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Mr. Paolo Anselmo President of the Italian Network of Business Angels (IBAN) Member of the Executive Committee of the European Network of Business Angels.

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Presentation on theme: "Mr. Paolo Anselmo President of the Italian Network of Business Angels (IBAN) Member of the Executive Committee of the European Network of Business Angels."— Presentation transcript:

1 Mr. Paolo Anselmo President of the Italian Network of Business Angels (IBAN) Member of the Executive Committee of the European Network of Business Angels (EBAN) Member of the INSME Association Board Geneva - July 12, 2006 WIPO-INSME INTERNATIONAL TRAINING PROGRAM ON THE ROLE OF INTELLECTUAL PROPERTY IN RAISING FINANCE BY SMALL AND MEDIUM-SIZED ENTERPRISES jointly organized by WIPO and INSME Theme 9: Role of Business Angels in Supporting Your Innovation Plans

2 FINANCING OF THE PROJECT DEBTS DEBTS PUBLIC FINANCING PUBLIC FINANCING VENTURE CAPITAL: VENTURE CAPITAL: Formal Venture Capital Formal Venture Capital Informal Venture Capital (business angels) Informal Venture Capital (business angels)

3 FINANCIAL SUPPLY CHAIN Banks Guaranties Leasing Factoring Infrastructure: business angels networks, incubators, etc. Advice: investment readiness program, tutorship Expertise: professional fund managers Own resources FFFVC Loans on trust Pre-seed Loans for investors Reimbursable advance payments IPO BA Corporate Venturing Seed capital FFF : Family, Friends, Fools BA : Business angels VC : Venture capital IPO : Initial Public Offering Grants Micro-credits Other public support Prerequisites Tools

4 THE ENTERPRISE FINANCING PROCESS

5 Corporate Fund and Venture Capital IdeaStart-Up Market introductionGrowth Maturity Innovation Seed Capital Funds and Public funding Commercial and Savings Banks Time Efforts made by financiers Risk Cash flow Transfer Private Investors and Business Angels

6 THE ENTERPRISE FINANCING PROCESS R&DStart-up Early growth Accelerating growth Sustaining growth Maturity growth Proof of Concept Funding Seed Corn First Round Second Round Development Capital Replacement Capital MBO / MBI Development Capital Founders, family and friends Public Sector Business angels Venture capital funds Corporate venturing Public listing / IPO Source of Funding Type of Funding Stage in Cycle

7 IS A COMPANY READY? Business plan? Stage of development of the company Type of investment? Valuation? Management team ready? Has the management team enough time and energy to raise funds? Is the team shaped to talk to investors? Does the company know where to go?

8 VENTURE CAPITAL (formal & informal) Institutional operators (formal venture capital) Institutional operators (formal venture capital) Private subjects Private subjects Banks Banks Insurance Insurance Corporate venture capital Corporate venture capital Non-institutional operators (informal venture capital) Non-institutional operators (informal venture capital) Business Angels Business Angels

9 BUSINESS ANGEL (BA) - definition A Business Angel is a middle aged male with reasonable net income, personal net worth, previous start up experience, who makes one investment a year, usually close to home or office, prefers to invest in high technology and manufacturing ventures with an expectation to sell out in three to five years time. (Kelly and Hay, 1996) Business angels (informal investors, independent investors) are investors who provide risk capital directly to new and growing businesses in which they have no prior connection. (Harrison and Mason, 1996)

10 BUSINESS ANGEL (BA) male, rarely female successful experience as an entrepreneur or manager high net worth individual and / or sophisticated investor have a declared propensity to invest and to risk in a start-up firm invest their own money (around 50K – 250K euro) (part of their cash capital: %) Seeking profit, but also fun (seeking minimum 20% return) are willing to share their managerial skills and their enterprise background often invest in their region of residence make one investment a year prefer high-technology and manufacturing take a minor participation – medium term investment are willing to wait for an exit for 3-5 years Attitudes, behaviour and characteristics:

11 ANGELS – success stories

12 ANGEL STRATEGY New products or technological improved products in an existing market A product or service that can be taken to market without further development (i.e. past the initial concept stage) Creation of new markets Companys growth should expected to be higher than market growth Increase of market share against competitors Superiority regarding competitors High-growth start-ups: new businesses that are likely to see sales grow to around 1M and employment to between 10 and 20 people in early years and export oriented. Key selection criteria of risk capital investors (generally):

13 ANGEL DUE DILIGENCE PROCESS Technology Technology development Product development Process development Product supply Deliveries Market Marketing Sales PR Competitors IPR Organization Recruitment Board Network of service suppliers Office Economy / Finance Cash forecast Finance activities Cost estimate Budget

14 PRIORITIES FOR EQUITY PROVIDERS Equity providersEligibility Criteria Business angels or informal investors Meeting or matching of individual entrepreneurs with the angel Atmosphere of trust between individuals Credible business plan in the eyes of the angel Good management Fiscal incentives Market knowledge of the entrepreneur Availability of exit route Return on investment (capital gain) Venture capital and Financial corporate venturing Business plan credibility Business plan with patent technology Track record (over previous years) Ability to grow fast and deliver quick ROI Management team quality

15 FORMAL AND INFORMAL EQUITY PROVIDERS * Source: van Osnabrugge, 1998, p.2

16 FORMAL AND INFORMAL EQUITY PROVIDERS VC – Easy to find via directories – Your request is only one among many hundred a VC receives – Can often via syndication provide large investment – Thorough and formal due diligence and investment process – Exit route very important BA – Difficult to find – Request often strong personal involvement – Limited amount to invest – Investment decisions often quick and less formal – Syndication more and more usual – Exit route less in focus

