winning investment: business angels networks & equity crowdfunding
TRANSCRIPT
WINNING INVESTMENTBusiness Angels Networks & Equity Crowdfunding
Overview
2
I. Business Angels & Networks
II. The Deal Making Process
III. Suitable Businesses
IV. Equity Crowdfunding
V. Online Investors
VI. Different Crowdfunding Models
3
Business Angels
BUSINESS ANGELS ARE INVESTORS WHO
INVEST THEIR OWN MONEY NORMALLY IN
RETURN FOR SHARES IN UNLISTED
COMPANIES.
Under the Financial Services & Markets Act
(2000) it is an offence to give a plan to a
potential private investor who has not already
shown you a certificate confirming that he is
either a ‘Sophisticated’ or a ‘High Net Worth’
investor.
For a full understanding of self-certification please see:
The Financial Services and Markets Act 2000
(Financial Promotion) Order 2005
Angel Investor Type IHigh Net Worth
Has an annual income in excess of £100,000
Angel Investor Type IISophisticated
Has worked for 2+ years recently in a professional capacity in the private equity sector
4
7
24
5053 54
50
8
10
20
40
60
Under
£10,000
£10,000 to
£24,000
£25,000 to
£49,000
£50,000 to
£99,000
£100,000 to
£199,000
£200,000 to
£499,000
£500,000 to
£999,000
£1,000,000
and Over
The chart below shows the size of the deals made by BBAA
Angels in 2009/10.
However business angels networks are increasingly looking towards bigger deals due to increased
syndication. Now most deals range from £50,000 to £500,000
How much money?
5
Business Angels Networks
AN ANGEL NETWORK IS A GROUP OF ANGEL INVESTORS
THAT MEET TO DISCUSS AND INVEST IN EARLY STAGE
BUSINESSES.
There is often a network manager who sources the
investment opportunities for the network before being
presented to the investing members. It’s rarely free to
pitch and success fees are charged when investment is
won, sometimes equity is taken.
Typically the success fee is around 7% of the funds raised so
on a £300,000 raise £21,000.
BAN Managers are tasked with finding businesses
suitable for funding that Business Angels can invest in.
However rejecting unsuitable entrepreneurs is a large part
of the process. 92% of business plans are deemed
unsuitable and aren’t even passed on to investors.
Gatekeeping
Coaching & Feedback2.
Pitching3.
1.
6
Network Managers
BUSINESS ANGEL’S NETWORK (BAN)
MANAGERS FACILITATE INTRODUCTIONS
BETWEEN BUSINESS ANGELS AND
ENTREPRENEURS.
The work of these professionals can be
broken down into 3 phases.
Coaching includes helping refine the opportunity
into a summary plan and guiding the entrepreneur
through the process.
Feedback consists of pointing out weaknesses in
the plan and suggesting areas of improvement.
The network provides entrepreneurs with an opportunity
to meet with and pitch to a pool of investors. Pitching
may come in the form of a presentation and Q&A but
some networks prefer a “speed dating” approach.
1.
At this stage the investor will read the full plan
and meet with the entrepreneur, check over key
documents and do some basic research.
Due Diligence
7
After the Introduction…
A subscription agreement will be signed and the
Business Angel will invest in return for a stake
in the business.
At this point SEIS and EIS certificates may well
be issued.
Investment
Here some re-structuring of the business plan may
take place. The amount needed will be discussed
and how much equity will be offered in return.
Negotiate Terms
Investors may want to offer support to the business
or at the very least monitor its performance.
Need to consider skills gaps and possible
opportunities for investors to contribute
Post-Investment Support
8
Angel investment % by stage in business lifecycle
In 2014: Deloitte: “Taking the Pulse of the Angels Market”
Investment Stage
0
20
40
60
Seed Start-Up Other Early Stage Late Stage Venture Expansion Established Rescue
23%
14%
53%
3% 3%3% 1%
9
Business Sector
ANGEL INVESTMENT BY SECTOR.
2014 (Deloitte) “Taking the Pulse of the Angels
Market”
Internet
Consumer
Media
ICT
Biotech, Medtech & Healthcare
Cleantech & Energy
Fintech
Other
21%
16%
11%
11%
8%
8%
8%
18%
An Investable Opportunity
INVESTORS WILL WANT TO BE CONVINCED THAT YOU HAVE A FIRM GRASP OF THESE 5 ASPECTS OF THE BUSINESS.
It pays to have a clear and easily understood business model. Preferably that can be described as a solution to a problem.
Clear Business Model
There also needs to be a clearly defined market and the potential to grow within that market
Market & Scalability
Investors want to see a competent business team with clearly defined roles.
