Business Angel

Investments

Paul Heaven

Blue Sky Corporate Finance Ltd

Blue Sky Corporate Finance

Since 1998

Start Up’s & Early Stage Finance

Specialist Advisors up to £5 Million

Members of the Regional Finance Forum

Representative of the West Midlands BAN’s

Investment Readiness

Help Preparing Business Plans

Equity/Debt/Grants/Business Support

Topics for TodayBusiness Angel Investments

Why would someone consider 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

Why would 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 (Failures, 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 (Failures, 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 £192,634

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

25% of Angels would consider investing

abroad

The Role of the Business Angel Networks (BAN’s)

What is a BAN?..... a sort of dating agency

24 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

5500 Registered Business Angels

Only 3% are women!

Turnover is high – 1700 (31%) joined and 473 (9%) left during 2008/09.

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 application

Investment documents prepared (Investor Protection)

Completion

Post completion involvement (maybe Non-Exec)

The Investment Process1st Annual Report on the Business Angel Market

2008/09 - Published June 2010

20 of 24 BAN’s contributed to the report

Excludes Scotland (separate figures published)

8,685 Business Plans sent to BAN’s

824 Investor Presentations

233 Secured Investment

£44.9 million

Average Investment just under £200k

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

Advantage West Midlands Support

All members of BBAA

All FSA Approved

What is the role of the Business Angel Networks (“BAN’s”) in the West Midlands?

All West Midland BAN’s Offer:-

No membership fees for Investors (with some limited exceptions for syndicate membership).

Help/Training for Investors

Active Investment Syndicates

Relationships with Co-Investors

Web-Site/Email Facilities

Confidentiality

Lead Investor Help/Guidance

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

How would a potential investor get involved?

Talk to me afterwards; OR online at:-

www.abangels.com

www.cebangels.com

www.beerandpartners.com

www.minerva.uk.net

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

Beware Multiple investment rounds

Business Angel Loans – Emerging Market

The “Dragons Den” Effect

Thank YouPaul Heaven

Blue Sky Corporate Finance Ltd

2nd Floor, 3 Brindley Place

Birmingham, B1 2JB

paul@blueskycf.com0845 BLUE SKY

0845 258 3759

Views from an Angels Perspective

Chris Bayliss