“The Role of Business Angels Networks at European and Worldwide Level and Testimonial from an Early-stage Investor Perspective: the EASY Project” The EBAN perspective President Chairman Managing Director Managing Director Project Director European Business Angel Network British Business Angel Association London Business Angels London Seed Capital Seraphim Capital EASY

My Background Managing Director of: –A business angel network (London Business Angels) –A seed capital fund (London Seed Capital) – a €7million fund that invests in small businesses alongside angels –A €42million Enterprise Capital Fund – Seraphim Capital Together LBA and LSC invested €7million in 2007 Investments range between €150k and €1.1million LBA investors invested in 13 different companies (2007). Seraphim invested in four companies in LSC invested in 8 different companies (2007) Chairman of British Business Angel Association President of European Business Angel Association

About EBAN Unique European association for the early stage investment market Organisation’s goals include: –Promote & create positive environment for Business Angels and early stage investment market actors –Exchange experience & encourage best practice –Push forward the informal investment agenda Organisation’s members include: –National Federations of Angel Networks –BANs with Local / Regional / National coverage –Early stage venture capital funds –Other organisations inc. non-European Angel Networks 80 members, 22 countries (New members X4 in 4 years)

About Business Angels Business Angel: Private individual investing own wealth in early stage businesses AND own expertise and network of contacts Investment euro Willing to share their managerial skills, specialist knowledge and networks No sector preference Often prefer to invest in their region of residence Seeking profit, but also fun Usually total investments below 25% of wealth Minority share in the business – entrepreneur should stay in control Can become involved in the business (“active Angel”) or not (“passive Angel”).

About Business Angels Characteristics that Business Angels are seeking: Current & comprehensive Business Plan Strong & committed Management Team High growth / scalable / strong business forecast Developed product / service with sales Angel involvement welcome Realistic pre-money value BUT Entrepreneurs’ qualities are most important

Source: EVCA Stage distribution of investments per year Why do we need Business Angels? In 2006, seed investments represented 0,3% of recorded VC investments in Europe >Different amounts invested >Complementary roles

Success stories

Angels and other finance sources Capital Needs Time Seed Start-up Early Growth Sustained Growth High Risk Low Risk Friends, Family & Founders Business Angels Formal Venture Capital IPO 0 Angels help fill the ‘Equity Gap’

Very varied level of development –UK has the most mature market in the EU –Growing markets: France, Germany, Sweden, Belgium, Finland, Netherlands –Smaller players, e.g. Italy, Spain, Norway –Emerging markets: Slovenia, Greece, Portugal Different types of founders Varied level of support: EU, national,regional, etc. National trade associations sometimes represent the market Rapid growth European angel market characteristics

European Angel Market Characteristics Number of Business Angel Networks

Case Study: England One of Europe’s most developed Angel markets. £1billion estimated as invested by angels in UK in BBAA member networks, 4991 Angels Highly supportive tax break scheme, “Enterprise Investment Scheme” –Income tax rebate equal to 20% of investment up to €600k –Exemption from capital gains on Angel investments –Income tax relief of 40% on failed investments Larger average deal size – syndication becoming prevalent Commercial networks more prevalent than elsewhere National trade association, British Business Angels Association

Case Study: Sweden An expanding and well-developed market. Key characteristics include: 22 networks, ~5000 Angels, ~100 deals, 200 m€ invested annually Few commercial networks Government support: NUTEK (Swedish Agency for Economic & Regional Growth) has supported creation & development of regional Angel networks BUT no favourable tax incentives National body: Swedish Private Equity & Venture Capital Association (SVCA)

Case Study: France A growing angel market. A national trade body (France Angels) Growing variety of angels groups Business Angel Week and government support to selected networks Sectoral networks + One national co-investment fund in development Up-front tax incentives On 67 networks surveyed in 2007: -159 deals -37 million euros invested -Average size of the deal €

Benchmarking angel activity 2007US Estimates (Center for Venture Research) Europe estimates (EBAN) Number of angels Amount invested26 billion dollars3 billion Euros US wishes to introduce tax credits at federal level to encourage further angel investing Europe needs to increase its support to business angel activity Business angels are the financial actors active in the early stage and potential funders of European gazelles Fiscal incentives to compensate for lack of entrepreneurial spirit

Increasing size of deals but decreasing size of investment by individual investors (Mason 2006): more small investments Investing increasingly in syndicates Leverage of co-investment funds to close equity gap Sector specific networks Interest in cross border activities Initiatives to help BA and VC collaborate more and better BANs offereing more packaged deals and value added services Organisation of the market (vs sophistication?) European Angel Market Trends

