALITY PORTFOLIO OF START-UPS
Availability of a little cash for the follow-on.
Careful due diligence capabilities.
Acceptance of risk of illiquidity for 7-10 years.
Ability to have a positive and active impact on
the start-up, where possible.

W H A T A N G E L S L O O K F O R
All investors want to find the next Unicorn.
(>1 Billion Euro, no IPO, ROI 18x-40x) !!!
Some statistics: Every year Angels and VCs fund about
1-3% of the screened start-ups.
Globally only 1 start-up out of every 10.000 funded
becomes a Unicorn.
Today (World): 214 Unicorns (value 800 Billion Euro).
So, it’s not easy to find the right companies …..

W H A T A N G E L S L O O K F O R
The innovation must be protected by IP; ideally, it should be classified in one of these technology classes:
1. Disruptive 2. Sustaining 3. Commoditization
S T A R T - U P S E L E C T I O N S

HOW AN ANGEL GROUP WORKS
An example: IAG, the largest Angel group in Italy
150 Investors: Entrepreneurs, Managers, Finance Executives.
Mission:
✓ To finance early stage innovative industrial projects.
✓ To sustain entrepreneurship and innovation.
✓ To promote entrepreneurial economic growth.
✓ To contribute to the success of young Italian
companies, talents and ideas.
✓ To encourage the creation of new qualified jobs.

START-UP SELECTION: WHAT ANGELS LOOK FOR
Pre-
Screening
Screening
Groups
Screening
Committee
General
Assembly
Due
Diligence
Investment
Innovation
Sustainable competitive advantage
High growth potential and scalability
High return vs high risk
Skilled team
Trust, honesty and reliability
Willingness to be supported and guided
Realistic exit strategy
Normally, we receive about 500-1.000 projects per year. Only 10-12 start-ups per year are presented to
the partners for possible investments.

HOW
WE INVEST
We invest through an
investment vehicle
managed by one or two of
our investors
(CHAMPIONS) after a
careful due diligence
process.
Governance rules.
Dealing with one or two
main investors only: the
champions.
Founders keep majority
equity stake in their
company.
We are always qualified
minority stakeholders.

PROJECTS INVESTMENTS AVERAGE INVESTMENT
PER ROUND
40
Start-ups
20M
Euro 300K
Euro
• 3500 projects screened.
• 130 projects presented
to the partner investors.
+ 80M Euro collected by
our start-ups from
third parties.
Range:
100k Euro – 1,1M Euro
IAG is the largest business Angel group in Italy and one of the
largest in Europe (BAE, Business Angels Europe Association).
IAG is one of the top 5 investors in early stage start-ups in
Italy (similar to a medium European VC).

Team
People behind the
project?
They hold significant
shares of the start-up?
Team should be totally
committed and with
complementary skills.
Product and Technology
Greater value compared to
competitors.
IP: How to turn “research”
results into “Intellectual
property” and IP into
“Business”.
Investors ask for a declaration
or a legal certification:
FTO (Freedom to Operate).
Business Model
How do I make money?
Market / Need
Market size and growth rate
are important:
Target segments, barriers to
entry, complexity. Does the
entrepreneurial team have
previous experience in this
market?
Executive Plan
Metrics and milestones.
Financial Aspects
Use of funds, exit strategy.
TEAM SCREENING AND FORUMS: EVALUATION
Cash is King !!

EXPECTATION ASYMMETRIES: FOUNDER VS. INVESTOR
* Courtesy Antonio Leone, IAG

FOLLOW-ON INVESTMENT - REFLECTIONS
• One of the main decisions that separates professional investors from casual investors is the choice of
«when to unplug» or, unlike when to continue to trust a project.
• In general, it is almost always wrong to continue investing in front of unfavorable evidence on the
project, such as a chronic delay in the business plan or a lack of interest from external investors.
• In general, it is better to split the overall investment into several tranches, linked to achievement of
milestones.

