1. European
Experience
developing
Business Angel
Ecosystems
Paulo Andrez
Business Angel
President of Cascais Business Angel Club (PT)
EBAN President (EU)
Moldova, 17th
April, 2013

2. Start Ups Valley of Death
time
Cash flow
Start-up

3. Imagine that you have 1.000.000 MDL in a safe bank,
and you have 8% of interest rate for your deposit.
Would you invest in a start up
with no clients, no proven
business plan…if the most you
can get as return, would be 9%
annually ?
Hi, My name is Zephyr,
and I want you to invest
in my new fantastic Start
Up ! I guarantee you 9%
annually.

4. But if the World Bank guarantees you that if
Zephyr’s new venture doesn’t pay you the 9%, they
will pay it immediately to you, would you invest ?

5. 0,00%
20,00%
40,00%
60,00%
80,00%
100,00%
0% Mitigated Risks 100%
Probabilityofanentrepreneurto
raisemoneyfrominvestorsor
frombanks
GOAL
Risks: Market, Team, Legal, Financial e Operational
Bank
Mutual
Guarantee
Venture
Capital
Business
AngelsFamily, Fools & Friends and State
100%

6. Capital Needs
Time
Seed Start-up Early Growth Sustained Growth
Higher
Risk
Lower
Risk
Friends,
Family &
Founders
Business
Angels
Venture
Capital
Funds
IPO
0
Angels help fill the
‘Equity Gap’
Early stage
and seed
venture funds
Equity Gap

7. European Angel market size is bigger than the Early Stage
VC market

8. Business
angel
networks
Federations
of networks
Individual
angels
Associate
members
In Europe, it is estimated that the Early Stage Investors...
... invest 5 Billion Euros per year in start ups.
Seed funds

10. EBAN RESEARCH

11. EBAN
Created in 1999 by Eurada with the support
of European Commission
+ 100 members (BANs, Federations…)
…and growing
28 countries
1
2
3
Not for profit organization
based in Brussels
44

12. 12 Congresses and 11 Winter
Universities

13. Part II
The Business Angel

14. Business Angels’ value chain
Source: EBAN RESEARCH COMMITTEE

15. A VERY COMPETITIVE PROCESS
100
Deals
Business Plans received
Due diligence
Investment1-5 Investments
Pre-screening
Screening
Terms Sheet

16. • Membership: Business Angel investors
• Fees: Annual membership fee and sometimes % success deal fee.
Sponsors, grants from the governments, BA certifications, services....
• Seeks & filters applications from entrepreneurs
• Allows selected entrepreneurs to pitch to investors
• May also: provide training (to entrepreneurs and Angels), opportunities
to syndicate
BANs - “Private or semi-public body whose aim is to match
entrepreneurs looking for equity with business angels”

17. • More Deal Flow, means reducing the risk of the investments
• Share the workload of due diligence, terms sheet negotiations...
• Share knowledge in specific areas of expertise
• Get specific training
• Learn with more experienced angels investors
• Get co-investors in the BAN, in the Country or internationally
• Get information of the market (laws, new co-investment funds...)
• Peers networking can facilitate exits (start ups)
Advantages to be member of a Business Angel
Network

18. An Early Stage Investor can invest
• Alone directly in the start up
• Through a personal
investment holding
• With Other investors directly
in the start up
• Through an Angel Fund
• Equity or quasi equity
• Loan
• Giving assets as collaterals
Alone/together Types of investments

19. BA life cycle and the purpose of a BAN
Ripening
process
MEGA-ANGEL
MILESTONES
VIRGIN
Angel
STARTING
Angel
Reading
articles
First Investment
4/5
Investments
BAN or
BA ACADEMY
Portfolio
Management
ACADEMY
LOSS-
EXPERIENCED
Angel
NETWORKING
Angel
SYNDICATION
Angel
First loss
Source: Rudy Aernoudt, EBAN Winter University 2005

20. • Loan (partial). If it is a pure loan (or Bonds) with fixed interest
rate, it is not considered an Angel Investment
• Convertible Debt
• Equity deal or priced Rounds (usually common stock)
• Preferred Shares and liquidation preference(e.g. 3X,6X)
• Options Based
• Revenue Capital
Agreements between Angels and Entrepreneurs.
Pre-Money valuations.

