business angels networks
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Markku SjöstedtInvestment Director, Sitra VenturesSitra, the Finnish Innovation Fund
Business Angels Networks
Helsinki, February 14, 2007
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Contents
Background
Business Angels and Angel Networks
Cross-border
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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
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Start-upCompanyStart-upCompanyHuman
ResourcesCapital
Business Concept
It’s not all about money
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LIKSA
• 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
DIILI
• Sales competence as sweat equity
• Resource: Experienced business professionals
• Objective: To speed up the investment process
PreSeed concept
INTRO
• Marketplace for early stage investments
• Private persons (business angels) as investors
• Aiming at syndication
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Stepping stone to venture capital
• Internet access• Venture forums• Investment negotiations• Syndicates
DIILI sweat equity
resources
Deal flow
LIKSA fundingbusiness
plans
Businessangels
PUBLICCo-funding 100 M
PrivateVC-funds
Microsoft IP Venturestechnology
Dealflow
INTRO
200 40 20
VERIFICATION
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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
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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 AngelsAloitusrahasto Vera OyManagement team
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Background
Business Angels and Angel Networks
Cross-border
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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
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Ripening process
MEGA-ANGEL
MILESTONES
END of BA
VIRGINAngel
STARTINGAngel
Reading articles
First Investment
4/5 Investments
BAN or BA ACADEMY
PortfolioManagement
ACADEMY
LOSS-EXPERIENCEDAngel
NETWORKING Angel
SYNDICATION Angel
First loss
EBAN Winter University, 16/11/05 Rudy Aernoudt
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Kirchhoff’s innovation-growth classification
Stars
AmbitiousEconomiccore
Constrained
Inn
ovati
on
Growth highlow
hig
hlo
w
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.
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Various Investment Strategies
Short Long
Bus
ines
s fo
cus
Por
tfol
io f
ocus
Developer Sector expert and developer
Value Style InvestorFinancial Style Investor
Business Angel
Instit
utional In
vestor
Span
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NEED FOR CAPITAL
TIME
Seed Start-up Early growth
RISK
Friends, Family, Fools
Business angels
Venture Capital
IPO
Business angels in the value chainGROWTH
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Benchmarking Angel Activity
US Europe
2005: 250,000 angels, invest $24 billion in 50,000 ventures
European estimate 2006:50.000/75.000 angels investors 2-3 billion € invested
EBAN Statistics for 2006- 9000 active angels in 97 networks- 653 deals done
No fiscal incentives YET – but more and more discussions as to how to attract new angels into the market as VCs and angel syndicates are moving further along the financial value chain
Fiscal incentives a growing phenomenon, UK as benchmark Compensation for the lack of entrepreneurial spirit?
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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
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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
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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
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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
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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
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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
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Background
Business Angels and Angel Netwoks
Cross-border
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EASY-projectEuropean-wide cross-border
network of business angels and investment companies, 2007-2008, 17 Partners,
5,2 M€ Budget
Future potential: cross-border investments
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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
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EASY Investment Forum, Italy, 26th February 2008
22 selected European companies 150+ investors expected to participitate
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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
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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.
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www.sitra.fi +358 9 616 991 Itämerentori 2, PL 160, FI-00181 HELSINKI
Useful links:www.eban.org/http://www.bbaa.org.uk/www.angelcapitalassociation.org/www.pitchtheangels.com/www.earlystageinvestors.org/www.easyinvestmentforum.org/