BBAA Angel Investment Awareness Campaign

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BBAA Angel Investment Awareness Campaign National
Launch Event 28 May 2009
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Welcome and campaign background Anthony
Clarke BBAA Chairman
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BBAA Background

• BBAA founded in 2004 as the UK Trade Association
  representing Angel and Early Stage Investment
• 24 Angel networks- 5,000 angels
• 20 Early stage VC Funds
• 30 Associates - professional intermediaries,
  policy makers Government departments academics
• Voice of Angel and Early Stage Investment market
  to Government and media
• Research on the industry
• Networking events
• Tools and good practice on Angel Investing
• Communication to stakeholders e-newsletter and
  website

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The Angel Market

• UK Business Angels invest approx 800m-1bn p.a.
• Approx 18,000 Angels (UK EIS statistics)
• VCs invested 359m in start-up/early stage
  (2008) (BVCA)
• Angel investment in the UK more than twice the
  level of VC investment
• US 18bn invested in early stage per annum
• US 250,000 angels 10,000 invest in angel groups

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Challenges for Angel Investing

• Global Economic Downturn
• 40-50 increased demand from entrepreneurs
• Angels focused on their existing portfolios
• Lack of exit opportunities
• Lack of liquidity from property and shares
• Strong impact on the availability of business
  angels to meet demand

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NESTA/BBAA Research Outcomes

• Siding with the Angels NESTA in collaboration
  with BBAA 2009
• Building on the US- ACA Kauffman research of 2007
• 158 UK investors in networks
• 1,080 investments amounting to 134m 406 exits
  2001-8
• Average investment size 42,000 - median total
  amount invested by individual 220,000 12 had
  invested 1m
• Angel Investing Most significant source of
  investment in early stage, high risk companies
  over 50 of all investments in pre-revenue - very
  risky end!

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NESTA- BBAA Research Outcomes

• UK Angel Investor profile
• 93 Male
• Significant professional experience 95 had
  worked in large corporates
• Most had already founded new ventures
• Nearly all university degrees (42 advance
  degrees)
• US investors higher level of entrepreneurial
  experience
• Invested 10 of wealth in Angel investments
• Mainly invest within 250 miles of home
• 25 prepared to invest outside UK

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NESTA/BBAA Research Investor Returns
Percent of exits
Exit multiple
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Outcomes split by industry expertise
Percent age of exits
Exit multiple
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Outcomes split by due diligence
Percentage of exits
Exit multiple
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Participation Post Investment
Interaction high interaction had significantly
less failure Low interaction failed 61 of the
time High interaction failed 44 of the
time Board Role related to better
returns Passive vs. Active Passive was
significantly related to smaller investments and
worse returns Managerial Role more
participation isnt always better While only
about 15 of exits, where an angel was involved
in a managerial role, returns were significantly
less attractive.
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BBAA Campaign policy focus

• UK Enterprise Investment Scheme important
  stimulant
• Currently income tax rebate equal to 20 of
  investment up to 500k Income tax relief of up
  to 40 on failed investments.
• NESTA/BBAA Research shows 82 of investors used
  EIS 57 of investments had used EIS
• 53 said would have made fewer investments
  without tax incentives
• EIS major instrument to encourage more angel
  investors

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BBAA Campaign policy focus

• Promote higher level EIS relief 30-40 to
  attract more Angels into the riskier end of micro
  start-ups and spin-outs
• Remove EIS restrictions on Angel investing in
  ordinary shares prevents Angels follow through
  when VCs fund next phase
• Need to incentivise Angels to use their business
  building skills to give strategic board level
  support through changes to EMI Option Scheme

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Campaign Focus Co-Investment Funds

• Leverage Angel investment and business building
  skills alongside VC Funds
• Most investments in research made alongside
  other investors
• 21 of deals had more than 10 co-investors
  mainly angels
• Co-investment Funds
• Provide stimulus to angel syndication support
  due diligence, deal structuring
• Early Growth Funds
• Established with Government support of 4-5m
  leveraged 3-4x Angels investment alongside
• Encourage all new early stage VC funds to
  establish co-investment model mobilise angel
  expertise

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National Awareness Campaign

• Build on research results to promote awareness
  of angel investing across the UK regions
  Recognition of this Asset Class
• Downturn may bring more available skills,
  expertise and Smart Money
• Build on tax breaks to mitigate downside
• Government (BERR) backing the campaign
• Support from RDAs ensuring that this fits in
  with regional priorities for early stage
  investment

