Slides presented during #ISVwebinar n°2, 19 September 2016.

1. Business Angels and their role for startups
Paolo ANSELMO – IBAN President
September 19th, 2014
www.iban.it

2. <<Entrepreneurship is the dynamic process of creating incremental wealth.
The wealth is created by individuals who assume the major risks in terms of
equity, time and/or career commitment and provide value for some product or
service.
The product or service may or may not be new or unique but value must
somehow be infused by the entrepreneur by receiving the necessary skills and
resources>>
Virtanen, 1997
Entrepreneurship: a definition

3. One of the major challenge confronting SMEs (which make up for
98% of enterprises in Europe) is getting access to financial
resources, particularly in their seed, startup, and growth phases.
Not least as they are often considered as a high-risk investment,
with potentially low returns which only materialise in the medium to
long term.
Access to financial resources

4. • Own founder money
• LOVE money (family & friends)
• Bank loans & overdrafts (with or without guarantees)
• Public grants & micro credits (local/national government)
• INFORMAL INVESTMENT - BUSINESS ANGELS (SMALL EQUITY)
• Venture capital or Corporate venturing (larger equity)
• Public shares issue (equity, IPO – Initial Public Offering)
There are several possibilities of financing a company
EQUITY and/or DEBT
Funding options for an entrepreneur

5. • Business Finance is dominated by major banks
• Finance provided to entrepreneurs is predominantly debt finance
• EU Banking for small/new businesses is treated as retail
• There are gaps in the “package” of support (growing or new firms)
• SME’s market segment seen as high risk with high transaction costs
• Debt finance usually requires some form of security or collateral (intangible assets are
not security)
• European Angel market (solo BA, syndications and networks) still immature and
oriented to small investment
Current European Union situation
Entrepreneurs & investors
The “traditional” finance gap

6. The Funding Gap
Pre-seed
Stage
Seed/Startup
Stage
FUNDING
GAP
Early
Stage
Later
Stages
3 F
Founders
Family &
Friends
(or Fools)
Angel Investors
(or Clubs)
Very few
angel deals
done above
€ 0,5 M
Very few VC
deals done
below € 1 M
Venture
Capitalists
€0 €100 K €0,5 M €1 M €5 M up

7. PROs
– No cost of interest and no
fixed repayment schedule
– Stronger financial
position
– Reduced financial
pressure
– Access to professional
network and coaching
Cons
– Loss of management/
ownership control
– Request for a strong
financial discipline
– Influence on management
and strategic decisions
– Exit route (for investor) to be
prepared
Equity Providers

8. VC
– Easy to find via directories.
– Your request is only 1 among
many hundreds a VC receives.
– Can often provide large
investment, e.g. via
syndication.
– Thorough and formal due
diligence and investment
process.
– Exit route very important.
BA
– Difficult to find.
– Request often a strong
personal involvement.
– Limited amount to invest
– Investment decisions often
quick and less formal.
– Syndication more and more
usual.
– Exit route less in focus
Venture Capital Vs Business Angels

9. “A Business Angel is a middle aged male with reasonable net income, personal net
worth, previous start up experience, who makes one investment a year, usually
close to home or office, prefers to invest in high technology and manufacturing
ventures with an expectation to sell out in three to five years time” (Kelly and Hay,
1996)
”Business angels (informal investors, independent investors) are investors who
provide risk capital directly to new and growing businesses in which they have no
prior connection” (Harrison and Mason, 1996)
Business Angels - definition

10. Business Angel: private individual investing own wealth in early stage
businesses PLUS own expertise and network of contacts
• Investment 25.000 – 250.000 Euro
• Equity investors
• Willing to share managerial skills, specialist knowledge and networks
• No sector preference
• Often prefer to invest in their region of residence – local investors
• Seeking profit, but also fun and adventure
• Usually total investments below 25% of wealth
• Can become involved in the business management (“active Angel”) or not
(“passive Angel”).
Business Angels - Identikit

11. Venture Capitalists: MAKE MONEY !
Angels are a blend of the following:
 Return on Investment
 Staying involved (high sense of usefulness)
 Give back (social approach)
 Affection for Start-Uppers
Motivation: Risk and Rewards

12. • Board of Directors (non executive director)
• Advisor, mentor, coach
– Of CEO, of management team
• Step in during crisis (temporary), IF
• Assist in raising additional money
– Another Angel round
– VC money
• Tee up the company for the exit
Angel Roles in Portfolio Companies

13. • 5-10% of net worth invested (asset allocation approach)
• 8-15 investments (risk diversification)
• High tech, low tech, no tech (your choice)
• Variety of involvements
– Lead investor
– Board, advisor
– Passive
• Most of ROI from 1 - 2 of 10 companies
An Angel Portfolio Strategy
Portfolio Considerations

14. What a Business Angel is looking for
• A compelling and sustainable business plan
• A strong and engaged management team
• High growth, scalability, strong financial projections
• Prototype/Product/Service readiness
• Operational involvement of the Angel investor
• Adequate and objective pre-money valuation
Perceived return
Perceived risk
High
Low
Medium
Low Medium High
Banks
Friends&Family
Entrepreneur
Nasdaq
S&P500
Business Angels
Venture Capital
Investors
An Angel Portfolio Strategy
What a Business Angel is looking for

15. • VCs exit in 3-5 years (assume 5)
• Angels invest earlier and expect to exit in 5-7 years (average
assume 7)
• A balanced angel portfolio contains ten companies
• Consequently, angels should invest in 2-3 companies per year
– Build to ten company portfolio gradually
– A portfolio of companies in all stages of development
– Good balance for investors time and management
commitment
An Angel Portfolio Strategy
Integration Exits into Portfolio Strategy