17 OBTAINING RISK CAPITAL Advantages for the science based enterprise: Advantages for the science based enterprise: acquisition of financing for development acquisition of financing for development operative and financial consultancy operative and financial consultancy growth in prestige and visibility at international level growth in prestige and visibility at international level attraction of talents with stock options attraction of talents with stock options reinforcement of negotiating power with the credit system, clients and suppliers reinforcement of negotiating power with the credit system, clients and suppliers possibility for way out and positive re- evaluation possibility for way out and positive re- evaluation

18 THE IRREGULATITY OF THE INFOMRATION AVAILABLE THE IMPORTANCE OF THE INFORMATION NEEDS OF THE INVESTORS IN THE EVALUATION OF THE PROJECT THE IMPORTANCE OF THE INFORMATION NEEDS OF THE INVESTORS IN THE EVALUATION OF THE PROJECT to evaluate the yield of the investment to evaluate the yield of the investment to reduce the risk of requests from opportunists to reduce the risk of requests from opportunists WHAT AND HOW TO EVALUATE WHAT AND HOW TO EVALUATE Economic and financial information (quantitative/consumptive) Economic and financial information (quantitative/consumptive) Business plan (quantitative/prognostic) Business plan (quantitative/prognostic) Qualitative judgment of the confidence of the project Qualitative judgment of the confidence of the project

19 THE FIRM-ORIENTED APPROACHES 1st Criteria: approaches based on costs (historic and/or substitutions) 1st Criteria: approaches based on costs (historic and/or substitutions) 2nd Criteria: approaches based on value 2nd Criteria: approaches based on value ??.., what is the OBJECT of the evaluation? ??.., what is the OBJECT of the evaluation? Immaterial and non-patentable factors Immaterial and non-patentable factors Intellectual property (importance if the scientific dimension vs the economic/financial dimension) Intellectual property (importance if the scientific dimension vs the economic/financial dimension) Prospective revenues (strong influence of the state of development of the product/service with respect to the market) Prospective revenues (strong influence of the state of development of the product/service with respect to the market)

20 THE INDIVIDUAL-ORIENTED APPROACHES Approaches based on qualitative variables (subjectiveness of the proposers): Approaches based on qualitative variables (subjectiveness of the proposers): Demographic variables of the entrepreneur Demographic variables of the entrepreneur Social variables such as political editorials Social variables such as political editorials The context: academic or industrial origin (technical-scientific and managerial capacity) The context: academic or industrial origin (technical-scientific and managerial capacity) N.B. THE CRITERIA OF EVALUATION DEPEND ON: THE TIMING OF THE FINANCIAL INTERVENTION (enterprises phase); QUALITATIVE JUDGEMENT OF THE INDIVIDUALS (human capital); QUANTITATIVE ESTEEM OF THE ENTERPRISE (the reputation of the enterprise).

21 ROLE OF THE SCIENTIFIC COMMUNITY (+) the KNOWLEDGE WORKERS attracted, why? (+) the KNOWLEDGE WORKERS attracted, why? opportunity to increase technical competences opportunity to increase technical competences opportunity to enrich ones CV opportunity to enrich ones CV to increase the visibility in ones community to increase the visibility in ones community access a global scientific network access a global scientific network able management of eventual elitist attitude able management of eventual elitist attitude (-) the intrinsic mobility of KNOWLEDGE WORKERS (generation of a risk of unstable knowledge and/or cessation of know how to third parties) (-) the intrinsic mobility of KNOWLEDGE WORKERS (generation of a risk of unstable knowledge and/or cessation of know how to third parties)

22 THE REPUTATION OF THE ENTERPRISE An extremely important resource in phase of start up in order to limit the environmental pressures and to attract the necessary resources An extremely important resource in phase of start up in order to limit the environmental pressures and to attract the necessary resources How it is constructed: How it is constructed: Collaborated vertical agreements (University, enterprises) Collaborated vertical agreements (University, enterprises) Relational systems and participation in networks (social capital) Relational systems and participation in networks (social capital) N.B. More social relations form an enterprise, the potential for the reputation and confidence should mature over time. N.B. More social relations form an enterprise, the potential for the reputation and confidence should mature over time.

23 LEGITIMIZATION STRATEGIES SEARCH FOR CONSENT - RELATIONAL CONTEXT (in order to increase the level aperture towards the outside world) SEARCH FOR CONSENT - RELATIONAL CONTEXT (in order to increase the level aperture towards the outside world) Access to scientific networks (in order to acquire qualified human resources) Access to scientific networks (in order to acquire qualified human resources) Access to financial networks (to acquire financial resources) Access to financial networks (to acquire financial resources) Access to business networks (in order to acquire managerial resources) Access to business networks (in order to acquire managerial resources) STRATEGIES STRATEGIES Passive attitude (patenting of research results) Passive attitude (patenting of research results) Active attitude (localization near innovation locations) Active attitude (localization near innovation locations) Proactive attitude (communication of the scientific successes obtained) Proactive attitude (communication of the scientific successes obtained)

24 BAN – THE NETWORK Thank you for listening! Venture Capital, Business Angels and Banks Network of Intermediaries and Universities Universities, Research Centers and technology companies Professional Services and Business Support Organizations BAN

25 Ing. Paolo ANSELMO IBAN – Italian Business Angels Networks c/o Centro Sviluppo Spa Via Lavoratori Vittime Col du Mont, Aosta – Italy T: – F: Thanks for your attention


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