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Building Angel Capacity

• National resources
• BBAA website
• Access to good practice for Angel personal
  development
• Legal and regulatory considerations FAQs
  (BBAAs legal and technical expert committee)
• Regional activities
• Identify new investors to join existing networks
• Identify new/existing investor groups/syndicates
• Access to local capacity building workshops
  leveraging experience of Angel networks and local
  experts
• Leverage experience of local people with
  experience and spare financial capacity

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The role of Angel Investors in the Governments
measures for enterprise support Adam
Jackson Director of Enterprise, BERR
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Where Business Angels fit into Corporate Finance
funding Mark Fecher Partner, Kingston Smith LLP
Executive Committee, Corporate Finance Faculty,
ICAEW
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BBAA Investing Awareness Campaign

• Marc Fecher

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ICAEW and the CF Faculty

• The CF circa 6,000 members and more than 90
  member firms.
• The Institutes role
• Raising awareness of funding options
• Provides publications and guidelines for SMEs
• Workshops and Forums

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Kingston Smith LLP

• Top 20 Accountancy firm
• Long term sponsor of BBAA
• Board of BBAA
• Life blood of business
• SME Funding Adviser Scheme

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Market Conditions

• AIM
• January to March 2009 5 New Issues March 09
  - 1
• January to March 2008 32 New Issues March 08
  - 11
• January to March 2007 54 New Issues March 07
  - 20
• Q4 had lowest value of Buyouts since 1995
• 80 decline in MBO activity in Q4 2008 to
  1.1billion from 5.6bn in Q3 2008.
• There is a 24 decrease in MBO exits comparing
  2008 v 2007
• Value of PE backed MBOs declined 58 2008 v 2007

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Liquidity Gap

• Recession
• Banks
• Asset backed deals
• Government Lending Incentive Schemes
• Equity Investment Incentives

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Sources of Funding

• Equity Capital
• PLUS gt500k-3m
• AIM gt 2m
• Full List gt5m
• Vendor Loans
• Business Angels
• Venture capital trusts 500k-1m
• Private Equity gt3m

• Debt
• Asset backed bank loans
• Senior Debt
• Mezzanine Finance

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The Match
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The Enterprise Investment Scheme

• Then
• 20 Income Tax Relief on Investment up to
  400,000
• 40 relief on business failure (50)
• Capital Gains Tax Exemption - (on the EIS
  investment itself)
• BA investment rules

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Case Study

• Technology Company
• Initial investment by BA 100K in 2003 post
  money valuation 400k
• Obtained EIS relief
• Sales process 2007 to trade buyer
• Valuation of 2.5million _at_ 25 625k return in
  4yrs

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Conclusion

• The UK economy needs more business Angels
• BA can become Board Members following investment
• Capital Gains Tax 0 providing you have 3 year
  qualifying ownership (BA rules).

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Conclusion

• The UK economy needs more business Angels
• BA can become Board Members following investment
• Capital Gains Tax 0 providing you have 3 year
  qualifying ownership (BA rules).

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Banks and Angel Investing Stephen Pegge Head of
External Affairs, Lloyds Banking Group, Chairman
Small Firms, British Bankers Association
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My life as an Angel Investor Tom Flynn Erik
Wenngren Myra Waiman
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The BBAA Campaign around the regions Sally
Goodsell Finance South East BBAA Board Member
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Next steps for action Anthony Clarke BBAA Chairman
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Next Steps

• Opportunities for engagement at national or
  regional level
• Identifying would-be angels individuals with
  wealth and experience
• Promote this Asset Class
• Strategic partnerships sponsorship
• Co-branding events and activities
• Media and PR support
• Lending expertise to local capacity building
• Contact nick_at_bbaa.org.uk

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Next Steps

• National BBAA Awards and Conference Investing in
  Innovation
• 8-9 July, Belfry Hotel, Birmingham
• Picture of Belfry etc
• www.earlystageevents.co.uk
• Thank you!

5th Annual Conference Awards Dinner The
Belfry, 8-9 July 2009 In association with
Advantage West Midlands West Midlands. A
leader in forward-thinking enterprise
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BBAA Angel Investment Awareness Campaign National
Launch Event 28 May 2009