16. 16
Investor’s key drivers
Industry Sector Market growth
potential
Exit Strategy
Expected
revenues/return
Management
team
Product/Service
uniqueness
Managerial
support
Fiscal purposes
Special driver -> startup a «vocazione sociale», a company operating in the following sectors: educational, cultural services,
renewable energy, etc. - according to the Italian legislation.
An Angel Selection Strategy
Investor’s key drivers

17. 0-30%
0-25%
0-15%
0-10%
0-10%
0 - 5%
0 - 5%
Management team
Size of opportunity
Product & Technology
Sales channels
Competitive advantage
Size of this round
Need for more funding
An Angel Selection Strategy
Angel Rating System

18. Elevator Pitch
2 minutes verbal summary:
Product, opportunity, differentiation
Attract interest – not closing
Executive Summary
2-4 pages written summary
Balanced presentation
Attract interest – not closing
PowerPoint
20 minute verbal presentation
Cover whole business plan
Find serious investors
Full Business Plan
(write full BP first)
20-50 pages plus appendices
Validation scorecard (due diligence)
Basis for all other plan forms
An Angel Selection Strategy
Angel Toolkit

19. What can stop a positive closing of an
investment deal
• Initial screening and meetings
 Entrepreneur(s) expectations on start-up value too high;
 Limited growth potential;
 Lack of affinity between proposer and investor.
• Business plan analysis
 un-consistent market projections, lack of data, weak management team
• Letter of intent
 Not acceptable valuation/exclusivity terms; IRR/ROI too you
• Technical, legal and financial diligence
 Poor IPR, generic financial planning, cash flow burn rate, etc.
• Negotiation on pre- and post-money valuation, equity %
• Closing
An Angel Selection Strategy
What can stop a positive closing of an investment deal

20. IBAN Association
Our Network to sustain Informal Venture Capital Market
FINANCING
INSTITUTIONS
NATIONAL AND
INTERNATIONAL
PARTNERS
BUSINESS
ANGELS
SERVICES TO
SME’s
TECHNOLOGY
CENTRES
IBAN
Over the years IBAN has created a
strong "relationship network" that
provides a common factor to the skills
and experiences of many organizations
and operators in the sector, covering
the entire "value chain" of "early
stage” phase of SME’s.
In this way IBAN can effectively
support the start-up in the process of
growth and value creation.
The Association IBAN is the institution that understands and represents the
Italian community of the informal venture capital investors.

21. IBAN Association
Objectives reached in more than 15 years of business
1. Improvement of European best practices, through close collaboration between IBAN
and the other partners of BAE
2. The role of business angels, as an economic operator, continues to grow:
• sharp increase in the number of deals closed in the last 5 years
• recognition of the importance of BA in the financial market
3. The Italian government has approved the tax exemption on capital gains on Angel
Investing (Law 133/08, article 3)
4. During 2012 the Association IBAN has been approached both by Banca d’Italia and by
the Ministry of Economic Development with regard to measures to support the
sector (Law 221, 17 december 2012).

22. 4.4. Italian BA Profile
BA's personal profile from a recent Survey
IBAN Association
Business Angels &
professionals
B.A.N. - regional
operating area and
focus on cross-
sector businesses
B.A.N. -
national/international
operating area ad focus
on cross-sector
businesses
Angel Investors
Club
IBAN Association
Network structure
IBAN has close relationships with leading Italian law firms and fiscal&tax advisors. Thanks to
this, IBAN members are entitled to access detailed information on Angel Investing and on legal
and fiscal news related to risk capital investing, as well as an operating guide on main
contractual obligations and terms that Entrepreneurs and Investors have to agree upon, in
preparation to the closing of the deal.

23. 4.4. Italian BA Profile
BA's personal profile from a recent Survey
IBAN Association
Network structure – BAN Bologna
Example of B.A.N. - regional operating area and focus on cross-sector businesses
• BAN Bologna is a Local Association network founded in 2001 as a
result of the cooperation between different kind of Public
Authorities and Associations acting in the Bolognese area and since
then it is a member of IBAN.
• The business angels network aims to support the development of
start-up and early stage enterprises through innovative financial
instruments and mentoring activities.
• Sensitize the territory on the culture of venture capital by
organizing seminars, conferences, workshops, events, and
Investment Forum to facilitate meetings between new businesses
and / or project business proposers and BAs (informal investors).
• Promote the economic development of the province of Bologna
and the Emilia-Romagna region, with particular attention to the
introduction of innovation in SMEs.

24. 11.556
18.700
31.100 31.460
33.334
34.847
33.800
31.857
0
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
Value of Investments (mln €)
2006 2007 2008 2009 2010 2011 2012 2013
Source: IBAN, Survey 2013
The Italian Market of informal venture capital is consolidated in a range of 30 - 35 mln €
Business Angels’ Investments
Value of Investments

25. Source: Iban, Survey 2013
Business Angels’ Investments (3/4)
Number of investment by sector
Business Angels’ Investments
Value of Investments

26. Source: Iban, Survey 2013
• The typical Italian BA is a 40-50 years old man, he has a high educational degree
(82,7%) who mainly lives in Northern Italy.
• Generally is an entrepreneur with past experience as a manager, declare assets lower
than € 2 mln and invests 10% of its available “cash” assets in the angel investing
market.
Business Angels’ identikit
Characteristics and investment behavior

27. www.iban.it
Via Ampère, 61/A
20131 Milan – Italy
Tel. +39 02 30.51.60.49
Fax +39 02 30.51.60
segreteria@iban.it
Paolo Anselmo - IBAN President
presidenza@iban.it
Member of: