Description
Business Angels play an important role in the economy, and in many countries constitute the largest source of external funding, after family and friends, in newly established ventures.
Framework Service Contract for the Procurement of Studies and other
Supporting Services on Commission Impact Assessments and Evaluations
Interim, final and ex-post evaluations of policies, programmes and other
activities
Evaluation of EU
Member States’
Business Angel Markets
and Policies
Final report
October 2012
P O Box 159
Sevenoaks
Kent TN14 5WT
United Kingdom
www.cses.co.uk
Evaluation of EU Member State Business Angel Markets and Policies
Contents
SECTION
PAGE
1.
Introduction
1
2.
Measuring the Business Angels market
4
3.
Numbers of Business Angels
11
4.
Investment by Business Angels
19
5.
Public support for Angel investment
29
6.
Business angels and SME financing
38
7.
Conclusions and Recommendations
43
ANNEXES
PAGE
1
National report: France
52
2
National report: Germany
61
3
National report: Italy
74
4
National report: The Netherlands
86
5
National report: Poland
94
6
National report: Spain
102
7
National report: Sweden
119
8
National report: The United Kingdom
135
9
Grossing up factors
144
10
Interviews
146
11
Bibliography
148
0
Evaluation of EU Member State Business Angel Markets and Policies
Introduction
Section
1
This is the final report in respect of the Evaluation EU Member States’ Business Angel Markets and
Policies.
1.1 - Summary of Assignment Aims
Business Angels play an important role in the economy, and in many countries constitute the largest
source of external funding, after family and friends, in newly established ventures. Business Angels
provide both financing and managerial experience, which increase the likelihood of the survival of startup enterprises. But the fundamental nature of the Business Angel market is informal. Many Angels have
a desire for anonymity, and are unwilling to reveal information about their investment activities. The
resulting absence of reliable statistical data makes evidence-based policy making in this area difficult.
Given the importance of informal investors for the creation and maintenance of an entrepreneurial
economy, more data is needed from the angel investment market in order to make rational and wellgrounded policy decisions.
The objective of this evaluation is to improve policy-making regarding SMEs’ access to seed and early
stage capital by increasing the knowledge of the characteristics of the Business Angels market and
sharing EU Member States’ best practices of policies and programmes supporting Business Angel
financing.
The study considers both members and non-members of Business Angel networks (BANs). The terms of
reference placed emphasis on including non-members of BANs – the “non-measured” market because
relatively little is known about this market segment and yet it is probably very significant as a source of
risk capital funding. However, it is recognised that this part of the market is difficult to access but most
likely accounts for the majority of Business Angel activity.
The evaluation involves a review of Business Angels in eight Member States (Germany, France,
Netherlands, Sweden, Italy, Spain, Poland, and UK). Data is extrapolated to provide estimates for the EU
as a whole.
The research focuses on:
•
•
Collection and consolidation of secondary data for 2010 from different appropriate sources
(including national and international Business Angel organisations and networks, government
organisation, etc.), estimation of the non-measurable market at EU level for 2010 and indication
of possible changes;
A brief overview of the key characteristics and results of programmes or polices aimed at
increasing and supporting Business Angel investment in the selected Member States. The
assessment of the Member State polices will include an assessment of the efficiency and
effectiveness of policies having assessed their possible impact and their gaps and shortcomings based on the information provided in the interviews and data collected for a specific country, to
the extent that data is available.
1.2 - Evaluation questions
Detailed evaluation questions were set out in the terms of reference and are dealt with in the report as
far as data permits. However, in some cases data is not available - for example, data on investment
outcomes is not available for the non-measured market and is only available to a limited extent for the
measured market. The evaluation questions are as follows:
1
Evaluation of EU Member State Business Angel Markets and Policies
Section
Introduction
1
Relevance
1.
What are the available data sources for the Business Angel market in EU Member States or
regions?
2.
What is the identified need for public action (e.g. financing gap, market failure) to support
Business Angel financing and how have the programmes or policies of EU Member States been
designed to meet this need?
Effectiveness
3.
How effective are different data-collection procedures? Do they allow for consolidation of data
on cross-regional and cross-country level?
4.
