Slides from Connect Estonia seminar CONNECT WITH THE SMART MONEY, on August 29, 2006.

1. Understanding and Making the Most
of Business Angels
29th August 2006
Professor Alan Barrell
Tallin CONNECT Seminar

3. Stay Cool!
Dilbert - Scott Adams

4. Stay Cool!
Dilbert - Scott Adams

5. Stay Cool!
Dilbert - Scott Adams

6. Venture Capital Investments in E-
Commerce (U.S.A.)
Total Invested ($ million)
Number of Companies
600 $6,000
500 $5,000
400 $4,000
300 $3,000
200 $2,000
Netscape IPO
100 3rd largest in Amazon.com IPO $1,000
Nasdaq History
0 $0
94 95 96 97 98 99
Source: Venture Economics Number of Companies Total Invested

11. Building Tomorrow’s Businesses –
Culture, Mindset and The Columbus Spirit
My ‘3i s’
• Inspiration
• Invention
• Implementation
So remember -the Columbus Spirit?

12. Mind of an Entrepreneur
“You look at things
and ask - why?
but I dream of
things that never
were and ask -
why not?”
George Bernard Shaw

14. 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

15. Financing Tomorrow’s
Businesses
Where to go for early stage money –
there is plenty of it around !
The Bank Corporate Venturers
Government Grants Family and friends
Seed Funds The local Pub
Venture Capitalists Business Angels
2

16. Sources Of Business Finance
“Our Money”
“Our Money”
B
Family and Friends
Family and Friends A
N
Business Angels
Business Angels K
Seed Funds
Seed Funds
Risk
F
I
Early Stage VC
Early Stage VC N
A
Expansion Capital
Expansion Capital
N
C
E
Pre-IPO
Pre-IPO ??
Maturity

17. Sources Of Business Finance
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

18. Stages Of Investment (1)
1. Seed
Developing IPR, unlikely to have full time employees, and may
well have no business premises. Working on “proof of
principle”
2. Start up
Companies in the process of being set up, with limited trading.
Involved in product development and initial marketing
3. Early stage
Companies 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

19. Stages Of Investment (2)
4. Expansion
Established companies, with a full management team and
generating sales, and require further finance to break into
new markets. The definition “Expansion” often creates
confusion
5. Pre IPO
Final round prior to a listing on a recognised Stock Exchange.
Can be referred to as “Expansion” funding
6. Later stage
Many variants – M and A, MBO, MBI etc.

20. Thinking Of Angels!

21. 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

22. 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

23. 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

24. Great Eastern Investment Forum
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 Enterprishe
Challenge Fund
4

25. 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”

26. Financing Tomorrow’s Businesses-
including spin-outs – Angel Virtues
• Technical Expertise
• Marketing Expertise What else you get
• Contacts from Business
• Decision Making skills
Angels….
• Presentation skills
• Dealmaking skills
• Money-raising skills
• Other Financial skills
• Possible exit routes and practical help with exit
7

27. 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.

29. “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?”

30. “Show Me The Money!”
• 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

31. Financing Tomorrow’s Businesses-
including spin-outs
• Technical Expertise
• Marketing Expertise What else you get
• Contacts from Business
• Decision Making skills
Angels….
• Presentation skills
• Dealmaking skills
• Money-raising skills
• Other Financial skills
• Possible exit routes and practical help with exit
7

32. Due Diligence is a two way thing:
• 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

33. Structuring The Deal
• Selecting advisors
• Aligning Shareholders/Investors
• Offers and Agreements
• Leaving space for future financing
rounds
• Business strategy and Exit options
• Valuation

34. 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

35. A Search for Fair Value
Issue date On issue 1 Year On
Bookham April 2000 £1.2 £231
billion million
Lastminute.c March £571 £54
om 2000 million million
Orchestream June 2000 £212 £52
million million
Just2clicks Feb 2000 £130 £-
million

36. 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

38. 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

41. In Pursuit 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

42. Be Visionary !
More information at….
Alan@alanbarrell.com
www.alanbarrell.com