Team
They also want to know how the money is likely to be spent.
Finance
Finally investors will want to know the likely return on investment: When will they exit, show much will they get and via what method
Exit
10
11
Investment Ready
WINNING INVESTMENT TYPICALLY TAKES AT LEAST 6 MONTHS. THIS
NEEDS TO BE FACTORED INTO YOUR PLAN.
The process is iterative and you may have to change your plan at the
behest of investors. Changes may come as a result of less money being
offered but sometimes more money is offered or a longer exit period
needed.
That said a full business plan with comprehensive financials is required
from the outset and a pitch deck that acts as a summary is also useful.
It’s wise to approach a number of investors as having only one option will
limit your chances of getting a good deal.
12
1,200Deals from
2012 to 2015
Equity Crowdfunding
USING SMALL AMOUNTS OF CAPITAL FROM A LARGE
NUMBER OF INDIVIDUALS TO FINANCE
A BUSINESS VENTURE.
Crowdfunding makes use of vast networks of people
through social media and specialist websites to bring
investors and entrepreneurs together.
Platform fees are typically around 7% of the funds
raised. Some platforms such as Angels Den charge a
fee to host you on the site.
£200kAverage Deal
£3,766Average on Kickstarter
13
0
20
2011 2012 2013 2014 2015
Crowdfunding raised £245 million worth of venture
financing in 2015. Which is equates to 15.6% of the total UK
seed and venture stage equity investment.
Equity based crowdfunding is experiencing massive growth, growing by 295% in 2015
Industry Growth
%
Sophisticatedinvestors
14
3 Types of Investors
SOPHISTICATED AND HIGH NET WORTH
INVESTORS WE’VE MENTIONED
PREVIOUSLY.
Everyday Investors agree not to invest
more than 10% of their net assets into
unlisted company shares.
Everyday Investors are the 'crowd'
and the majority of investors fall
into this broad category.
Investments can be as small as
£10
High Net Worthinvestors
Everydayinvestors
Idea Stage£30,000 to £50,000
15
The Seedrs Model
SEEDRS ARE WILLING TO MAKE
INVESTMENTS IN OPPORTUNITIES AT THE
“IDEA STAGE” WHICH MANY TRADITIONAL
BUSINESS ANGELS WOULD BE UNWILLING
TO DO.
This makes them a good source of funds for
start-ups looking to get an idea off the
ground.
Early Stage Growth Focussed
One issue with the Seedrs model is that you
have to bring your own private investors on
board.
Beyond opening an opportunity up to the
crowd Seedrs doesn’t support your
opportunity.
£250,000 to £1,000,000£50,000 to £250,000
‘‘ Most businesses fail but the
few that do succeed can do
so to such a degree that
they more than make up
for the losses.
We believe that an effective
portfolio should include at
least 50 early stage
businesses.
SEEDRS
17
The Seedrs Model
PRE-CAMPAIGN
Before launching speak to
your immediate contacts
about potential
investment.
Need to know how much
you need and have a
credible business
valuation.
CREATE
When creating your
campaign you’ll need to
be able to tell the story of
your business.
You’ll also need good
visuals and a well shot
video.
RUN
Campaign can run for up
to 60 days and takes
place in two stages:
Private launch which
allows investors to come
on board.
Public launch which is
open to everyone.
ACHIEVE
Due Diligence which
mainly relates to company
formation and IPR.
Subscription agreement on
shares and tax certification
Release of funds
LIFE AFTER
Seedrs is technically the
sole shareholder in the
business.
Seedrs will help with
future rounds of
investment and will
partner you through an
eventual exit.
18
Crowdfunding platforms are now starting to use traditional investor
networks and business angel experience as a core part of their
business model.
The idea being that professional investors conduct due diligence on a
business opportunity prior to it being presented to the crowd.
Industry Developments
Syndicate Rooms
19
The minimum investment taken is £150,000
Minimum Investment
Named Investor2.
1.
The Lead Investor must be named and also must be at “arms length”.
Pre-Raise Investment3.
25% of the equity needed must already be won prior to going to the crowd.
Nominee Structure 4.
Syndicate Rooms operates a nominee structure so like with Seedrs you deal with one investor.
Shadow Foundr
Assess Opportunity
1.
Private Investor Network
2.
Crowdfunding Platform
3.
Shadow Foundr is a platform backed by a large Private Investor Network.
20
Conduct due diligence to ensure opportunity viable (about 90% fail).
The opportunity is circulated across the Private Investor Network and only once it’s 30% funded does it go to the crowd.
With 30% backing everyday investors are more confident that the opportunity is viable and therefore more likely to invest.