What are the main (examples listed below) characteristics of Business Angel financing in selected
markets? Secondary data collection will depend on availability of sources. If possible, amounts
should present industry (by country of investors) and market (by country of the companies
receiving investments) figures:
•
•
•
•
•
•
•
•
Total investments (amount)
Number of deals (investments)
Number of companies receiving investment
Number of active investors (Business Angels)
Deal acceptance rates
Co-investments (number/%, amount, type – with financial institutions/syndicated
investment deals)
Exits – type (trade sale, IPO, written off) (number, amounts)
Exits – rate of returns
All above mentioned data, whenever possible and meaningful, should be broken down by:
•
•
•
5.
Sectors (for example: IT/Software/Telecom, Healthcare/Biotech, Energy/Environment,
Industry/Manufacturing, Retail, Media/Entertainment, Other) Stage of company
development (seed, start-up, early expansion, growth/late expansion)
New/ follow-up investment
Geography (investment in home region, home country, EU country, outside EU) (number/%,
amount)
What are the additional characteristics of the Business Angel market (if data are available)?
•
•
Women entrepreneurs receiving Business Angel financing (number/%, amount, acceptance
rate)
Women Business Angel investors (number/%, amount, acceptance rate)
6.
What is the estimated volume of the total market (total investments) at EU Member State level
for remaining EU countries (if data are available)?
7.
To what extent has the Business Angel market contributed to the SMEs’ access to finance?
8.
How effective is Business Angel financing to bridge the equity gap in the seed and start-up
phases of the SME development. What, if anything, could be done to render Business Angel
financing more effective as a means to achieve these objectives?
2
Evaluation of EU Member State Business Angel Markets and Policies
Introduction
Section
1
Efficiency
9.
How can data sources and data-collection methodologies be improved to allow for comparability
across regions and countries?
10.
Which existing EU Member State support programmes or policies to facilitate the access to
Business Angel finance for SMEs are the most efficient or inefficient? Are there significant
differences between on line and physical programmes or those that operate on a cross border
basis as opposed to a Single Member state?
11.
What are the actual costs of operating the programmes and administrative burden to the SMEs
or Business Angel (for reporting, etc.)?
12.
How can the efficiency of the Business Angel programmes be improved? What are the best
practices that could be applied in other EU countries?
Sustainability
13.
Are the identified data sources, data-collection and consolidation procedures suitable for
observation of long-term trends in the Business Angel market?
14.
Will the effects achieved by the support programmes last in the medium or long term?
1.3 - Structure of this report
The final report is structured as follows:
•
Section 2: Methodological issues in measuring the Business Angels market
•
Section 3: Numbers of Business Angels
•
Section 4: Investment by Business Angels
•
Section 5: Public support for Angel Investment
•
Section 6: Business Angels and SME Financing
•
Section 7: Conclusions and Recommendations
Research on each of the eight member states covered in the study is set out in Annexes 1 to 8. In
addition, we show the detailed data used for grossing up results to the whole of the EU27.
3
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
This section of the report considers the methodological issues involved in the measurement of the
Business Angels market.
2.1 - What is a Business Angel?
There is no single settled definition of a Business Angel. DG Enterprise defines a Business Angel1 as
follows:
“A knowledgeable private individual, usually with business experience, who directly invests part of his or
her personal assets in new and growing unquoted businesses. Besides capital, Business Angels provide
business management experience for the entrepreneur.”
The definition used by EBAN, (the European Trade Association for Business Angels, Seed Funds and
other early Stage market Players), is very much in line with the DG Enterprise definition but elaborates
further on key characteristics of Business Angels.
WHAT IS A BUSINESS ANGEL?
• An individual investor (qualified as defined by some national regulations).
• Invests directly (or through his/her personal holding) his/her own money.
• Is financially independent, i.e. a possible total loss of his/her Business Angel investments will
not significantly change the economic situation of his/her assets.
• Invests predominantly in seed or start-up companies with no family relationships.
• Makes his/her own (final) investment decisions.
• Invests with a medium to long term set time-frame.
• Ready to provide, on top of his/her individual investment, follow-up strategic support to
entrepreneurs from investment to exit.
• Respecting a code of ethics including rules for confidentiality and fairness of treatment (vis-àvis entrepreneurs and other Business Angels), and compliance to anti-laundering.
Source: EBAN2
While the EBAN definition is more prescriptive, an important element is the explicit exclusion of friends
and family from the definition.