21. 1. Alternatives are so risky as investing in start ups: real estate,
sovereign debts, stock market investment, gold, oil…have the same
or higher risk than early stage investing
2. Scarce Credit : Good entrepreneurs that before the crisis would rely
on credit, are approaching angels bringing good deals. Profitable
companies that without credit can not grow, are approaching
angels
3. Talent widely available at low cost: It is easier to recruit good staff
at lower costs than 3 years ago
4. Pre-Money Valuations are lower : Valuations done by the
entrepreneurs are much lower than 3 years ago and entrepreneurs
are more flexible on the terms sheets
5. Negotiation Power is bigger before suppliers : It is cheaper to buy
equipments and services from suppliers. And they are more
available to share some more risks than 3 years ago
5 Reasons to start investing today, as a Business Angel

22. Part III
Policy Maker

23. • Does the country need new companies ? New jobs ?
Does the country need to export more ?
• Who is going to fund the new innovative start ups ? The
Government ? The Banks ? The VCs ? Or the Business
Angels ?
• It is important to incentivise wealthy people that invest
in non productive assets (real estate, stock market,
derivatives, sovereign debts...), to invest in start ups ,
creating jobs...
Rationale for the policy makers to support initiatives for
the development of the Business Angel Communities

24. 24
HIGH AND MODERATE GROWTH COMPANIES ARE
THE ONES THAT BUSINESS ANGELS ARE LOOKING
FOR
Fuente : Ernst & Young and Endeavor 2011

25. OECD study launched in December 2011

26. PARTS OF THE OECD STUDY

27. WHAT CAN POLICY MAKERS DO?
By priority order
SUPPLY
Bringing more
investors
DEMAND
Quality deal flow
MARKET
Impact and sustainability
6.Fiscal incentives 4. Investment readiness
(incl. sector specific)
1.Support the creation of
BANs
2. Co-investment
funds
9. Teach
entrepreneurship and
access to finance very
early in schools
10.Data collection
5. Investor readiness
training sessions
8. Have incubators and
other facilitators to
educate and prepare
entrepreneurs
6.Local BA/VC forums
7.Media campaigns 3.Light regulation for early
stage investment market

28. • If in any country per each 100.000 euros that a company
invests, the state receives 30%-40% in taxes during the first
year, it means that the state can implement a BA tax break
of 30%-40% without loosing revenues
• Instead of giving companies, grants for free, countries can
transform it in VC money, creating Co-Investment funds
with Business Angels and Early Stage VCs.
Rationale for the policy makers to support initiatives for
the development of the Business Angel Communities

29. Note: This is a pessimistic scenario. But the State always gets its money back…
State return in € per each € invested by State in
a BA Co-investment scheme
State Tax level/Rate of
Return for State in the
Co-Investment Fund 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
30% 1,20 € 1,30 € 1,40 € 1,50 € 1,60 € 1,70 € 1,80 € 1,90 € 2,00 € 2,10 € 2,20 €
35% 1,40 € 1,50 € 1,60 € 1,70 € 1,80 € 1,90 € 2,00 € 2,10 € 2,20 € 2,30 € 2,40 €
40% 1,60 € 1,70 € 1,80 € 1,90 € 2,00 € 2,10 € 2,20 € 2,30 € 2,40 € 2,50 € 2,60 €
45% 1,80 € 1,90 € 2,00 € 2,10 € 2,20 € 2,30 € 2,40 € 2,50 € 2,60 € 2,70 € 2,80 €
Source: EBAN 2013
Scenario (50% of the investment is done by BA+CO-investment fund. Start up ceases
activity after the investment)

30. Do you want to know more ?

31. Michelson Diagnostics
While, some wait for the Future, the
Business Angels are creating it!
paulo.andrez@eban.org