Role of Business Angels Explained

ROLE OF BUSINESS ANGELS
Christophe Beaud
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
CONTENTS
1. Who are Business Angels
Page 2
2. Angel Capital Market 3. Types of Angel Investment Strategies 4. Key Success Factors 5. Supporting Innovation 6. Business Angel Networks 7. 10 Lies and 10 Tips
WHO ARE BUSINESS ANGELS

Definition
Page 3
Business 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]
Motivation
Expectation of high financial return Playing a role in an entrepreneurial process Satisfaction of being involved in an entrepreneurial firm
WHO ARE BUSINESS ANGELS

Main Differences Personal Money Invested Firms funded Business Angels Entrepreneurs Own money Small, early stage
Page 4
Venture Capitalists Money managers Fund provider Medium to large
Due diligence done

Location of inv. Contract used Monitoring after inv. Involvement in mgt Exiting the firm
Minimal
Of concern Simple Active, hands-on Important Of lesser concern
Extensive
Of lesser concern Comprehensive Strategic Of lesser concern Highly important
[Ten3 website, business angels ]
ANGEL CAPITAL MARKET

Definition of Private Equity
Page 5
Private 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 Expansion
Replacement Capital
Buyout
Page 6
Page 7

Returns
Page 8
[EVCA website]

European Survey 2004
Number of analysed business plans per business angel and per year Number of interviews done per business angel and per year Number of first round investments per business angel and per year Invested amount in Euro per deal et per business angel
[EBAN, Dec 2004]
Page 9
26
43
9.1
9.7
2.3 133069
2.5 77534

European Survey 2004 (cond)
Investment per Stage
Seed Start-up 20 % 39 %
Page 10
Expansion
Buyout
30 %
11 % 49 % 9%
Type of EXIT
Write-off Sale to the entrepreneur
Sale to another shareholder

Trade sale
[EBAN, Dec 2004]
29 %
12 % 0%
IPO
TYPES OF ANGEL STRATEGIES

Active Angel Investment Strategies
Lead angel investment strategy
Manager investment strategy Corporate investment strategy Acquisition investment strategy
Page 11
-> experienced angel

-> looking for a job -> owners of companies -> strong need to control
Professional services business -> business development development investment strategy
TYPES OF ANGEL STRATEGIES

Angel consortium coinvestment strategy
Barter investment strategy Socially responsible investment strategy
Page 12
Passive Angel Investment Strategies

-> follow-on investor
-> providing assets -> social conscience
Fund-based investment strategy -> PE for the masses

[Benjamin & Margulis, the Angel Investors Handbook, Bloomberg Press, 69-94]
KEY SUCCESS FACTORS

1. High deal flow
Page 13
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 8. Planning of sufficient financial reserves for future rounds
SUPPORTING INNOVATION
Angel Point of View
+
+ + + + + +
Page 14
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
+
+ + + +
Page 15
Competences of Business Angels

Complement competences Sharing experiences Short due diligence Longer investment horizons
BUSINESS ANGEL NETWORKS

Entrepreneur
Contact of BA Business plan evaluation and validation Drafting of business plan summary Investment readiness programme Preparation of a presentation
Page 16
Business Angel
MATCHING
Confronting offer And demand
Identification of the business angel Training Identification of investment priorities BA added to database
Circulation of Business plan
MATCHIN G
Leverage funding -co-funding -bank loans
Investment Club/Forum
BUSINESS ANGEL NETWORKS

Regional Associations
Page 17
EUROPE: European Business Angel Network (EBAN) CH: Association of Swiss Business Angels Network (ASBAN)
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
TOP 10 LIES BUSINESS ANGELS

1. Tomorrow I will tell you if I am interested or not 2. My due diligence will take only few days
Page 18
3. My shareholder agreement is simple and held in one page 4. I feel absolutely comfortable with your company valuation 5. I will have plenty of time to help your company
6. I know personally several potential clients

7. I know in details your business niche 8. I will not interfere in your management decisions
9. I have excellent relations with retail banks

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

1. Appreciate the significance of time vs. money 2. The patent is not everything 3. Selling starts at the earliest possible opportunity 4. Economics of pricing the value of the customer 5. Fail earlier, fail faster and fail often
Page 19
6. 2 sources of negotiating strength: execution & competition

7. The value of partnerships 8. Complete financing plan the strategic view
9. Plan funding around externally significant milestones

10. Structuring the investment: economics vs. control

Role of Business Angels Explained

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ROLE OF BUSINESS ANGELS

WHO ARE BUSINESS ANGELS

WHO ARE BUSINESS ANGELS

Venture Capitalists Money managers Fund provider Medium to large

Due diligence done

[Ten3 website, business angels ]

ANGEL CAPITAL MARKET

ANGEL CAPITAL MARKET

ANGEL CAPITAL MARKET

ANGEL CAPITAL MARKET

ANGEL CAPITAL MARKET

ANGEL CAPITAL MARKET

Write-off Sale to the entrepreneur

Sale to another shareholder

TYPES OF ANGEL STRATEGIES

-> experienced angel

Professional services business -> business development development investment strategy

TYPES OF ANGEL STRATEGIES

Passive Angel Investment Strategies

Fund-based investment strategy -> PE for the masses

KEY SUCCESS FACTORS

2. Knowledge of the business and particular skills or contacts

Competences of Business Angels

BUSINESS ANGEL NETWORKS

Circulation of Business plan

BUSINESS ANGEL NETWORKS

TOP 10 LIES BUSINESS ANGELS

6. I know personally several potential clients

9. I have excellent relations with retail banks

10 TIPS FOR ENTREPRENEURS

6. 2 sources of negotiating strength: execution & competition

9. Plan funding around externally significant milestones

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