There are good reasons for differentiating between friends and family and Business Angels. The main
argument is that family-related investors are driven by fundamentally different motives, such as kinship,
social obligation, and reciprocity, rather than just commercial factors. As a result, they exhibit different
behavioural patterns. According to Avdeitchikova3 “...To include family-related investments as a part of
the business angels market would add to the breadth of the scope of what is already a heterogeneous
concept.” A commonly cited definition is that proposed by Mason and Harrison who describe BAs as “a
high net worth individual, acting alone or in a formal or informal syndicate, who invests his or her own
money directly in an unquoted business in which there is no family connection and who, after making the
investment, generally takes an active involvement in the business, for example, as an advisor or member
1
According to the list of definitions used by DG Enterprise accessed at
http://ec.europa.eu/enterprise/policies/finance/glossary/index_en.htm#b
2
Based on the EBAN glossary accessed at http://www.eban.org/resource-center/glossary
3
Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital: An International Journal of Entrepreneurial Finance, 10:1, 55-85
4
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
of the board of directors.”. 4 As will be seen later in this report, investment by friends and families in new
businesses is much larger than investments by Business Angels – but that does not detract from the
importance of the Business Angel asset class. The terms of reference for this study emphasised this
point and said that “Business Angels constitute the largest source of external funding, after family and
friends, in newly established ventures.”
There are, of course, problems of identification in deciding whether an individual falls into the definition
of a Business Angel. Should the number of Business Angels include those who wish to invest, but have
yet to find a suitable proposition? And should it include those who have previously invested, but not for
a few years? And there may not be a clear distinction between friends and family and Business Angels.
As the Italian Business Angel Network (IBAN) put it, there is a “question about whether ‘a friend of a
friend’ is a friend or a stranger”.
In practice, as will be seen later in this report, most Business Angels act individually and are not
members of syndicates or networks, and therefore their activities can only be seen when they make an
investment. More data is available on the part of the Angel market that is organised, and for that part of
the market it is possible to differentiate between Angels who have made investments and those who
have not yet done so. To the extent that data availability permits, we have excluded investments by
friends and family from our results In line with the EBAN and Mason definitions, and excluded from our
estimates investors who do not provide strategic support or advice in addition to their investment.
2.2 - How Business Angels operate
According to research by EBAN, the typical profile of a Business Angel5 is a male (some 3-5% in the
measured market are females) aged between 35 and 65 with successful prior experience as an
entrepreneur or a manager investing between €25,000 – €250,000 or the equivalent of 15% of their own
funds in a single venture – typically a start-up firm – and supporting it with management advice and
networking in business and company finance circles. Research in The Netherlands suggests that there is
a generational difference between Business Angels6. Older and more experienced Business Angels find
that the younger ones are still too inexperienced and need guidance; while the younger ones tend to be
more involved in the management of firms they invest in – and think the older Business Angels get too
involved in the businesses.
Generally speaking, angel investors make their investment decisions based on their experience in a
particular sector and most often focus on companies within their local area. Having said that, in some
Member States (e.g. Italy), the national Business Angel network is increasingly supportive of cross
border ventures. Where Business Angel work in syndicates, risk can be spread further, thus increasing
the ability to make cross border ventures.
Still, it should be appreciated that Business Angels are a heterogeneous group. For example, in relation
to motives for investment financial gain and wealth creation tend to be the main motivations but there
is also often the interest and satisfaction from creating successful new ventures or supporting local
economic development. Similarly, there is variation in terms of the typical investment sector or the
4
5
Mason and Harrison, 2008
EBAN (2009), EBAN Tool Kit - Introduction to business angels and business angels network activities in Europe
6
Emerging Technology Research Europe (2012); Tornado Insider: Informal investment in Nederland, Agentschap
NL, p.5
5
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
location of investment. More detailed information on the basis of data from the EBAN survey is provided
in section 4.4 below.
Traditionally Business Angels have tended to prefer to invest alone, rather than as part of a network or a
group7. However, participation in groups, syndicates and networks is also important. Angels can invest
both individually and jointly with other angels or institutional investors in various forms (e.g. coinvestment with seed funds) – as set out in section 2.3 below.
Many Angels invest in several companies in order to diversify risk and expecting that one or two will
bring high returns and cover loses of the firms that do not survive. According to a survey of 158 UKbased angel investors in 2008, while 56% of investments failed to return capital, 9% generate more than
10 times the capital invested.
