1. Business Angel
Investments
Paul Heaven
Blue Sky Corporate Finance Ltd

2. Blue Sky Corporate Finance
Since 1998
Start Up’s & Early Stage Finance
Specialist Advisors up to £5 Million
Members of the Regional Finance Forum
Representative of the West Midlands BAN’s
Investment Readiness
Help Preparing Business Plans
Equity/Debt/Grants/Business Support

3. Topics for Today
Business Angel Investments
Why would someone consider Business
Angel Investment?
How does a Business Angel Investment
typically work?
What is the role of the Business Angel
Networks (“BAN’s”) in the West Midlands?
How would a potential investor get
involved?

4. What is a
Business Angel Investment?
“A business angel is an individual, acting alone or in a formal or
informal syndicate, who invests their own money directly in
unquoted businesses in which there is no family connection in the
hope of financial gain and who, after making the investment, takes
an active involvement in the business, for example, as mentor,
adviser or member of the board. Where an investment involves a
group of angels then only one of the investors may play this active
role. As such, business angels are distinctive from friends and
family, so-called ‘love money’, which is generally not invested for
commercial gain or adds value.”
Source: Mason & Harrison Report June 2010

5. Why would someone consider
Business Angel Investments?
Financial Return is the ONLY Reason
Not Tax Relief
Not Altruism
Not “Love Money”
Not Boredom
Not a Job!

6. Business Angel Investment Returns
USA Study – Nov 2007
539 Angels
1137 Exits (Failures, Acquired or Floated)
52% Failed
7% Achieved more than 10x
Average Return 2.6x in 3.5 Years
27% IRR
Source: Returns to Angel Investors: Willbank Boeker: Nov 2007

7. Business Angel Investment Returns
UK Study – May 2009
158 UK Based Angels
£134 million into 1080 Investments
406 Exits (Failures, Acquired or Floated)
56% Failed
9% Achieved more than 10x
Average Return 2.2x in 4 Years
22% IRR
Source: Siding with the Angels: Nesta/BBAA: May 2009

8. Lessons Learned
USA Study – Nov 2007
Due Diligence Matters
More Hours = Positive Returns
Experience Matters
Experience in Sector = Better Returns
Participation Matters
Coach, Provide Leads, Monitor Performance =
Greater Returns
Source: Returns to Angel Investors: Willbank Boeker: Nov 2007

9. Lessons Learned
UK Study – May 2009
Business Angel investment is risky but
overall appears to generate attractive
outcomes.
Key Strategic choices are significantly
related to better investment choices.
Tax incentives appear to have a material
effect on encouraging Business Angel
investment.
Source: Siding with the Angels: Nesta/BBAA: May 2009

10. Key Strategic Choices
UK Study – May 2009
Angels with entrepreneurial experience
perform better than others.
Angels with specific sector/industry experience
faired better.
Angels who performed some due diligence
(average 20 hours) performed better.
Some post investment involvement improves
outcome...... but Angels taking a management
role does not.
Source: Siding with the Angels: Nesta/BBAA: May 2009

11. Tax Incentives Work
UK Study – May 2009
80% of investments made use of EIS
24% of investments would NOT have taken
place without tax incentives
On average it takes 3 years for an investment
to fail but 6 years for it to succeed.
Source: Siding with the Angels: Nesta/BBAA: May 2009

12. How does a Business Angel investment typically
work?
Surprisingly few studies
The role of the Business Angel Networks (BAN’s)
The role of Syndicates
The role of Co-Investment Funds
The Investment Process
Investment Protection

13. Surprisingly Few Studies?
1st Annual Report on the Business Angel Market
2008/09 - Published June 2010
233 Businesses raised £44.9 million
590 investors participated
Average amount invested was £192,634
69% Early Stage (45% Pre-Revenue)
Average investor acquired 8% stake in venture
10% of investors acquired a stake of 20% +
90% of investments within 250km
25% of Angels would consider investing
abroad

14. The Role of the Business Angel Networks
(BAN’s)
What is a BAN?..... a sort of dating agency
24 Official BAN’s in the UK (4 in the West Midlands)
Numerous Private Clubs and On-Line Networks
4 BAN’s offer National Coverage
20 BAN’s contributed to 2008/09 Report
5500 Registered Business Angels
Only 3% are women!
Turnover is high – 1700 (31%) joined and 473 (9%)
left during 2008/09.