Trends: Capacity-building Investment Readiness programmes – get entrepreneurs ready for investment e.g. Business Planning advice, Presentation Training >Number of programmes increasing across Europe >Some programmes delivered cross-border >Discussions about sectoral programmes (Biotech…) Investor Readiness programmes – educate investors in the basics of Angel investment e.g. Legal Issues advice, meet with existing Angels, learn about tax break schemes Increasing the supply & demand for Angel Investment

Trends: Syndication Syndication can be encouraged/facilitated by networks - Size of the deals are increasing - Individual investment size decreasing –Increases amount of money available –Increases Angels’ bargaining power –Enables coordination of legals, investment terms –Enables greater cooperation during Due Diligence and subsequent monitoring of investment

Trends: Co-investment funds Increasing number of co-investment funds set up on side of networks to close equity gap and attract new angels to the market across Europe Best practice: Seraphim Capital - A €42million Enterprise Capital Fund - Public sector invested €28m / private sector invested € 14m. New Vantage Group investors in Fund alongside UK angels - Investments range between €1m and €3 million. - Co invests with angels EBAN lobbied the European Investment fund since 2003 >First round of pilot funds in most mature angel markets should be operational in 2008 >No budget earmarked= if successful could be mainstreamed

In France: creation of nation-wide networks with sectoral bias >Biotechnology >Sustainable development and clean energies >Software supported by Microsoft Existing sectoral cross-border networks >High technologies – Quantum Board >Media and content industry – Media Deals One of Germany’s biggest BA just set up his own clean tech fund Moutain Clean Tech AG Trends: Sectoral networks

Trend: Cross-border investments EASY Project >Bringing together BA networks and early stage VC funds to stimulate greater collaboration between financial actors and facilitate trans-national investments >Providing a better framework for investors to invest cross-border >12 deals must be concluded by end of project European Commission supports this trend -Lobby national governments in favour of fiscal harmonization, fiscal incentives for early stage investors, and no double taxation -Support capacity building programmes for investors and entrepreneurs

Statistics 750 investors from 25 countries attended the forums 76 selected companies from 20 countries – Sectors ICT, Media, Med Tech, Clean Tech, transport & logistics 4 transnational deals closed – 5M Euros 9 national deals closed – 10.5M Euros Pipeline 5 further heads of terms signed – 4M Euros EASY Project Tools developed for cross border syndicated investments Due diligence and valuation tool kit International investment readiness tool kit Quality framework and code of conduct Legal templates: term sheet, shareholders’ agreement,confidentiality agreement. Case studies

-Business angel leaders forum organised in Portugal in October 200 by EU. Representatives from all continents – not all business angel networks Objective: To incorporate WBAA. World Business Angels Association as an international not for profit organisation Potential structure: National Federations and individual angel groups and Networks as members Founder members - to include China The WBAA

Challenges to Early stage investing in Europe No single market – 27 different rules! Diversified and fragmented market (across Europe and within countries) Lack of connections between angel investing and other early stage financial actors Lack of common procedures for investing cross-border Entrepreneurs need to have an international focus and be investment ready Lack of tax incentives or co-investment funds in majority of EU 27 + Difficulty to collect information on the market

How to encourage angel activity? National level: Fiscal incentives has the best impact Fiscal environment >Capital gain or loss exemption from tax One of the ways in which governments can support business angel activity Available to a variable extent in the most mature markets of Europe: UK, Belgium, France, Netherlands. 27 member states, only 8 providing support. 2 countries providing up-font tax incentives (UK – FR) In some countries (France or Portugal) Incentives are higher if investment is made through an investment vehicle as it enables public authorities to have better control over the investors

Alternative support schemes >Co-investment funds (public private partnerships) >Matching loans for BA investments (Belgium) >Grants for business angel networks (quality and quantity performance criteria as well as sustainability) >Promoting guarantee schemes for angel investments (Belgium, Austria…) >Investment readiness programmes >Support fluidity of market and exit routes Crucial: Awareness raising, collection of information on the market, promotion of success stories, promotion of and support to business angel networks and other capacity building mechanisms Fiscal incentives for business angels can only be efficient when they are accompanied by other support measures

Conclusions Business Angels are an important addition to available European sources of finance European market is growing - some countries already very well- developed National & European-level trade associations can help enhance the market – lobbying, encourage best practice etc. Angel Networks can add further value by providing investor / investee readiness support, facilitation of syndication etc. but also dissemination activities.

EBAN - European Business Angel Network Contact details Thank you for your interest!