2. Since 1998 Start Up’s & Early Stage Finance Specialist Advisors up to £5 Million Disposals/Buy-Outs/Buy-Ins and Growth Capital Members of the Regional Finance Forum Member of the Bham/Solihull LEP Board Investment Readiness Help Preparing Business Plans Equity/Debt/Grants/Business Support

3. Topics for Today Business Angel Investments Why would someone consider a Business Angel Investment? How does a Business Angel Investment typically work? What is the role of the Business Angel Networks (“BAN’s”) in the West Midlands? How would a potential investor get involved?

4. What is a Business Angel Investment? “A business angel is an individual, acting alone or in a formal or informal syndicate, who invests their own money directly in unquoted businesses in which there is no family connection in the hope of financial gain and who, after making the investment, takes an active involvement in the business, for example, as mentor, adviser or member of the board. Where an investment involves a group of angels then only one of the investors may play this active role. As such, business angels are distinctive from friends and family, so- called ‘love money’, which is generally not invested for commercial gain or adds value.” Source: Mason & Harrison Report June 2010

5. Business Angel Investments Some Examples? Apple – Mike Markkula - Investment $91k – Exit $154m Amazon – Thomas Alberg – Investment $100k – Exit $26m Blue Rhino – Andrew Filipowsky – Investment $500k – Exit $24m Lifeminders – Frans Kok – Investment $100k – Exit $3m Body Shop – Ian McGlinee – Investment £4k – Exit £42m MI Laboratories – Kevin Lich – Investment £50k – Exit £71m Matvon – Ian Semenenko – Investment £15k – Exit £2.5m

6. Why should someone consider Business Angel Investments? Financial Return is the ONLY Reason Not Tax Relief Not Altruism Not “Love Money” Not Boredom Not a Job!

7. Business Angel Investment Returns USA Study – Nov 2007 539 Angels 1137 Exits (Acquired or Floated) 52% Failed 7% Achieved more than 10x Average Return 2.6x in 3.5 Years 27% IRR Source: Returns to Angel Investors: Willbank Boeker: Nov 2007

8. Business Angel Investment Returns UK Study – May 2009 158 UK Based Angels £134 million into 1080 Investments 406 Exits (Acquired or Floated) 56% Failed 9% Achieved more than 10x Average Return 2.2x in 4 Years 22% IRR Source: Siding with the Angels: Nesta/BBAA: May 2009

9. Lessons Learned USA Study – Nov 2007 Due Diligence Matters More Hours = Positive Returns Experience Matters Experience in Sector = Better Returns Participation Matters Coach, Provide Leads, Monitor Performance = Greater Returns Source: Returns to Angel Investors: Willbank Boeker: Nov 2007

10. Lessons Learned UK Study – May 2009 Business Angel investment is risky but overall appears to generate attractive outcomes. Key Strategic choices are significantly related to better investment choices. Tax incentives appear to have a material effect on encouraging Business Angel investment. Source: Siding with the Angels: Nesta/BBAA: May 2009

11. Key Strategic Choices UK Study – May 2009 Angels with entrepreneurial experience perform better than others. Angels with specific sector/industry experience faired better. Angels who performed some due diligence (average 20 hours) performed better. Some post investment involvement improves outcome...... but Angels taking a management role does not. Source: Siding with the Angels: Nesta/BBAA: May 2009

12. Tax Incentives Work UK Study – May 2009 80% of investments made use of EIS 24% of investments would NOT have taken place without tax incentives On average it takes 3 years for an investment to fail but 6 years for it to succeed. Source: Siding with the Angels: Nesta/BBAA: May 2009

13. How does a Business Angel investment typically work? Surprisingly few studies The role of the Business Angel Networks (BAN’s) The role of Syndicates The role of Co-Investment Funds The Investment Process Investment Protection

14. Surprisingly Few Studies? 1 st Annual Report on the Business Angel Market 2008/09 - Published June 2010 233 Businesses raised £44.9 million 590 investors participated Average amount invested was £192k 69% Early Stage (45% Pre-Revenue) Average investor acquired 8% stake in venture 10% of investors acquired a stake of 20% + 90% of investments within 250km

15. 2 nd Annual Report on the Business Angel Market 2009/10 - Published May 2011 238 Businesses raised £42.3 million 517 investors participated Average amount invested was £177k 61% Early Stage (42% Pre-Revenue) Average investor acquired 11% stake in venture 10% of investors acquired a stake of 20% + 84% of investments within 250km

16. The Role of the Business Angel Networks (BAN’s) What is a BAN?..... a sort of dating agency 22 Official BAN’s in the UK (4 in the West Midlands) Numerous Private Clubs and On-Line Networks 4 BAN’s offer National Coverage 20 BAN’s contributed to 2008/09 Report 4,555 Registered Business Angels Only 3.7% are women! Turnover is high – 859 joined and 228 left during 2009/10.

17. The Role of Syndicates? What is a Syndicate?...... Formal/Informal 2/3rds of investments involve more than one Angel 20% of investments involve 5+ Angels 50% of Business Angels participate in a Syndicate 25% of Business Angels only invest as part of a Syndicate. Key Role of the Lead Investor Share Risk, Share Due Diligence, Share Return Portfolio Investment Opportunity

18. The Role of Co-Investment Funds? What is a Co-Investment Fund? Public/Private Contribution to Fund Professional Fund Managers Shared Risk Lead Investor Role – Investment Documents Important to know their rules of Investment Geographic Limits Sector Preferences West Midlands and National

19. The Investment Process Review Business Plan Investor Presentation/Meetings Offer........subject to due diligence Due diligence EIS (SEIS) application Investment documents prepared (Investor Protection) Completion Post completion involvement (maybe Non-Exec)

20. Investment Protection Investment Documents Articles of Association/Investment Agreement Minority Protection Pre-Emption Rights Restricted Activity List Voting Rights.......Drag/Tag etc. Dividend Rights Again............Key Role of the Lead Investor (or....CFA)

21. What is the role of the Business Angel Networks (“BAN’s”) in the West Midlands? West Midlands is served by 4 Active BAN’s Advantage Business Angels (ABA) Beer & Partners Central England Business Angels (CEBA) Minerva Also ThinCats.Com All members of BBAA FSA Approved

22. West Midlands BANs? www.abangels.com www.cebangels.com www.beerandpartners.com www.minerva.uk.net www.thincats.com

23. How do West Midland BAN’s work? Most (but not all) charge prospective investees some sort of joining fee (£300 to £1500). All operate some sort of “investment readiness” programme for prospective investees. All operate some sort of “matching” service All arrange/host investor presentations All operate/manage investment syndicates All charge investees some sort of success fee based upon funds raised (5% to 7.5%) Some take an “equity kicker” option

24. LEP Engagement in Business Angel Activity? Angels in the City Angel Co-Investment Fund - www.angelcofund.co.uk Wealth Management Challenge GINEM Model being developed..................Watch this Space for News

25. Summary/Trends in Business Angel Investment? Business Angel investment is important to early stage and start-up ventures and set to become even more important. Portfolio investment approach Increasingly popular (UK Wide) Tax Breaks look set to continue Business Angel Loans – Emerging Market The “Dragons Den” Effect

26. Paul Heaven Blue Sky Corporate Finance Ltd paul@blueskycf.com 0845 258 3759 07799 416416