15. The Role of Syndicates?
What is a Syndicate?...... Formal/Informal
2/3rds of investments involve more than one Angel
20% of investments involve 5+ Angels
50% of Business Angels participate in a Syndicate
25% of Business Angels only invest as part of a
Syndicate.
Key Role of the Lead Investor
Share Risk, Share Due Diligence,
Share Return
Portfolio Investment Opportunity

16. The Role of Co-Investment Funds?
What is a Co-Investment Fund?
Public/Private Contribution to Fund
Professional Fund Managers
Shared Risk
Lead Investor Role – Investment Documents
Important to know their rules of Investment
Geographic Limits
Sector Preferences
West Midlands and National

17. The Investment Process
Review Business Plan
Investor Presentation/Meetings
Offer........subject to due diligence
Due diligence
EIS application
Investment documents prepared (Investor Protection)
Completion
Post completion involvement (maybe Non-Exec)

18. The Investment Process
1st Annual Report on the Business Angel Market
2008/09 - Published June 2010
20 of 24 BAN’s contributed to the report
Excludes Scotland (separate figures published)
8,685 Business Plans sent to BAN’s
824 Investor Presentations
233 Secured Investment
£44.9 million
Average Investment just under £200k

19. Investment Protection
Investment Documents
Articles of Association/Investment Agreement
Minority Protection
Pre-Emption Rights
Restricted Activity List
Voting Rights.......Drag/Tag etc.
Dividend Rights
Again............Key Role of the Lead Investor
(or ....CFA)

20. What is the role of the Business Angel Networks
(“BAN’s”) in the West Midlands?
West Midlands is served by 4 Active BAN’s
Advantage Business Angels (ABA)
Beer & Partners
Central England Business Angels (CEBA)
Minerva
Advantage West Midlands Support
All members of BBAA
All FSAApproved

21. What is the role of the Business Angel Networks
(“BAN’s”) in the West Midlands?
All West Midland BAN’s Offer:-
No membership fees for Investors (with some
limited exceptions for syndicate membership).
Help/Training for Investors
Active Investment Syndicates
Relationships with Co-Investors
Web-Site/Email Facilities
Confidentiality
Lead Investor Help/Guidance

22. How do West Midland BAN’s work?
Most (but not all) charge prospective investees
some sort of joining fee (£300 to £1500).
All operate some sort of “investment readiness”
programme for prospective investees.
All operate some sort of “matching” service
All arrange/host investor presentations
All operate/manage investment syndicates
All charge investees some sort of success fee based
upon funds raised (5% to 7.5%)
Some take an “equity kicker” option

23. How would a potential investor get involved?
Talk to me afterwards; OR online at:-
www.abangels.com
www.cebangels.com
www.beerandpartners.com
www.minerva.uk.net

24. Summary/Trends in Business Angel
Investment?
Business Angel investment is important to early
stage and start-up ventures and set to become even
more important.
Portfolio investment approach
Increasingly popular (UK Wide)
Tax Breaks look set to continue
Beware Multiple investment rounds
Business Angel Loans – Emerging Market
The “Dragons Den” Effect

25. Thank You
Paul Heaven
Blue Sky Corporate Finance Ltd
2nd Floor, 3 Brindley Place
Birmingham, B1 2JB
paul@blueskycf.com
0845 BLUE SKY
0845 258 3759

26. Views from an Angels
Perspective
Chris Bayliss