Turning business ideas into reality Paulo Andrez Business Angel DNA Cascais (incubator) Board Member President of EBAN

Start Ups Valley of Death time Cash flow Start-up

Imagine that you have 100.000 USD in a safe bank, and you have 4% of interest rate for your deposit. Hi, My name is Scott, and I want you to invest in my new fantastic Start Up ! I will pay you 5% annually.

But if the World Bank guarantees you that if Scott’s new venture doesn’t pay you the 5%, they will pay it immediately to you, would you invest ?

Probability of an entrepreneur to raise money from investors Business Angels Venture Capital Mutual Guarantee Family, Fools , Friends & State Bank 100% GOAL Probability of an entrepreneur to raise money from investors 0% Mitigated Risks 100% Risks (MELFO) Market, Entrepreneurs, Legal, Financial, Operational

POTENTlAL Initial Project RISK

Reduction of 50% to 90% of the total risk of the project Getting out of comfort zone Reduction of 50% to 90% of the total risk of the project Total Project Risk Final Risk of the Project Initial Project Project after mitigation of risks

The importance of good entrepreneurial ecosystems Entrepreneur Schools – We have a partnership with Professor Chris Curtis for the 10th to 12th grade, and with Junior Achievement for the 9th grade. In this first year, about 2000 students attend these classes. CINC – more than 200 projects were received. Ideas Bank – its aim is to provide business ideas to investors, creating a match between them. Social Entrepreneurship – helping develop social equity and self employment with socially innovative ideas and projects. Time Bank – is related with social entrepreneurship in means of contributing with time instead of money. Incubation Centers – Offices available to help start ups in their early stages Interim Management – experienced managers and executives that can help the kick off of new business ideaswith their knowledge not capital. Bas – Provide private equity with networking skills. The well known smart money is applied here. Financing Solutions – Non equity based solutions like small firms loan (with IAPMEI guarantee) Venture Capital – innovative projects up to 2.5 million euros. Investment Support – help in developing business plans; Coaching, law consultancy and financial advisory. Global Partners :

2/3 of jobs come from moderate and high growth firms Source : Ernst & Young and Endeavor 2011

Launched in December 2011

Parts of the OECD study

1 2 3 4 4 Created in 1999 by Eurada with the support of European Commission 2 Not for profit organization based in Brussels 3 Members in 35 countries 4 4 + 100 members (BANs, Federations…) …and growing

COMMON OBSTACLES IN EARLY STAGE FUNDING IPO Capital Needs Venture Capital Funds Equity Gap Higher Risk Early stage and seed venture funds Business Angels Investment Readiness Friends, Family , Founders & State ! Lower Risk This is not linear today – the equity gap is expanding and there are several gaps in the chain Time Seed Start-up Early Growth Sustained Growth

Business Angel’s value chain Source: EBAN RESEARCH COMMITTEE

INVESTMENT CYCLE Assessing investment opportunities Investment Manage portfolio of investments Re-investments Exits

A VERY COMPETITIVE PROCESS 100 Deals Business Plans received Pre-screening Screening Terms Sheet Due diligence 1-5 Investments Investment

There are good revenues Revenues almost zero There are good revenues Veal Cow Cow Milk Veal turns into Cow Cow produces Milk Buckets

WHAT ANGELS DON’T LIKE

Meeting with Investors I am the BEST! I want a salary of 15.000 euros+ car + unlimited credit card + 25% of the profits of the company I can’t tell much about my project because you can steal the idea and the project ! I didn’t test the idea because the potential clients could steal the idea and the project ! I want to have the majority of the equity to control the company ! I thought in 90% of the shares ! The total investment is 500.000 euros, and I will put 5.000 euros… I have all the skills to manage this company, so I do not need anybody in the Board ! There is no competition. This technology is unique.

Scott talking with Investors

Scott´s conclusion I have to emigrate! The government grants, co-investments funds , venture capital…is just for government’s friends. There are no Business Angels and Venture Capitalists in Europe ! The politicians speak a lot but do nothing ! The Risk Investors do not want Risk …. These investors made me lose time and money. They will regret not to have invested ! In Europe we are 20 years behind the US in terms of BA and VC !

Number of BANs* in Europe Slide content 297 286 data collected *BAN – Business Angel Network/Group

Amount invested: Size of Visible/ Invisible Market 2011 2012 4.745 M€ 5086 M€ 508 M€ 427M€ Visible Market 9% 10%

Number of BAs* in BANs 2011 2012 241.444 261.054 “formal” market 21.730 26.105 “formal” market 9% 10% *BAs who made at least 1 investment in the past 3 years.

SAMPLE OF CURRENT ACTIVITY Sectors of Investment SAMPLE OF CURRENT ACTIVITY Source: EBAN Statistics Compendium OK

Visible market by country

Visible market growth/ decline (amount invested) 838% 250% 175% 116%

Average investment amount by BANs in 2012 (k€) 7100 Average = 1,1M€

Impact in the economy, just in the year of investment (2012) Enterprises Financed (2.900) Jobs Created (17.700)

Some Angel investments in Europe Michelson Diagnostics

Thanks paulo.andrez@dnacascais.pt paulo.andrez@eban.org “The whole entrepreneurial thing is that you kind of jump off a cliff and assemble your airplane on the way down. ”, Reid Hoffman – LinkedIn founder