T H E E C O N O M I C I M P A C T O F A N G E L I N V E S T M E N T U N V E I L E D

Lourdes Moreno 19th May 2014

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Table of Contents

n  Objective n  Sample n  Variables n  Results n  Conclusions & Implications

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Estimate the impact of angel investment on the performance of EU

start-ups

Objective

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Sample n  Initial Sample: 3.208 start-ups across Europe that have received angel investment n  We merged information from different databases:

—  EBAN —  INVREP reporting systems —  BANs —  Orbis and Zephyr databases managed by Bureau van Dijk —  Crunch database —  Other web based data,…

n  Orbis database constitutes our source for variables where we omitted observations with missing data n  Final sample: 1.661 start-ups

Initial sample: 3.208

European startups "

"2.771 were in Orbis database"

437 companies were not in Orbis"

2.265 included data on key variables "

506 companies had no relevant

data in Orbis"

1.661 companies constitute our

FINAL SAMPLE"

604 companies too large or with NO data

on/after investment"

Deals !selected!

Deals !deleted!

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Sample

n  The INITIAL 3.208 companies cover 37 EU countries n  The companies were incorporated, on average, 5.6 years ago*

n  The analysis utilises data for the years 2004-2013

n  We estimated the impact on performance for the 3 years after the first angel investment

* 6.1 years if we exclude those incorporated in 2013 for which we do not have data"

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Sample

n  The FINAL sample comprises 1.661 companies with an average life of 6.3 years n  The top 5 sectors cover 69% of the companies (IT, Manufacturing, Commerce, Science R&D,

Media)

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Variables

n  Measure of start-up performance after angel investment on: n  Employment n  Revenues n  Asset size n  EBITDA

n  Where we controlled for: n  Sector n  Country n  Year of incorporation n  Year of investment

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Estimated impact on employment

n  Companies, on average, have 5 employees when they receive angel investment n  The employment level more than triples by the third year after angel investment

Source: Elaborated by Lourdes Moreno with data from Orbis database "

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Estimated impact on revenues

n  Revenue generating companies see their top line increase by 150% in 3 years n  Their revenues are close to €1.8m 3 years

* Does not include zero revenue companies on year of investment"

Source: Elaborated by Lourdes Moreno with data from Orbis database "

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Estimated impact on assets

n  The closing balance sheet size at year of investment is of €0.7m growing at similar rate than revenues

Source: Elaborated by Lourdes Moreno with data from Orbis database "

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Estimated impact on EBITDA

n  Our analysis of the EBITDA indicates the start-ups do not reach break even at the EBITDA level during the first three years after the investment

Source: Elaborated by Lourdes Moreno with data from Orbis database "

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Estimated impact by industry sector

n  Large concentration on the IT sector with 37% of the companies n  The IT sector presents the best financial performance being the only one with positive EBITDA

after three years n  The publishing, audiovisual and broadcasting sector shows the largest employment generation

capacity though the worst in profitability

Negative EBITDA growth implies margin deterioration from a negative starting position.""Source: Elaborated by Lourdes Moreno with data from Orbis database " "

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Conclusions and Implications

Conclusions n  Start-ups represent a key segment for the economy in terms of employment and size growth

n  From the moment when angels invest in start-ups, these almost triple their size in terms of employment, revenues and assets within three years

n  Angel-funded European stat-ups are highly concentrated in 5 economic sectors: n  The IT sector presents the best financial performance though media sectors present the

largest employment generation capacity n  It is difficult to obtain country based conclusions as the information extracted by

countries is not representative Implications n  EU public policies should encourage angel-funded start-ups due to its direct impact on the

economy n  Specific efforts should be made to foster this investment activity in as many geographies as

possible n  Further work needs to be done to understand profitability and mortality rates n  Start-up research is limited by lack of information that facilitates the identification of start-

ups and the provision of historical data

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Thank you !!

For any question:

Lourdes Moreno

lomoreno@me.com

Reference:"Moreno, L. (2014): “The economic impact of angel investment unveiled” presented at EBAN Annual Congress on the 19th May 2014 in Dublin"