Fully-automated and easy-to-use diagnostic platform.
Our test can be run in the clinical setting immediately
after collecting a biopsy and it delivers results in 24h.
>90% correlation between our test and clinical
response to therapy measured after 1-6 months.
Cellply captures precious functional
information from live cells before they
die to find the most suitable therapy
for an individual cancer patient.
Contact: Massimo Bocchi, CEO
massimo.bocchi@cellply.com

Tissue Engineered Vascular Grafts
A tissue engineering company developing
the first fibroin-made tissue engineered
graft, an already FDA approved material, for
vascular procedures.
Each year, 1.4m patients in the US need
arterial prostheses. Tissue engineering is
an alternative approach for new vascular
grafts.
This technology stimulates fast natural
human tissue regeneration.
POWERPOINT TEMPLATE
Contact: Gabriele Grecchi , CEO
Gabriele@silkbiomaterials.com

ECOSYSTEMS FOR INNOVATION

Global Start-up Ecosystem Report 2017, Start-up Genome
Start-up Ecosystem Success Factors
Ecosystem(External)
SuccessFactors
Internal
Factors
Performance
Resources
∙Funding
∙Talent
∙Attraction
Other Factors
∙Market Reach
∙Start-up Experience
∙Global Connectedness
∙Corporate Involvement
The Rise of Emerging Entrepreneurial Cities
Geopolitics
Politicians around the globe
are just starting to
understand the importance of
innovation and early stage
investments.
Innovation can contribute
significantly to GDP increase
(Unicorns, etc.).

HIGHLIGHTS ON ECOSYSTEMS TODAY
In USA:
• In the last 20 years, 30 million new jobs by start-ups. Companies financed by Angels/VCs are responsible for 17.1% of
the GDP.
In CHINA:
• China has more than 2.000 incubators and accelerators (28% public, 23% private, 17% academic, rest mixed), 115
university science parks, 60 industrial and technological parks, and over 1000 VCs (many around Beijing).
But what about Europe?
• The growth of companies financed by Angels and VCs is around 5.4%, while the average of non- financed companies
is 0.7% → investing in early stage companies is remunerative.
• Angel investing in Europe grows continuously.
• Even politicians have begun to grasp the importance of business angels more and more.
• No single European Angel market.
- France: still dominated by network structures.
- UK: strong early stage market (Angels @1,1B GBP/year vs early stage VCs @ 400M GBP/year).
- Germany: Angel network, incubators, accelerators, super angels, etc. (7-8.000 angels for 650M Euro/year).

CONCLUSIONS ON ECOSYSTEMS
• People are mobile, ideas fly around the world, and capital moves rapidly across borders. Entrepreneurs no
longer need to be constrained by geographic boundaries. VCs have followed this pattern, expanding their
global investment. Groups of Angels should go in the same direction.
• Silicon Valley was not created spontaneously but was built over decades of strategic investment based on a
vision for an innovation-driven economy. Today, while there is no recipe for replicating Silicon Valley,
several cities and innovative hubs are heavily investing to create and develop new ecosystems.

Suggestions to Improve Angel Investing
• Develop the Angel ecosystems as well as create better cooperation between the Angel communities.
• Government incentives for taxation.
• Promotion of business Angel investing is one of the big challenges.
• Stimulate cooperation between Angels and VCs as well as with Universities and Research Laboratories,
ultimately resulting in a better climate for entrepreneurs seeking capital. Connectivity throughout the whole
chain could also enable Angels to participate in even later rounds, eventually culminating in an IPO.

Innovation without borders will change our future
at global level.
There is a (meritocratic) revolution going on:
- The global start-up revolution -
And it is our duty to support it with hard work.
THE BEST YEARS OF ANGEL INVESTMENT ARE YET TO COME.
THANK YOU !!!

REFERENCES
• The American Angel - Early Results, Angel Capital Association, 2017.
• The European Business Angels markets, an approssimation, BAE-The European Confederation for Angel Investing.
• A. Leone - IAG, Start-up financing, MIP 2107.
• IAG Angels training, IAG 2107.
• A. Mezzotero, IAG slide presentation, 2017.
• Silicon Valley Competitiveness and Innovation Project – SVCIP 2015 and 2017.
• European Unicorns 2016, GP-Bullhound Research.
• Global Start-up Ecosystem Report 2017, Start-up Genome.
• T. Nicholas, J. Lee; The origins and development of Silicon Valley, Harvard Business School, 9-813-098, rev. 2014.
• L. Applegate et al.; Angel investing in Europe and recent developments in crowdfunding, Harvard Business School, 9-814-047, rev.
2016.
• Financing high growth firms, the role of angel investors, OEECD, 2011.
• P. Berra, G. Visentini, Start-ups: 10 trend to keep an eye on in 2016, Sapere Scienza and IAG Report, 2016.

