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Understanding and Making the Most Understanding and Making the Most of Business Angelsof Business Angels
2929thth August 2006August 2006
Professor Alan BarrellProfessor Alan Barrell
TallinTallin CONNECT SeminarCONNECT Seminar
Stay Cool!Stay Cool!
Dilbert - Scott Adams
Stay Cool!Stay Cool!
Dilbert - Scott Adams
Stay Cool!Stay Cool!
Dilbert - Scott Adams
Venture Capital Investments in E-Commerce (U.S.A.)
Source: Venture Economics
Amazon.com IPOAmazon.com IPONetscape IPONetscape IPO33rdrd largest inlargest in
NasdaqNasdaq HistoryHistory
0
100
200
300
400
500
600
94 95 96 97 98 99
Num
ber
of C
ompa
nies
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Tota
l Inv
este
d ($
mill
ion)
Number of Companies Total Invested
Building Tomorrow’s Businesses –Culture, Mindset and The Columbus Spirit
My ‘3i s’
• Inspiration• Invention• Implementation
So remember -the Columbus Spirit?
“You look at things and ask - why?
but I dream of things that never
were and ask -
George Bernard Shaw
why not?”
Mind of an Entrepreneur
Joseph Schumpeter (1911)
“Entrepreneurs blow gales of creative destruction.”
Role of the entrepreneur in transforming economies by developing:
• New products• New methods of production• New ways of organizing• Untapped raw materials• Enhanced competitive performance
Financing Tomorrow’s Businesses
Where to go for early stage money –there is plenty of it around !
2
� Corporate Venturers
� Family and friends
� The local Pub
� Business Angels
� The Bank
� Government Grants
� Seed Funds
� Venture Capitalists
Sources Of Business Finance
Maturity
Ris
k
“Our Money”“Our Money”
Family and FriendsFamily and Friends
Business AngelsBusiness Angels
Early Stage VCEarly Stage VC
Expansion CapitalExpansion Capital
BANK
FINANCE??
Seed FundsSeed Funds
Pre-IPOPre-IPO
1) “Our Money” - Our decisions - no strings
2) Family and Friends - Few strings, great faiths
3) Business Angels - Money “plus” - use my expertise
4) Seed Funds - Support proof of principle
5) Early Stage - Management support - experience
6) Expansion - Lower level of support - but experience of business development
7) Pre-IPO - Opportunistic
8) Banks - Not risk takers – can be helpful
Sources Of Business Finance
Stages Of Investment (1)
3. Early stageCompanies that have completed the “proof of principle”, own some IPR, have a management team substantially in place, requiring funds for manufacturing and/or licensing, and sales
1. SeedDeveloping IPR, unlikely to have full time employees, and may well have no business premises. Working on “proof of principle”
2. Start upCompanies in the process of being set up, with limited trading. Involved in product development and initial marketing
Stages Of Investment (2)
4. ExpansionEstablished companies, with a full management team and generating sales, and require further finance to break into new markets. The definition “Expansion” often creates confusion
6. Later stageMany variants – M and A, MBO, MBI etc.
5. Pre IPOFinal round prior to a listing on a recognised Stock Exchange. Can be referred to as “Expansion” funding
Thinking Of Angels!
Finding Your Angels
• Networking, Networking, Networking!• Research and Knowledge• Investment Criteria• Lone or “Choirs” of Angels• Angel Connections and Expertise• Personal Chemistry• Active or Passive• Track Record and Referrals
How do we IMPRESS our Angels?• Very clear Business Model and Plan• “Show me the MONEY”• Clarity and attractiveness of Presentation• Integrity• Answers to Questions• Asking the right Questions• Believable People and Teams• Ideas on building a coherent Board – including
Investor Directors
Engaging The Funders• Preparing the case - how to start -”Do we need help ?” -
Intermediaries-Corporate Finance.
• Is the Business Model Clear?
• Keep Business Plans Simple!
