“Measures to Accelerate the UK Angel Market”

Managing Director – GLE Growth Capital/Seraphim CapitalChairman – British Business Angels Association - BBAAPresident – European Business Angel Network - EBAN

Anthony Clarke

GLE Growth Capital

“Angels and Angel Co investment Funds”

• London Business Angels – A 25 year old angel network bringing SMEs and investors (known as business angels) together

• London Seed Capital – A ‘seed capital fund’ – a £5million fund that invests in small businesses alongside business angels

• Seraphim Capital – £30m Enterprise Capital Fund comprising £10m private and £20m public funds

*EIF identifies not just an equity gap but a “management gap” in early stage tech cos. Business angels can play a key role but there are not enough business angels in the UK or Europe compared to USA with also a much higher deal size in USA

*Francis Carpenter Chief Exec European Investment Fund: BVCA Technology Spin Out Conference London 26th September 2006

European Investment Fund ( EIF)

• Big gains for risks involved (8 – 10 x in 5-7 yrs)

• SMEs with a clear/concise Business Plan• Minority shareholder legal protection• Potential for explosive growth• Involvement post investment• Exit in medium term ( 5-7 Years)

Business Angel = private investors who invest their own patient money Angel Network = organisation that links suitable businesses to its membership of Angel investors

UK Business Angels

Business Angels/ UK Market• Est. 18,000 + angel investors?

• Circa 90% male

• Typically Aged 40+ entrepreneurial background

• Investing between £500m / £1billion p.a.

• £3 billion invested in SMEs 2001/2006

• 25 UK BANs

• 6 Angel Co investment Funds

• 6 Enterprise Capital Funds. 4 more to follow in 08

UK VC’s investment in 2006• VC Investment in start ups £531m – 245 SMEs• VC Investment in early stage £415m – 255 SMEs• VC Investment in Expansion £1,836m – 490

SMEs• European VC’s investing in start up/early stage

returns -1.8% IRR over 5 years/ 1.3% IRR over 10 years to 2004 compares to 20%+ IRR in USA

• UK VCT’s currently have over £1,000m available to invest. Typically investing circa £2m+

Equity For Early Growth SMEs

Various sources of equity finance:

< £100k: Friends and Family£100k -£750k: Business Angels’

(private investors) / publicly funded VC’s ( Capital Fund)

£750k - £2m: Enterprise Capital Fund

£2m+ - VCs How do these link together?

CAPITAL NEEDS

TIME

SEED START-UPEARLY GROWTH SUSTAINED GROWTH

HIGH RISK

LOW RISK

Friends, Family, Fools

Business Angels/ Co-investment

Funds

Formal Venture Capital

ExitIPO/Trade Sale etc

Proof of Concept, Grants, Loans

Finance Ladder

PRE-SEED

UK – Angel Tax Breaks/EIS Scheme•Income tax set off (20%) for each £1of angel investment up to £400k p.a.•Individual angels cannot own more than 30% of an SME•Previous gains rolled over for each £1 invested•No capital gains tax on angel exits after 3 years•Income tax/capital gains tax loss relief for failed angel investments•No inheritance tax on angel investments•Failed investments only cost 48p for each £1 invested

• BBAA - Trade Association for UK Business Angel groups and networks. Established 2004 now has 75 members

• Specifically does not promote investment opportunities to investors or to advisers

• A member’s led organisation.• Lobby’s Government. Raises awareness• Member of EBAN

www.bbaa.org.uk

British Business Angels Association

UK Angel Regulation “Light Touch”

• Investors can self certify themselves as - HIGH NET WORTH INDIVIDUALS or SOPHISTICATED INVESTORS

• Businesses can promote to individuals that they reasonably believe are self certified as high net worth or sophisticated

High Net Worth

• Earnings of at least £100,000 p.a. or• Net Assets of at least £250,000

Excluding their primary residence, rights under certain contracts of insurance, and certain benefits from pensions

Sophisticated• Member of a BAN/Syndicate of

Business Angels for at least 6 months• Made more than one investment in

unlisted companies in the previous 2 years

• Working ( or have worked in previous 2 years) in a prof. capacity in private equity sector or provision of finance for SMEs

• Currently ( or in last 2 years) director with annual turnover of at least £1m

Angels and University Spin Outs

• Angels now showing an interest in rich IP and assisting as business builders

• Syndication model. Pre VC• Angels can help to create the business

model• Post proof of concept funding

UK Experience of University Spin Outs*

• 435 Spin-Outs – 36 universities• 46% life science/ 38% IT• 65% seed / 15% early stage• Need to secure equity finance to: - proof of market - applied research develop IP - provide legal entity which IP can be held* Spin-out Monitor, Library House,2005

Business Angels and Spin outs

• Business angels provide pre VC Funding• Invest after validation of market and

technology opportunity – Grant monies• External Validation / credibility for spin out• Access to Network of industry contacts• Access to market intelligence• Help in recruiting experienced

management• Mentors to business

Investment Readiness / Fit for Finance

“ Demand side support to entrepreneur delivered by investment experts”

• Creative Business Accelerator• High Growth Coaching• Easy Project

Summary of key interventions to accelerate UK angel market

• Raise awareness / National Federation: BBAA

• Tax Breaks for angel investors• Angel Co Investment Funds• Light regulation• Investment Readiness programmes

Angel Tips“Early stage investing is like drilling for oil…You

can’t do just one” John Hime• “Invest in what you like” Randy Komisar• “Trust your intuition and Judgement” Mitch Kapo• “Do multiple deals, with professionals” Bill

Sahlma• “Find and watch other angels first” Dick Morley• “ “Check the cars, expenses, cash and the

working hours” Paul Hudson• “Try and find the PEG’s… potential for explosive

growth” Michael Jackson

THANK YOU FOR YOUR INTEREST

Anthony Clarke

Tel: 0044 207 089 2306www.gle.co.uk

www.bbaa.org.ukwww.eban.org

anthony.c@gle.co.uk