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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
WHO ARE BUSINESS ANGELS
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Definition
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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
WHO ARE BUSINESS ANGELS
Main Differences Business Angels
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Venture Capitalists
Personal Money Invested Firms funded Due diligence done Location of inv. Contract used
Monitoring after inv. Involvement in mgt Exiting the firm
Entrepreneurs Own money Small, early stage Minimal Of concern Simple
Active, hands-on Important Of lesser concern
Money managers Fund provider Medium to large Extensive Of lesser concern Comprehensive
Strategic Of lesser concern Highly important
[Ten3 website, business angels ]
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
ANGEL CAPITAL MARKET
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Definition of Private Equity
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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
ANGEL CAPITAL MARKET
Page 6
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
ANGEL CAPITAL MARKET
Page 7
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
ANGEL CAPITAL MARKET
Page 8
Returns
[EVCA website]
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
ANGEL CAPITAL MARKET
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European Survey 2004
Number of analysed « business plans » per business angel and per year
Number of interviews done per business angel and per year 26 43
9.1
9.7
Number of first round investments per business angel and per year Invested amount in Euro per deal et per business angel
[EBAN, Dec 2004]
2.3 133’069
2.5 77’534
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
ANGEL CAPITAL MARKET
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European Survey 2004 (con‘d)
Investment per Stage
Seed Start-up Expansion
Buyout
20 % 39 % 30 %
11 %
Type of EXIT
Write-off
Sale to the entrepreneur Sale to another shareholder Trade sale
49 %
9% 29 % 12 % 0%
[EBAN, Dec 2004]
IPO
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
TYPES OF ANGEL STRATEGIES
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Active Angel Investment Strategies
• Lead angel investment strategy
• Manager investment strategy • Corporate investment strategy • Acquisition investment strategy
-> experienced angel
-> looking for a job -> owners of companies -> strong need to control
• Professional services business -> business development development investment strategy
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
TYPES OF ANGEL STRATEGIES
• Angel consortium coinvestment strategy • Barter investment strategy
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Passive Angel Investment Strategies
-> follow-on investor -> 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]
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
KEY SUCCESS FACTORS
1. High deal flow
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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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
SUPPORTING INNOVATION
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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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
SUPPORTING INNOVATION
Page 15
Entrepreneur Point of View
+
+ + + +
Competences of Business Angels
Complement competences Sharing experiences Short due diligence Longer investment horizons
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
BUSINESS ANGEL NETWORKS
Entrepreneur
Contact of BA Business plan evaluation and validation Drafting of business plan summary Investment readiness programme Preparation of a presentation
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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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
BUSINESS ANGEL NETWORKS
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Regional Associations
• 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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.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
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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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com
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
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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
WIPO-INSME International Training Program, July 12, 2006 Angel Investment, christophebeaud@yahoo.com