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

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

3. 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

4. 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

5. Risk/Financing Relationship
Capital Needs
IPO
High Low
Risk Risk Formal
Venture
Capital Angels help
Business fill the
Angels
Friends, ‘Equity Gap’
Family &
Founders
Time
0
Seed Start-up Early Growth Sustained Growth

6. 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

7. What “sort”of Business Angel?
Motivation Drivers…
Entrepreneur angel Lotto investor
Guardian angel
“job-seeker”
Tax driven investor
Archangel
Wealth maximising angel
Serial lead investor Virgin angel
Passive portfolio builder
Love money

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

9. 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?

10. “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 !!!

11. 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 !!

12. 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?

13. 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

14. 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 billion€ invested (10% of the American BA activities)*
* According to EBAN (European Angel Network) estimates

15. 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 £5.6m:
Media & Communications/films 11 201
Agriculture & distribution technology & 5 investments
industrials by
Software for businesses 10 100-150
/other business services angels
Consumer software & leisure & tourism 8
Pharma & healthcare 2
TOTAL 37

16. 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.)

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

18. 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

19. 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)

20. 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

21. Number of BA Networks in Europe
(1999-2005)
Country 1999 2000 2001 2002 2003 2004 2005 2006 2007
Czech R. 0 0 0 1 1 2 2 2 1
Denmark 0 1 4 6 8 8 8 7 7
France 4 13 32 48 48 40 38 35 41
Germany 1 43 36 40 40 40 43 41 38
Hungary 0 0 0 0 0 1 1 1 2
Italy 2 5 12 11 10 12 12 11 10
Spain 0 1 1 2 3 11 20 21 33
Sweden 1 2 2 2 93 28 28 23 21
Switzerl. 1 3 3 2 3 7 7 7 6
NL 1 1 2 2 3 3 5 4 5
UK 49 52 48 48 51 51 35 34 36
Europe 66 132 155 177 197 230 227 211 243
Transn. 0 0 0 0 0 1 1 3 4

22. Historical Trends
(all figures based on responding networks only)
Angels
1996 1997 1999 2001 2002 2003 2004 2005 2006
470 742 1487 3129 4347 13218 12773 8227 10331
Projects
1996 1997 1999 2001 2002 2003 2004 2005 2006
545 769 872 10248 11333 10951 12415 n.a. 13189
Deals
1996 1997 1999 2001 2002 2003 2004 2005 2006
42 281 320 454 573 300 580 653 843

23. 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)

24. 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.

25. Sectors of investments (2006)
(52 networks responded)