Questions and Discussions

ANGEL INVESTING: TYPICAL NUMBERS
Average Angel’s Investments per Project

Sectors of Investment
ANGEL INVESTING: TYPICAL NUMBERS

RISKS IDENTIKIT RATING
SINGLE INVESTORS
✓ Full control of their money.
✓ Freedom to maneuver.
✓ Fast action.
✓ Difficulty accessing and
processing quality deal flow.
✓ Necessity of seriousness and
motivation at professional level.
✓ Difficult to diversify.
✓ Difficult sometimes to have
weight in the deal.
✓ Former Entrepreneur.
✓ Ex Venture Capitalist.
Approach suitable for those
who have high $$ allocable
at high risk (M$) and / or
deep vertical skills.
BENEFITS

MEMBER INVESTORS OF A NETWORK
✓ Full control of their money.
✓ Access to diversified deal flow.
✓ Existence of professional
centralized structure.
✓ Access to resources and skills
of all members.
✓ Ability to enter medium-large
deals in syndication.
✓ Sharing of DD costs.
✓ Possibility to modulate your
own commitment over time.
✓ Rapidity of action is sometimes
slowed down.
✓ Impact on start-ups in large
part entrusted to the champion's
skills.
✓ Use of ad-hoc vehicles (onerous
from economic point of view and
administrative).
e.g. IAG Members:
Entrepreneurs, Managers,
Professionals.
Appropriate approach,
especially for those who have
allocable resources at high risk
between € 100k and € 1M,
interested in both developing
a sector-based portfolio well
differentiated.
BENEFITS

INVESTORS IN CROWDFUNDING
✓ Easy access.
✓ Small cuts.
✓ Possibility of online investment.
✓ Investment conditions often
not favorable (e.g. pre-money)
✓ Excessive fragmentation, poor
impact on the target.
✓ Young people; public retail
looking for diversification at a
small price.
✓ It can constitute a "gym"
to enter subsequently in a
more active phase of Angel
investing.
BENEFITS

HOW TO DEFINE AN INVESTMENT STRATEGY
• The experiences of recent years allow us to highlight some successful strategies in Angel investing, called "active
and intelligent spray and pray".
• Spray and pray: Given to the strategy of investing in several deals, sometimes only on the basis of a summary
evaluation of the entrepreneur. This strategy was adopted by some successful Angels in the San Francisco area,
but if applied too superficially, it can lead to generalized losses on the portfolio.
• A soft strategy consists to adopt a policy of diversification, such as spray and pray, with careful due diligence of
the start-up. Further mitigation of the risk limits it to areas where you have strong expertise.
• The Angel investor "best practice" is also related to being "active". The Angel should make a positive impact on
the start-up in relation to: Business Development, Team Development, and Financial Development.

HOW IAG WORKS
* Courtesy Aurelio Mezzotero, IAG

FOUNDING A NEW COMPANY: AN EXAMPLE*
Two founders, Joe and Carlo, decide to launch their project and incorporate their company.
• They split their stakes 60/40.
• They decide to set aside 20% of shares in an equity option pool.
• 10.000 shares of common stock outstanding. Each share is issued at a price €1.0.
COMPANY VALUE €10,000
Joe
48%
Carlo 32%
Opt Pool
20%
Ownership Stakes
Ownership Breakdown at the Beginning

FOUNDING A NEW COMPANY: AN EXAMPLE*
After validating the business plan and gaining some traction, it is time for Joe and Carlo to raise some
outside capital in a seed round.
A valuation is given to the company, and shares of the company are purchased for cash by investors at the
price determined by the valuation.
Pre-Money + Investment = Post-Money
Valuation

Pre-Money
Valuation
- Value of the company before the investment.
- To be estimated and negotiated following objective and subjective parameters.
- Several valuation methods exist .
Money
(Investment)
- Total investment.
- Usually through a Capital Increase (no share purchase!).
- Equity or Convertible Loan.
Post-Money
Valuation
- Post-Money = Pre-Money + Investment
- Post-Money = Investment / Equity %
- Founders are diluted, but the value of the company may increase significantly.
- Usually the lowest pre-money valuation for the next round.
Pre-Money + Investment = Post-Money

FOUNDING A NEW COMPANY : AN EXAMPLE*
Joe and Carlo have raised an equity investment of €500.000
at a pre-money valuation of €1.000.000.
The post-money cap table is:
COMPANY VALUE €1.500.000
Joe
32%
Carlo
21%
Opt Poll
13%
Investors
34%
Ownership Breakdown after Investment

Very Early Stage Funding
Angle/Seed and Series A Investments

Paolo Berra CERN Alumni Conference 2018 slide presentation

Paolo Berra CERN Alumni Conference 2018 slide presentation

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