Documentation from seminar on Venture Capital 06-04-04
The seminar in Brussels April 4th was all about venture capital. Both from a EU vs US point of view and a Swedish point of view. The Swedish Foundation for Small Business Research, ITPS and NUTEK arranged the seminar together.
"Setting the arena of informal capital on the European level"
Christian Saublens, managing director of the EBAN (European Business Angel Network) secretariat, started the afternoon by presenting the arena of informal capital in Europe. He emphasised that business angels are an old concept, however, business angel networks are new and growing fast in number.
The trends as he sees them are primarily business angel syndication, with pooling of funds and competencies, and so called side-car funds, with business angel co-investment funds and business angel matching.
In order to strengthen business angel activities, Mr Saublens suggested that regions can do the following: awareness campaigns, financial support to networks, promoting codes of conduct, and integration of business angel networks in regional entrepreneurship strategies. On a national level, the suggestions were to have supportive fiscal and administrative environments, and to grant support to national networks. On the EU level, awareness campaigns and BEST-projects are useable tools.
"European Union policies to encourage informal investors"
Vesa Vanhanen, DG Enterprise and Industry, divided the risk capital market into informal investors such as business angels, venture capital funds, and growth stock markets. He stressed the need for co-operation between the Commission, member states, and investors.
The public sector policy goals in this area, suggested by Mr Vanhanen, are to have a good regulatory environment, growth and employment, and an efficient market for SME financing.
Recent actions from the Commission are an angel network pilot action, a risk capital action plan, and a bench-marking project. Examples of actions in progress that were presented are expert groups on business angels, best practices in early stage financing, a new competitiveness programme, better exits, European fund structure, and a EU-US working group.
Regarding angel policy issues and the role of the pubic sector, Mr Vanhanen pointed out the following: co-investments with EU financial instruments, data collection from angels, investment readiness, links between venture capital funds and business angels, and taxation.
There is a new programme in progress for the years 2007-2013.
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"The informal capital from a Swedish point of view"
Prof Hans Landström, Sofia Avdeitchikova, and Nils Månsson,
all from the University of Lund, presented their on-going research
on the informal capital market and business angels in Sweden.
They introduced a conceptual model for informal investors:
According to their findings, the majority of investors are passive with a low investment activity, so called micro investors (62%). Most of the investors are men in their 40s, in the Stockholm area, usually with an entrepreneurial background, high income, and rather wealthy.
Investments are made in slightly different industries than before. 47% of the investments result in a loss. It's a risky business...
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"The interconnection between the formal and the informal capital market in Sweden"
Birgitta Österberg from the Swedish Business Development Agency (NUTEK, www.nutek.se ) introduced the audience to the NUTEK activities in the informal capital area. Regional business angel networks (BAN) have been initiated and supported, and by the end of 2004 they involved approximately 1,000 members, whereof 75 women. The BAN activities in 2004 include some 400 matching cases, 40 known investments, 120 meetings with app. 1,900 participants, and learning processes have been started.
Other business angel activities by NUTEK are engagements in e g Seed Cap Arena, the Swedish Venture Capital Association SVCA), research, manuals for business angels and entrepreneurs, and a membership in EBAN.
Tom Berggren, managing director SVCA (www.svca.se), stressed that tools to increase private investments and new jobs are fiscal incentives, soft financing to entrepreneurs, and co-investment funds, pinpointing the UK as a good example. He also emphasised that business angels can invest differently than e g venture capital funds, and therefore linking is important.
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"Successful approach for increasing growth and access to investment"
Dr Ute Günther, Business Angels Agentur Ruhr e V. (BAND), described an eight-step approach to optimise the framework for business angels' investments. They apply this approach in Germany, with the BAND, which went from no networks in 1998, to 40 in 2002.
The steps have been labelled as follows:
1. Establish an infrastructure
2. Build-up of a BA-market
3. Guarantee basic knowledge
4. Political support
5. Go public
6. Set up service agency: coaching investors and entrepreneurs, brokering syndication and co-ventures, brokering exit options.
7. Market observation
8. Research
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"Productive Angel Investing - Sharing experiences from two continents, USA and Europe"
Katarina Bonde, managing director KUBI LLC (www.kubicorp.com), entrepreneur, and investor, shared her broad experiences both as an entrepreneur and an investor. From an investor's point of view the potential of good return on investment is vital, and an angel's investment is an alternative investment among options like e g real estate, the stock market, and luxury consumption.
From an entrepreneur's point of view, the benefits of angel money are e g "the been there, done that-experience, the resources, the network, and the strategic outlook. In the USA, usually the entrepreneur present a deal with specified terms, and angels can sign up, often in syndication. Typical angel motivators are the participating in building a business, interest in innovations, financial, control over their investment, and to work with other business people in exciting projects.
Angel groups are quite common and usually created by the investors themselves. The groups mean a pooling of resources and knowledge, increased deal flow, learning from others, diversification of investments and mitigation of risks, and they typically consist of 10-70 members paying an annual fee, usually approx. USD 1,000. Successful angel groups have a core investors with experience and commitment, membership dues, monthly (bi-monthly) metings, and deal flow by members who screen projects and coach investors in oorder to have good presentations.
USA and Europe are not the same; the aim would be to find a good combination. American angel networks form on their own, which provides good settings for a healthy growth and strong ownership of the process. Taxes and legal structures are important, and Mrs Bonde particularly mentioned the limited liability company and option programmes.
However, Mrs Bonde's concluding remarks were that at the end of the day it's all about people, and access to capital is about access to people.
