Prezentace Silke Horák

Business Angels – Partners (not only) for financing Innovation Thursday 29.5.2008

Introduction Dr. Silke Horáková, PhD • Commercial Banking, Investment Banking (Asset Management), Project Finance, • Private Equity SME • start ups/ early stage

Foreword There is an asymmetry of information between entrepreneurs and investors It’s not only a question of access to money but also a question of life cycle of a company and about ‌ sales and market penetration Investment readiness is needed All money is not the same

Financing Cycle of a Company • • • • •

friends and family = seed capital, start-up business angels = start-up, early stage venture capital / debt = expansion, buy-outs financial markets (private & public) strategic partners

Risk/Financing Relationship Capital Needs High Risk

IPO

Low Risk

Friends, Family & Founders

Formal Venture Capital Business Angels

Angels help fill the ‘Equity Gap’

Time

0

Seed

Start-up

Early Growth

Sustained Growth

What is a Business Angel?

Business Angel =Private individual investing own wealth in early stage businesses AND own expertise and network of contacts (EBAN) • Investment 25 000 - 250 000 euro • Willing to share their managerial skills, specialist knowledge and networks • No sector preference • Often prefer to invest in their region of residence • Seeking profit, but also fun • Usually total investments below 25% of wealth

What “sort”of Business Angel?

Motivation Drivers…

Guardian angel Archangel

Entrepreneur angel

Lotto investor “job-seeker”

Tax driven investor Wealth maximising angel

Serial lead investor Virgin angel Love money

Passive portfolio builder

Role of the Angel Investor • Partner for discussions – strategy/ business model/ know how • Contacts • Financial control • Exit

Investment Strategy • 1-5 investments you want to get heavily involved (hands on) • Portfolio investment (hands off) • One sector or a spread of sectors • High tech/low tech? how “green“ are you?

• One stage or a spread of stages • Local or national or even international?

• Co-investors? (VC, BA, experts) • Deal Structure/Instruments/ How to earn money?

“Attractive” Investments • Innovative business idea/Unique position on the market (Seed- or start up phase) • Developed product / service with sales • Current & comprehensive Business Plan • High growth / scaleable / strong business forecast • Angel involvement welcome • Realistic pre-money value • Strong committed management team !!!

How to approach a partnership with an BA? Perspective of Investor • Create a relationship, confidence – investment in people, convince with your personality (complementary team) • Perfect knowledge of your business, market and your competition • Have a vision (and ideas how to get there) • Demonstrate your business model and a clear competitive advantage • Be either 50% cheaper or 50% better • Be open to advice • Valuation !!

Valuation – a critical issue • Major problem: high degree of uncertainty • Use of “classical valuation techniques”? (Pay back period, NPV, IRR) - quality of data • Exit multiples • How to take into account different views of entrepreneur and investor?

How to find Angel Investors in the Czech Republic • business angel networks (www.aia.cz,www.bids.cz (BANET),www.bacz.cz, www.ceag.cz) • small business consultants • CzechInvest Financni fora, Investicni fora • EBAN/Easy Project

Economic Importance of BA Investments Originally from US: 250.000 business angels invested in 2005 an overall amount of 24 billion US$ Finance ca. 60% of all American Technology Start-up’s Europe: estimate 2006:

50.000/75.000 angels investors 2-3 billionâ‚Ź invested (10% of the American BA activities)*

* According to EBAN (European Angel Network) estimates

Sector distribution - UK experience Deal size typically under £250,000, but can be upto £1m median investment per angel is £25,000*

About 20.000 BA, of which are c.7.000 organized in 50 BA networks

A typical network over the last 3 years Sector

Volume

Telecommunications

1

Media & Communications/films

11

Agriculture & distribution technology & industrials

5

Software for businesses /other business services

10

Consumer software & leisure & tourism

8

Pharma & healthcare

2

TOTAL

37

£5.6m: 201 investments by 100-150 angels

Germany • About 1000 investors organized in BA networks holding 3,8 investments in average* • Average investment size EUR 100.000*(high variation), giving an overall financing volume of about EUR 400million (compared to the new “Hightech-Founders Fund” of the government amounting to EUR 262million) • *Estimates according to BAND (German Angel Networks Org.)

