since 1998 start up’s & early stage finance specialist advisors up to £5 million...
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Business Angel Investing
Paul HeavenBlue Sky Corporate Finance Ltd
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
Blue Sky Corporate Finance
Topics for TodayBusiness 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?
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
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
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!
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
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% IRRSource: Siding with the Angels: Nesta/BBAA: May 2009
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
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
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
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
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
Surprisingly Few Studies?1st 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
2nd 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
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.
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
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
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)
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)
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
West Midlands BANs?
www.abangels.com
www.cebangels.com
www.beerandpartners.com
www.minerva.uk.net
www.thincats.com
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
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
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
