Business angels in Scotland, Who’s investing and where? Brian Hale, Linc
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Transcript of Business angels in Scotland, Who’s investing and where? Brian Hale, Linc
Business Angels
…more than just money
Brian Hale LINC Scotland
www.lincscot.co.uk
The Scottish Early Stage Investment Market
• One of the most mature business angel marketplaces in Europe
• Angels the dominant investors in spinouts
• Emergence of structured groups / syndicates in recent years
• Growing public sector and institutional interest in co-investing
• Young Company Finance Guide to Finance
• www.ycfguide.com
So What Is ‘Angel Investment’?
• Not family and friends
• Objective, direct investment in unquoted
companies by private individuals
• Active participation & value added
• Funding usually in the “Equity Gap” (in the UK this = £20,000 to £500,000)
• Larger sums from syndicates
Business Angel ‘Syndicates’ What Do We Mean?
• ‘Syndicates’ = structured co-investing groups
by and for angels
• May be ‘Manager Led’ or ‘Member Led’
• Can include ‘private offices’ if investment
decision made by those who own the wealth
• Shift of balance in Scotland over 8 years:
from 400 individuals & 5 syndicates to c.100
individuals and 20 syndicates (900+ angels)
Reasons for Emergence of Syndicates
• Diversification of risk
• Value of shared experience
• More efficient use of time
• Increase capital available to sustain company
• Larger rounds can negotiate more attractive terms
and valuations
• Group social benefits
The Funding Gap
Founder, Friends & Family
Grants
Stage of Development
Seed Start - up Early Growth Established
Business Angels
Venture Capitalists
Quoted Markets
Banks
The Funding Gap
Founder, Friends & Family
Grants
Stage of Development
Seed Start - up Early Growth Established
First Customer
Venture Capitalists
Quoted Markets
Banks
LINC Members Activity 2013
68 deals with £18.2M invested by private investors
Overall investment £27M inc other leverage
Average angel deal size = £169,502
LINC Members Activity 2014 (30 June 2014)
38 deals with £11.2M invested by private investors
Overall investment £15.8M inc other leverage
Average angel deal size = £252,000 (£116K)
• Angels invest close to home
• Assessment and negotiation will take an
average of 4 months
• Company will need 3 or 4 further rounds
• 6 years to a (successful) exit
• Have potential for high returns--(5X to 20X)
Characteristics of ‘Professional’ Angel Deals
Event Probability
Sufficient capital 80%
Capable management 80%
Successful product development 80%
Sourcing and manufacturing successful 80%
Competitors behave as expected 80%
Customers want product 80%
Pricing predicted accurately 80%
Patents issued and enforceable 80%
Combined probability of success 17%
The Probability of Success?
• 10 in 100 proposals worth looking at
• Of the 10, invest in 2 or 3
• Of every 10 investments:
• 5 will crash and burn
• 3 will return the value of the investment
• 2 will pay out big
2 in 100
• Basics - defining the business model
• Choosing your angel
• Understanding diligence
• Understanding the investment process
• Manage the Investor’s Risk
Improving Access to Angel Investment
Likely scope of Diligence
Market Technology PR
Size Technical Risks Patents
Trends Competing Technologies Trademarks
Competition Product Manufacture Know-how
Oppts & Threats Design Rights
Sales & Marketing People
Value Proposition Management
Business Model Key Staff
Sales Forecasts Roles & Responsibilities
Routes to Market
Operations Finance Legal
Product Delivery Balance Sheet Staff
Customer Support Cash Flow Premises
Systems/Controls P&L Suppliers
Health, Safety Management Info & Customers
Environment Internal Controls
What Companies Need to Demonstrate
• High calibre of team that will listen
• Large growing market
• Real understanding of customers
• Scalable and sustainable revenue model
• Scope for at least 5X money return
• Shared vision on direction and exit
• Manage Investor Risk
Survey of LINC Members on Key Factors Influencing Decision
Tax breaks - 22%
Business Plan - 30%
Sector - 39%
Advisors - 2%
Investor opinion of Entrepreneur / Team - 89%
Tax Environment
Enterprise Investment Scheme
SEED EIS
• Must be eligible company
• 30% / 50% income tax relief at point of
investment
• Relief on losses at highest personal rate
• Tax free gains if held for qualifying period
• SEED EIS – since April 2012
Not all angels are the same so think about :
• Sector relevance – contacts and market
knowledge
• Experience and skills
• Investment capacity – can they follow on?
• Their role in your business
• Understand Shareholders Agreement
• Understand EIS
Choosing Your Angel
Truisms of Valuation
• It’s only worth what someone will pay!
• What company is now more valuable than
a future promise
• All assumptions are subjective
• Supply of Capital always wins – Angels
don’t have to invest
• “Blow” your own credibility!!!
Other Options
• Online matching services for example
www.fundingcircle.com
www.syndicateroom.com
www.angelsden.com
www.venturegiant.com
www.angelinvestmentnetwork.co.uk
• Crowdfunding etc www.crowdcube.com
www.seedrs.com
www.sharein.com
www.squareknot.co.uk
• elite.londonstockexchange.com
• Local Connections