wipo-insme international training program, july 12, 2006 angel investment, [email protected]...

WIPO-INSME International Training Program, July 12, 2006Angel Investment, [email protected]

ROLE OF BUSINESS ANGELS

Christophe Beaud


CONTENTS

1. Who are Business Angels

2. Angel Capital Market

3. Types of Angel Investment Strategies

4. Key Success Factors

5. Supporting Innovation

7. 10 Lies and 10 Tips

6. Business Angel Networks


WHO ARE BUSINESS ANGELS

DefinitionBusiness Angels are private investors who invest in unquoted small and medium sized businesses. They are often businessmen and women who have sold their business. They provide not only finance but experience and business skills. Business Angels invest in the early stage of business

development filling, in part, the equity gap. [EBAN website]

• Expectation of high financial return

• Playing a role in an entrepreneurial process

• Satisfaction of being involved in an entrepreneurial firm

Motivation


WHO ARE BUSINESS ANGELS

Main Differences Business Angels Venture Capitalists

Personal Entrepreneurs Money managers

Money Invested Own money Fund provider

Firms funded Small, early stage Medium to large

Due diligence done Minimal Extensive

Location of inv. Of concern Of lesser concern

Contract used Simple Comprehensive

Monitoring after inv. Active, hands-on Strategic

Involvement in mgt Important Of lesser concern

Exiting the firm Of lesser concern Highly important

[Ten3 website, business angels ]


ANGEL CAPITAL MARKET

Definition of Private EquityPrivate equity investing may broadly be defined as "investing in securities through a negotiated process". The majority of private equity investments are in unquoted companies. Private equity investment is typically a transformational, value-added, active investment strategy. It calls for a specialised skill set which is a key due diligence area for investors' assessment of a manager. The processes of buyout and venture investing call for different applications of these skills as they focus on different stages of the life cycle of a company. [EVCA Website]

Seed Start-up ExpansionReplacement

CapitalBuyout



Returns

[EVCA website]



European Survey 2004

[EBAN, Dec 2004]

Number of analysed « business plans » per business angel and per year

26 43

Number of interviews done per business angel and per year

9.1 9.7

Number of first round investments per business angel and per year

2.3 2.5

Invested amount in Euro per deal et per business angel

133’069 77’534



[EBAN, Dec 2004]

Seed 20 %

Start-up 39 %

Expansion 30 %

Buyout 11 %

Investment per Stage

Type of EXIT Write-off 49 %

Sale to the entrepreneur 9 %

Sale to another shareholder 29 %

Trade sale 12 %

IPO 0 %

European Survey 2004 (con‘d)


TYPES OF ANGEL STRATEGIES

Active Angel Investment Strategies• Lead angel investment strategy -> experienced angel

• Manager investment strategy -> looking for a job

• Corporate investment strategy -> owners of companies

• Acquisition investment strategy -> strong need to control

• Professional services business -> business development development investment strategy


TYPES OF ANGEL STRATEGIES

Passive Angel Investment Strategies• Angel consortium coinvestment -> follow-on investor strategy

• Barter investment strategy -> providing assets

• Socially responsible investment -> social conscience strategy

• Fund-based investment strategy -> PE for the masses

[Benjamin & Margulis, the Angel Investor‘s Handbook, Bloomberg Press, 69-94]


KEY SUCCESS FACTORS

8. Planning of sufficient financial reserves for future rounds

1. High deal flow

2. Knowledge of the business and particular skills or contacts

3. Full trust in the management team

4. Own due diligence of the market and of the technology

5. Clear understanding of the revenue model

6. Realistic valuation of the company

7. Perfect understanding of the liquidity risk


SUPPORTING INNOVATION

Angel Point of View+ Knowledge of industry

+ Knowledge of technology

+ Knowledge of revenue model

+ Scalability of the project

+ First mover advantage

+ Timing of commercialization

+ Other investors


SUPPORTING INNOVATION

Entrepreneur Point of View+ Competences of Business Angels

+ Complement competences

+ Sharing experiences

+ Short due diligence

+ Longer investment horizons


BUSINESS ANGEL NETWORKS

Entrepreneur

Business Angel

Contact of BA

Business planevaluation and

validation

Drafting of business plan

summary

Investment readiness programme

Preparation of a presentation

Identification of the

business angel

Training

Identification of investment priorities

BA added to database

Confronting offer

And demand

Circulation ofBusiness plan

MATCHING

Leverage funding-co-funding-bank loans

MATCHING

InvestmentClub/Forum


BUSINESS ANGEL NETWORKS

Private Networks in CH• BAS Business Angels CH, www.businessangels.ch • Bisange SA, www.bisange.ch • BrainsToVentures AG, www.b-to-v.com • Club Valaisan des Business Angels, www.bizangels.ch• MSM Investorenvereinigung, www.fininco.com • Start Angels, www.startangels.ch• Venturix AG, www.venturix.com

Regional Associations• EUROPE: European Business Angel Network (EBAN)• CH: Association of Swiss Business Angels Network (ASBAN)


TOP 10 LIES BUSINESS ANGELS

8. I will not interfere in your management decisions

1. Tomorrow I will tell you if I am interested or not

2. My due diligence will take only few days

3. My shareholder agreement is simple and held in one page

5. I will have plenty of time to help your company

6. I know personally several potential clients

4. I feel absolutely comfortable with your company valuation

7. I know in details your business niche

9. I have excellent relations with retail banks

10. I will help you to find additional money for future rounds


10 TIPS FOR ENTREPRENEURS

8. Complete financing plan – the strategic view

1. Appreciate the significance of time vs. money

2. The patent is not everything

3. Selling starts at the earliest possible opportunity

5. Fail earlier, fail faster and fail often

6. 2 sources of negotiating strength: execution & competition

4. Economics of pricing – the value of the customer

7. The value of partnerships

9. Plan funding around externally significant milestones

10. Structuring the investment: economics vs. control

wipo-insme international training program, july 12, 2006 angel investment, [email protected]...

Documents

business angel networks

angel capital market

active investment strategy

angel investors handbook

business skills

cond slide

contents page

eban website page