The typical Business Angel investment cycle includes the following stages:
1. The Business Angel becomes aware of the opportunity from his own sources or sometimes
through formal channels (e.g. Business Angels Networks or entrepreneurship events)
2. The Business Angel conducts an initial screening to assess initial interest in the investment and
whether it fits to his/her investment portfolio and area of knowledge/experience area
(syndicates will carry out screening on a collective basis)
3. There is a meeting with entrepreneur, detailed evaluation of the business plan, review of
references and market research.
4. Negotiate over valuation and level of participation with entrepreneur
5. Following investment, hands-on support in the form of management advice/mentoring and
networking
6. The final stage includes the exit from the business by selling the shares, typically in the form of a
trade sale and less often through an initial public offering. Most available studies suggest that
Business Angels tend to hold their investments for a period of about 3 to 7 years. However, exit
is still a problematic area for Business Angels and is also influenced by the prevailing economic
conditions.
2.3 - How are Business Angels organised
The most common form of Business Angel is the individual who invests directly in a company through his
or her own contacts. They act privately and generally prefer to maintain anonymity. As a result detailed
statistical data on that invisible part of the Business Angel market is not readily available.
There are, however, other more visible ways of organisation through which Angels get in touch with
companies. One such form is the Business Angels networks (BANs). According to the EBAN a BAN is “...
an organisation whose aim is to facilitate the matching of entrepreneurs (looking for venture capital)
with business angels” 8.
Typically a BAN might act as a recipient of requests for investment funds. Such proposals would then be
vetted for quality first, or directly circulated to the BAN members. Introductions between entrepreneurs
and investors may take place at network meetings, or directly. Normally, Business Angels will invest on
their own account into the company concerned. Both investors and entrepreneurs may pay towards the
cost of the network. BANs tend to concentrate on particular sectors or regions. They generally refrain
7
8
OECD (2011), Financing High-Growth Firms - THE ROLE OF ANGEL INVESTORS
www.eban.org
6
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
from formally evaluating business plans or angels. Angels make their own individual investment
decisions, and the BAN does not decide which investors will invest in a deal. BANs also often provide a
number of added value services to both angels and entrepreneurs, such as preparing for
investor/investment readiness, training and syndication opportunities.
Syndicates of Business Angels represent another form of organisation of Business Angels. According to
EBAN syndicates are the result of “...the gathering of several business angels into an informal
consortium for the purpose of creating a critical mass of funds above what each business angel could —
or would be prepared to — invest. This term also applies to the pooling of competencies in order to
offer more managerial skills than any individual business angel could display”.
Syndicates claim that one of their strengths is the ability to spread risks and fund further rounds of
investment since investments are carried out by a number of Angels9. Usually the investor pays for the
syndicate, and the syndicate will assess the potential investment for the Angel to make the final
decision.
In many EU Member States there are also National Federations, or National Networks that represent a
number of networks. At the European level, the European Trade Association for Business Angels, Seed
Funds and other early Stage Market Players (EBAN) represents the interests of Business Angel and
Business Angel Networks, seed funds and other entities involved in bridging the equity gap in Europe.
EBAN was established with the collaboration of the European Commission in 1999 by a group of pioneer
BANs in Europe and EURADA (European Association of Development Agencies). EBAN now has wide
affiliation by national federations, networks, seed funds and individual angels in EU Member states as
well as international connections. The World Business Angels Association (WBAA) provides a platform
for the exchange of information about the development of the Business Angel market around the world,
including Business Angel organisations in the USA, UK, China, India, Spain, Australia, Chile, Italy, UAE and
France.
Another form of organisation is an online angel and entrepreneur matching service. The service may
be provided by a network or syndicate, or a separate company. The potential investor will receive online
details of companies looking for investments and will then contact the company, and will carry out his
own due diligence. Typically, most sites that offer these services charge the entrepreneur a fee to
register their investment proposals and are free for the angel investors.
A further source of Business Angel finance is provided by on line matching services reaching a large
number of potential investors, including crowdfunding. There are an increasing number of websites
offering such services. Crowdfunding faces significant legal issues in offering securities to the public
generally. Little data is available on either amounts raised or outcomes, and we have not been able to
include useful data in this report.