Trends in Angel Investments • IT, internet services, biotechnology, medical technology, ecology • CR: much larger range, services in particular

GRISOFT - A Czech Success Story AVG Anti-Virus/Firewall/Anti –spyware Today: one of the fastest growing IT companies in the world 40 million users worldwide History: Founded in 1991 by two Czech entrepreneurs 1992: start of AVG sales (CZK 2,3m annual sales) 1997/1998: expansion to Germany, GB, US 2001: company acquisition by group of BA under leadership of Benson Oak Capital 2006: sale of majority stake (65%) of the company to Enterprise Investors/Intel for USD 52m 2006: acquisition of ewido networks (anti spy-ware) 2006 annual sales: about CZK 1.000m

How to encourage BA investments?

• Promote a general entrepreneurial atmosphere • Investment Readiness programmes –get entrepreneurs ready for investments (business planning advise, coaching, structured/unstructered training)

• • • •

Investors Readiness programmes – educate investors Syndication/BA networks Co-investment funds/seed capital funds Fiscal incentives (capital gain or loss exemption from tax, equity guarantees)

EBAN statistics 2007 • Study based on 117 responses from a total of 234 networks(excl. Russia, Turkey, Israel) in Europe (activities in 2006) • • • • •

Number of networks (mid-2006): 234 Number of angels active in the networks: 10.331 Number of projects received: 13.189 Number of deals done: 843 Average amount of the deal: EUR 177.311

Number of BA Networks in Europe (1999-2005) Country Czech R. Denmark France Germany Hungary Italy Spain Sweden Switzerl.

NL UK Europe Transn.

1999 0 0 4 1 0 2 0 1 1 1 49 66 0

2000

2001

2002

2003

2004

2005

2006

2007

0 1 13 43 0 5 1 2 3 1 52 132 0

0 4 32 36 0 12 1 2 3 2 48 155 0

1 6 48 40 0 11 2 2 2 2 48 177 0

1 8 48 40 0 10 3 93 3 3 51 197 0

2 8 40 40 1 12 11 28 7 3 51 230 1

2 8 38 43 1 12 20 28 7 5 35 227 1

2 7 35 41 1 11 21 23 7 4 34 211 3

1 7 41 38 2 10 33 21 6 5 36 243 4

Historical Trends (all figures based on responding networks only) Angels 1996 470

1997 742

1999 1487

2001 3129

2002 4347

2003 13218

2004 12773

2005 8227

2006 10331

1997 769

1999 872

2001 10248

2002 11333

2003 10951

2004 12415

2005 n.a.

2006 13189

1997 281

1999 320

2001 454

2002 573

2003 300

2004 580

2005 653

2006 843

Projects 1996 545 Deals 1996 42

Qualitative Aspects - main reasons for project rejection (1) (67 networks answered)

Two outstanding reasons : • Problems related to the management team (47 answers) • Weak business model/no clear Unique Selling Point (USP) (48 answers)

Qualitative Aspects - main reasons for project rejection (2) Other important factors included: • Weak business plan (14 answers) • Issues with the pre-money valuation (14 answers) (70% over-valued) • The project does not belong to the target group/sector of the investor (s) (18 answers) • The stage of development is too early or too advanced (12 answers) • Lack of investment readiness (9 answers) • Capital needs exceed funding capacity of the business angels (5 answers) • Too short time to investment, too high risk (5 answers) •

The rest of the answers (from 1 to 4 answers) included the following perceived pitfalls: lack of strategy, not in the regional focus, lack of availability of the investors, lack of financial commitment from the founders, inability to scale the business, communication weaknesses.

Sectors of investments (2006) (52 networks responded)