How to meet Angels

How to meet Angels ……Filling the Equity Gap Roy Fraser TEChINVEST Adviser 25th April 2005 Filling the gap £200m+ for NW businesses • Why? • What? • How to get it? Why this new money? • Flexible finance for start ups and established businesses with growth potential • High Risk seed and venture funds with public money • Finance for businesses which don’t meet bank or venture capital or listing criteria • Cash up front to accelerate growth • Encourage other investors to invest alongside and after • Grants very limited 2007 onwards Where’s the money? – NWDA Seed & Venture Capital Funds • NW Business investment Scheme - £19.5m • NW Seed Fund - £4.5m • RisingStars Growth Fund - £19m • NW Equity Fund - £35.5m Where’s the money? - Traditional Sources Private equity • family and friends • business angels • seed funds & venture capital funds • private companies Public equity • OFEX and AIM Loans and Asset-backed Finance Equity is ……… • Long term, committed share capital to help private companies grow and succeed Bank vs. Private Equity Key Differences Bank Debt Secured Capital & interest repayments Risk of withdrawal Monitoring relationship REPAYMENT – regardless of profitability Private equity Risk funding Return only on success Committed Partner relationship - support GROWTH – no repayment until sufficient profit and value TEChINVEST • Friend, adviser, consultant, challenger, devil’s advocate • Credibility - of the project - of the management - of the market assumptions - of the strategic options - of the time scales • Development - of the Investment Proposal - of the presentation • Identification of potential funding sources/ Introductions. TEChINVEST • Established 1993 • Was TEC/BL, now within NWDA • Regional service – Nationally recognised • Unrivalled success rate – 1 : 3 • £18m invested & £32m+ unlocked since launch • 2500+ visits; 575+ businesses registered • Introductions & specialist support • Equity awareness training • 500 angels registered + 1500 listed Companies Seeking Investment Companies/entrepreneurs • Risk Equity or loan finance up to Having • Growth and profit potential £500,000 • • Start-ups/ New ventures Established businesses seeking • • Commitment to selling equity Often seeking management expertise development • Any sector • • Clear Vision of the Future But High Risk!!! The Process •Evaluation, assistance, advice on investment process •Investment Proposal prepared by adviser •Circulation to Investor Club members •Presentation at Investor Club Meeting •Ongoing contact and sounding board •Training and workshops •Access to other business support services - NWEF, RSGF, NWBIS, NWSF etc What TEChINVEST does for Companies          Companies seeking equity finance up to £500,000 Growth/Profit potential – clear vision Needing skills Evaluation, assistance, advice on investment process Funding proposal produced Investor Club meetings Market regionally and nationally to angels Training, workshops, ongoing contact Introductions to seed and venture funds What TEChINVEST does for Investors • • • • • • • • Typically 100-120 paid-up investors Often successful entrepreneurs, retired/second careers Access to 50 proposals per year Bi-monthly Investor Club meetings & Investors only session Direct contact with entrepreneurs Access to advisors Training/workshops Co-investment/NED opportunities with funds Business angels • • • • • • • • Informal investors Personal decision not purely driven by investment return Deal structures – anything from interest free loans to equity Small amounts of high risk equity and loan Amounts generally £5K - £250K Involvement – none to full time Additional management expertise Significant tax incentives The Facts • 2% of plans succeed in raising funds* • Most start ups fail • Most plans are poor • Most plans are rejected * ref: envestors statistics This is what the companies say • • • • • • • Wonderful and exciting product (or service) Developed in house by the key personnel Huge potential sales projections Unique opportunity There is no competition The product will sell itself Professionally produced Business Plan This is what the investors hear • • • • • • Completely unproven product (or service) Weak or non-existent business management Entirely speculative projected sales No mass market appeal Do not understand the competition or reaction Costs rocketing to bring to market • Do not understand the process Investor feedback- negative • • • • • • • Over-valuation of company by the team No clearly defined exit route Inability to convince of imminent hard sales Failure to invest own personal cash No real protection from competition General lack of credibility Lack of desire to want to work with investor Investor feedback - positive • Investors need to be convinced of: – growth potential – entrepreneurs – market – entrepreneur’s willingness to work with investors – entrepreneur’s openness to ideas and advice How to improve your chances • • • • • • • • • Be well prepared - rarely get a second chance Tell them everything that’s impressive Be open and honest – address gaps and weaknesses Be flexible in your choice of sources Adapt what you’d like to what you can get Don’t say “No” too quickly – you may need a “package” Put yourself in investor’s place Anticipate and answer questions from potential investors Have an adviser with track record of deals done The Business Plan Why? - help the management to state precisely what it wants to do - provide milestones to measure progress - communicate to outsiders – e.g. investors What? - describe it precisely (not too much detail!) • stage reached; the next steps. • market potential and competition. • pricing policy, etc etc - management team’s background and credentials; requirements/gaps - financial history and realistic projections. • Profit and returns • Proposed financial structure, offer/deal • Possible exit route Be prepared! • BP must be coherent, comprehensive, credible and exciting • It’s about a commercial opportunity, not about the technology • Work at it – be patient – the process always takes longer than you expect Conclusion • • • • • More money than ever before More choice of Funds than ever before But Investors are very demanding Help and support available – pre and post investment Increase chances of success with help