Markku SjöstedtInvestment Director, Sitra VenturesSitra, the Finnish Innovation Fund

Business Angels Networks

Helsinki, February 14, 2007

Contents

Background

Business Angels and Angel Networks

Cross-border

Sitra’s objectives for co-partnering

Need to create a strong Business Angel domain Establish a functioning pre-Venture Capital

market Reduce the discontinuity in exit routes Address BA domain as part of the VC chain Improve Sitra’s success rate in BA syndicates

Start-upCompanyStart-upCompanyHuman

ResourcesCapital

Business Concept

It’s not all about money

LIKSA

• Focus on acquiring market information

• 20 … 70 k€ and up to 24 months

• Resulting in a high quality business plan

• Sitra and Tekes financing in cooperation

• 2000 – 2006

DIILI

• Sales competence as sweat equity

• Resource: Experienced business professionals

• Objective: To speed up the investment process

PreSeed concept

INTRO

• Marketplace for early stage investments

• Private persons (business angels) as investors

• Aiming at syndication

Stepping stone to venture capital

• Internet access• Venture forums• Investment negotiations• Syndicates

DIILI sweat equity

resources

Deal flow

LIKSA fundingbusiness

plans

Businessangels

PUBLICCo-funding 100 M

PrivateVC-funds

Microsoft IP Venturestechnology

Dealflow

INTRO

200 40 20

VERIFICATION

INTRO – a true value-adding market place Funding the business plans Addressing sales forces on sweat equity basis Screening enterprises – business angels – sales

forces Conducting the investment process Legal support – shareholders’ agreements Stepping stone to VC markets Public/private syndicates

Icet Oy / Fleet Innovation

Specialises in providing Finnish companies with solutions to their fleet leasing and fleet management needs

Founded in 2007 by 3 professionals Investors:

Business AngelsAloitusrahasto Vera OyManagement team

Background

Business Angels and Angel Networks

Cross-border

About Business Angels

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 Can become involved in the business (“active

Angel”) or not (“passive Angel”).

Business Angel: Private individual investing own wealth in early stage businesses AND own expertise and network of contacts

Ripening process

MEGA-ANGEL

MILESTONES

END of BA

VIRGINAngel

STARTINGAngel

Reading articles

First Investment

4/5 Investments

BAN or BA ACADEMY

PortfolioManagement

ACADEMY

LOSS-EXPERIENCEDAngel

NETWORKING Angel

SYNDICATION Angel

First loss

EBAN Winter University, 16/11/05 Rudy Aernoudt

Kirchhoff’s innovation-growth classification

Stars

AmbitiousEconomiccore

Constrained

Inn

ovati

on

Growth highlow

hig

hlo

w

Classification of companies

Venture capital investors are only interested in companies with high growth prospects, which are managed by experienced and ambitious teams who are capable of turning their business plans into reality.

Various Investment Strategies

Short Long

Bus

ines

s fo

cus

Por

tfol

io f

ocus

Developer Sector expert and developer

Value Style InvestorFinancial Style Investor

Business Angel

Instit

utional In

vestor

Span

NEED FOR CAPITAL

TIME

Seed Start-up Early growth

RISK

Friends, Family, Fools

Business angels

Venture Capital

IPO

Business angels in the value chainGROWTH

Benchmarking Angel Activity

US Europe

2005: 250,000 angels, invest $24 billion in 50,000 ventures

European estimate 2006:50.000/75.000 angels investors 2-3 billion € invested

EBAN Statistics for 2006- 9000 active angels in 97 networks- 653 deals done

No fiscal incentives YET – but more and more discussions as to how to attract new angels into the market as VCs and angel syndicates are moving further along the financial value chain

Fiscal incentives a growing phenomenon, UK as benchmark Compensation for the lack of entrepreneurial spirit?

About Angel Networks

Private or semi-public body whose aim is to match entrepreneurs looking for equity with Business Angels Annual membership fee and sometimes % success

fee Seeks & filters applications from entrepreneurs Allows selected entrepreneurs to pitch to investors May also: provide training (to entrepreneurs and

Angels), opportunities to syndicate

EBAN, the European Business Angel Network Established with collaboration of European

Commission, 1999 EBAN’s objectives include:

Exchange experience & encourage best practice Promote & create positive environment for Business Angels Push forward the informal investment agenda Organisation’s members include: National Federations of Angel Networks BANs with Local / Regional / National coverage Other organisations inc. non-European Angel Networks

European Angel Market Characteristics

Very varied level of development UK has the most mature market in the EU; 34 Networks,

thousands of Angels, hundreds of deals (UK tax break scheme is the most extensive)

France, Germany, Sweden, Belgium, Finland, Netherlands Smaller players, e.g. Italy, Spain, Norway Very small markets, Slovenia, Greece, Portugal

Different types of founders Varied level of Government support National trade associations sometimes represent the

market Rapid growth

Case Study:UK

In 2006: £12.8 m invested in 188 entrepreneurs (survey of 20 networks only)

32 networks, 5112 Angels, Highly supportive tax break scheme, “Enterprise

Investment Scheme” Income tax rebate equal to 20% of investment up to

€600k Exemption from capital gains on Angel investments Income tax relief of 40% on failed investments Larger average deal size – syndication becoming

prevalent Commercial networks more prevalent than elsewhere National trade association, BBAA

Adding Value

Investment Readiness programmes – get entrepreneurs ready for investment e.g. Business Planning advice, Presentation Training

etc. can be a structured programme or provided just

before the investment pitch to enhance performance

Investor Readiness programmes – educate investors in the basics of Angel investment e.g. Legal Issues advice, meet with existing Angels,

learn about tax break schemes

Increasing size of deals but decreasing size of investment by individual investors (Mason 2006)

More small investments Investing increasingly in syndicates BANs offereing more packaged deals and value

added services Organisation of the market (vs sophistication?)

European Angel Market Trends

Background

Business Angels and Angel Netwoks

Cross-border

EASY-projectEuropean-wide cross-border

network of business angels and investment companies, 2007-2008, 17 Partners,

5,2 M€ Budget

Future potential: cross-border investments

EASY key activities: Facilitate access to risk capital through the six

cross-border investment events across Europe Develop tools and common procedures to support

international deal- structuring Raise awareness among stakeholders and policy

makers on the importance of the role of BAs and Seed Funds

Promote policies and tools to stimulate the early stage investment market across Europe

EASY Investment Forum, Italy, 26th February 2008

22 selected European companies 150+ investors expected to participitate

Co-investment Funds

Co-investment funds can operate alongside the network Co-investment fund = fund that can only invest

alongside Angels on the same or better terms Increases amount of money available Helps coordinate deals on Angels’ behalf Exploits Angels’ expertise: only invests where

Angels invest Exploits Angels’ monitoring of the company

In summary

Business Angels are an important addition to available European sources of finance

European market is growing - some countries already very well-developed

National & European-level trade associations can help enhance the market – lobbying, encourage best practice etc.

Angel Networks can add further value by providing investor / investee readiness support, facilitation of syndication etc. but also dissemination activities.

www.sitra.fi +358 9 616 991 Itämerentori 2, PL 160, FI-00181 HELSINKI

Useful links:www.eban.org/http://www.bbaa.org.uk/www.angelcapitalassociation.org/www.pitchtheangels.com/www.earlystageinvestors.org/www.easyinvestmentforum.org/