• Targeting funders - Investors have specific criteria
• ?Angels, Banks, Seed Fund, Corporates or VCs – or a “mix”
• Matching agendas
• Sponsors for spin-outs
• Organisations and people - the forward plan
Great Eastern Investment Forum
4
� Started in April 1994
� Membership of 500 plus
� Three presentation days a year - 8 companies at a time. Also publishes “Link-Up” and “online” at www.geif.co.uk
� 1,000- plus companies seen. 250 plus presented.“Hit rate” of 40%
� Total funds raised is £50 million
� Govt. money augments Angel Money – Small Business Growth Fund – and EnterprisheChallenge Fund
Other Cambridge Angels
• Cambridge Angels- Very High Net Worth ( HNWIs ) - Dining Club Format Each Group is approx 40- Little Formal Structure members – No fund -- “Heavy Hitters” Individual investment
decisions.• Cambridge Capital Group
- “Distant Angels”- “Absent Angels”- “Passive Angels”
Financing Tomorrow’s Businesses-including spin-outs – Angel Virtues• Technical Expertise • Marketing Expertise• Contacts• Decision Making skills• Presentation skills• Dealmaking skills• Money-raising skills• Other Financial skills• Possible exit routes and practical help with exit
7
What else you get
from Business
Angels….
US Angels – The REAL early stage funders !
• In 2000 US business Angels invested more than $200billions in early stage companies
• This was much more than the so called “venture capital industry” which did not reach investment levels that year of $150 billions.
• In the difficult year of 2002 – when VCS “sat on hands” – Cambridge Angels kept the early stage and emerging business sector alive and well
• Cambridge Angels are adopting the US success model and working more closely together.
“Show Me The Money!”• Basics – Investment Readiness• How organised are we ?• Company structure ?• Management Team?• Intellectual Property?• Vision, Purpose,Plans and Positioning Ideas?• Advisors ? “Greyhairs and Wisdom” ? Basics – eg
Accounts and Controls ?• “Rumsfeld Questions” – “What we DON’T know?”
• Understanding the “Money Supply Chain”• Research and Help – and where to find it• What’s Best for Our Business ?• “Money on its own may not bring the Value you need”• Friends, Banks, “Angels”, VCs et al.• Grants – including DTI R & D Grants• Resourcefulness, Resilience and Recovery”• Learning from encounters with investors• Attention to detail – “nitty gritty”• Understanding how Angels may ( or may not ) work with
later investors – such as VCs
“Show Me The Money!”
Financing Tomorrow’s Businesses-including spin-outs
• Technical Expertise • Marketing Expertise• Contacts• Decision Making skills• Presentation skills• Dealmaking skills• Money-raising skills• Other Financial skills• Possible exit routes and practical help with exit
7
What else you get
from Business
Angels….
• Investors due diligence agenda:-– Technology and I.P.– Market - is it really there?– People - can they do it?– Exit options and drive
• Due Diligence on Investors:-– Investment criteria– Track record– People, relationships, references– Clarity of expectations– Available finance - including “follow on”– Willingness to syndicate and to participate
Due Diligence is a two way thing:
Structuring The Deal
• Selecting advisors• Aligning Shareholders/Investors• Offers and Agreements• Leaving space for future financing
rounds• Business strategy and Exit options• Valuation
Valuation – how and why
• To indicate value to potential investors
• What is a company worth?- What someone will pay for it
• What is this determined by?- Other investment choices
A Search for Fair Value
£ -£130 million
Feb 2000Just2clicks
£52 million
£212 million
June 2000Orchestream
£54 million
£571 million
March 2000
Lastminute.com
£231 million
£1.2 billion
April 2000Bookham
1 Year OnOn issue Issue date
Case Study: Antenova– a funding fable
• Disruptive technology which could change the world –from University collaboration
• Outstanding management – technical and operations• Inexperienced in fundraising• Valuation obsession• Where has all the money gone?• Salvation, adequate funding and continued progress
Show Inspiration!Investors have emotions!
“Excellence can be achieved, if we:Care more than others think is wise,Risk more than others think is safe,
Dream more than others think is practical,Expect more than others think is possible.”
Deborah Johnson-Ross
In In Pursuit of Excellence !of Excellence !“Excellence can be achieved, if we:Care more than others think is wise,Risk more than others think is safe,
Dream more than others think is practical,Expect more than others think is possible.”
Deborah Johnson-Ross
