Where Angels Fear To Tread
Anthony Clarke
28-Jun-07
Anthony Clarke, Chair of British Business Angels Association and President of the European Business Angels Network sets out his vision for emerging global trends for early stage investing.
We have always tended to assume that Business Angel investing is based on a localised approach focusing on hands-on involvement by the investor as a means to build the portfolio companies and oversee the investment. Business Angels have frequently been known to apply a rule of thumb that they will not invest further than a two-hour drive from their home. Many Angel Networks have also been set up on a relatively local or regional basis for deal flow and investing. However, there is evidence to suggest that Business Angels’ mind-sets and investment models have moved from local to global.
EARLY STAGE INVESTORS' MIND-SETS ARE BECOMING MUCH MORE GLOBAL
With increased international competition from the emerging economies of China and India, global consumer markets and advancements in technology are acting as new key drivers of the early stage investment marketplace.
Business Angels and early stage investors will increasingly be looking to invest in early stage entrepreneurs with a clear strategy for accessing the global markets in order to ensure effective returns on their investment.
At the same time, early stage businesses in the UK looking to accelerate growth must increasingly go international earlier in their life cycles, taking advantage of the global market place to source customers, technologies, supply of talent and risk capital.
SO, WHAT ARE THE IMPLICATIONS FOR INTERMEDIARIES?
Entrepreneurship training and investment readiness programmes should now include a focus on internationalisation with a clear strategy within the business plan for taking advantage of the global market place and for accessing international sources of investment. There are also strong implications for Angel investors seeking to grow and support entrepreneurs since there is a need for Angel investors to also have a good understanding of international market opportunities and how to support a global strategy.
BUSINESS ANGELS ARE FORGING NEW INTERNATIONAL FUNDING ALLIANCES
Angel investors are identifying opportunities to collaborate and forge new strategic alliances with VCs and funds in other countries or to actively seek external investment sources to ensure the ongoing funding needs of their companies are met.
Global Investment in Practice
An example can be seen in Vibrant Media, which has developed a technology for intelligent online advertising; they received Angel investment from London Business Angels in 2001. The Angels have been active in supporting the company to grow and to expand into the US and identify sources of US funding. The company has now accessed finance from a West Coast Venture Capital company providing approximately £8.5m of new money into the business at a valuation of circa £60m. Several of the investors have continued to invest alongside the US VC with a view to substantial returns.
UK ENTREPENEURS ARE LOOKING TO THE GLOBAL MARKETS TO FINANCE THEIR BUSINESS
We are aware from our British Business Angels Association (BBAA) Angel Network members that a significant number of entrepreneurs are recognising the opportunity to seek funding from international sources, often at second and third stage funding rounds. This clearly has significant implications for Angel investors when planning their involvement in the future growth of the company and is particularly the case in supporting access to specific target markets. Relevant international sources of finance should be identified not just to support ongoing funding needs, but also to ensure market access.
‘With the increasing competitiveness of the global marketplace, it is imperative that businesses grasp opportunities that allow them to grow on the world stage. The ability to source early stage and VC funding is critical to this and we are seeing an increasing amount of confidence in such investment,’ said Leanna Davies, xénos Wales Business Angel Network Manager.
‘Owner-managers in Wales are realising that Angel investments have a positive long-term effect on their business and act as a lever to increase their global competitiveness – both from the investment side and also from the mentoring element that is formed through the relationship. That confidence is mirrored by the Business Angels themselves who are investing more into individual deals. This is also endorsed by the amount of investment facilitated by xénos over the past three years which has increased continuously to the extent that we’ve broken the £2million barrier during the past year – a record in our 10 year history.’
ANGELS IDENTIFY HUGE CHALLENGES FOR CROSS-BORDER INVESTMENT
In addition to my role as Chair of BBAA, I am also President of EBAN and this enables me to support the development of new links for our members and associates across Europe with other investor groupings. This offers the opportunity to build alliances both for deal flow and ongoing investors to support the potential for new cross-border deals. However we are also aware of the huge challenges for genuine cross-border investment for Angel investors, one of these being the lack of access to EIS tax relief for UK investors investing outside the UK. The EU has recently set up a specialist working party on cross-border investment with a view to addressing key challenges such as taxation and differing legal and fiscal frameworks (see http://www.eban.org)
ANGELS ARE BREAKING DOWN MUTUAL BARRIERS
More collaboration among early stage investment funds at international level, as well as new forms of investment models will also be required if Angel investors want to take advantage of international cross-border investment opportunities.
Investors will need to complement each other with the right skills and expertise when investing and develop new joint frameworks for such issues as valuation and due diligence. The European Commission is backing a new project called EASY under the Pro-Inno initiative led by GLE Growth Capital, in which the BBAA is a key partner. This project, with 17 partners across 11 countries including several Angel Networks, is organising a programme of cross-border events across Europe to enable investors to identify international investment opportunities. Events have already been organised in Paris and Helsinki and further events will take place in Lisbon, Milan, Barcelona and London during 2007-8. (see http://www.earlystageinvestors.org).
ANGEL INVESTORS ARE IDENTIFYING NEW INVESTEMENT OPPORTUNITIES IN CHINA AND INDIA
Angel investors are also identifying opportunities to invest in highly innovating companies in China and India with significant potential for partnerships and collaboration with overseas firms.
China and India’s emergence as highly competitive players in the global market place for new technology and services offers new opportunities for Angel investing. There is also significant interest for Chinese companies to float on AIM, the Alternative Investment Market in the UK. More than 50 Chinese companies have floated on London’s junior market.
These businesses are developing new disruptive business models and have extensive potential for growth, but they generally also lack management expertise. These businesses need both Angel investment and Angel know-how as business builders. An interesting example is AIM-listed solar wafer manufacturer ReneSola, a Chinese based start-up founded in 2005 which has received UK Angel investment and which is now valued at over $400m.
THE WORLD IS FLAT
The world is indeed flat and at BBAA we will be looking to support our members to follow key trends in the global marketplace and to maximise opportunities for new alliances for angel investing on an international level. We hope to see you at our forthcoming conference on 4th July which will focus on these key issues of globalisation and early stage investment.
For more information on the British Business Angels Association and how to become a member visit http://www.bbaa.org.uk or call 0207 089 2305
COMING SOON
The BBAA Annual Conference on 4th July 2007 in Cardiff organised in association with Finance Wales and xénos focusing on the theme of globalisation for early stage investment. This conference which will feature a range of high level speakers and interactive panel debates will be of interest to angel investors and all those interested in the early stage investment market place. See Advert on page 43 in this issue or visit http://www.bbba.org.uk for further details of the conference programme and to register.