2.4 - Methodological issues in measuring the Business Angels Market
Given the different definitions of what constitutes a Business Angel and the types of Business Angel, as
well as the differing forms of organisations and the desire of many Angels for anonymity, there are
significant methodological challenges in measuring the Business Angels market. A recent OECD paper10
9
See, for example http://www.archangelsonline.com/
‘Financing High Growth Firms: The Role of Angel Investors’, OECD, 2011. The report was produced by the HighGrowth Financing Project of the OECD Science, Technology and Industry Directorate’s Committee for Industry,
10
7
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
concluded that, given the local nature of Business Angel investing, there is no homogeneous national
angel market. Different definitions, ways of collecting data, etc., mean that aggregation at the national
level is difficult. Nevertheless, as the OECD study argues: ‘While methods of estimating the full angel
market size vary, it has been documented through many studies over the past decade that total angel
investment is much greater than overall VC investment in the United States and as well as in some
countries in Europe’. We have also referred above to boundary problems in defining what a Business
Angel is.
For the visible part of the market, the main data is that collected by Angel associations from Angel
groups and networks organised in BANs or syndicates. These data only represent a fraction of the
market termed the “visible” market (Harrison and Mason, 2010)11. According to the OECD study, in
countries such as the United Kingdom, other “visible” market data can be collected through other
methods such as angels participating in government tax incentives and/or co-investment schemes.
However, the majority of angel investment is individual and that information is private and therefore
extremely difficult to measure. This comprises the “invisible” portion of the market. As the OECD study
indicates, the current methods for measuring the level of the invisible Business Angel activity are
currently “more art than science”.
Broadly speaking, approaches taken to measuring unmeasured Business Angel populations and
investment can be broken down into three categories:
•
•
•
Supply-side approaches: studies which seek to estimate unmeasured Business Angel activity
through information on the behaviour of visible Angels, such as through Business Angel association
membership lists, surveys of known Angels, surveys of likely Business Angels such as company
directors, venture capital network members and senior commercial bankers, and ‘capturerecapture’ sampling. (Wetzel, Fiet, Mason and Harrison)
Demand-side approaches: studies that have sought to identify unmeasured Business Angel activity
through companies in which they have invested. Methods include large scale business surveys,
analysing company listings and equity issuance at national registers such as Companies House (UK),
and adapting data from the Global Entrepreneurship Monitor. (Harr et. al., Mason and Harrison,
Brettel, Farrell)
Third party/institutional indicators: most notably they use data relating to the usage of taxincentive and government-sponsored entrepreneurship funds and grants to estimate the size of
Business Angel populations and level of investment, but also private loan arbitrators such as
Zopa.com. (Robinson and Cottrell, Harrison and Don)
Supply-side approaches allow for initial estimates of the total market size and in particular informed
estimates of the market by those familiar with local conditions. Demand-side approaches may well
provide more accurate estimates of the total market size in the long run. However, demand-side
approaches require large samples of companies and are much more demanding in terms of time and
resources.
In Europe, the most detailed source of data is the EBAN annual survey which focuses on certain parts of
the visible fraction of the market. The main issues are:
Innovation and Entrepreneurship (CIIE). The project was supported by the Australian government with input
provided by the member countries of the OECD represented in the CIIE.
11
Harrison, R.T. & C.M. Mason (2010), “Annual Report on the Business Angel Market in the United Kingdom,
2008/09”,
8
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
•
•
•
EBAN statistics currently provide the most comprehensive record of visible Business Angel activity
available in Europe, and a series of metrics highly relevant to this study.
However, because of the variation between Business Angels’ activities in different countries, an EUlevel analysis of the European Business Angels’ market is not possible without more in-depth
research in individual countries.
Because of the data limitations, it is still necessary to use data from other sources to generate
estimates of the activity of the total population of Business Angels in each country. Whilst the EBAN
statistics contain detailed records of the activity of the Angels that they monitor, there is currently
no indication of the broader economic ecosystem in which they are located.
2.5 - Methodological approach used in this study
This study has used a combination of desk research, data analysis and interviews with representatives of
national network associations, a few individual Business Angels, national authorities/agencies
responsible for designing or implementing policy in the area of SME finance and some academic experts.
Most of the interviews took place in the context of the case studies (see below). The total interview
programme covers the main stakeholders directly involved in the Business Angel market. The
snowballing method of identifying experts on the basis of recommendations from initial interviewees
was also followed in our attempt to expand the list of interviews.
However, it should be recognised that there is a certain bias towards the visible part of the Business
Angels market – namely the part covered by BANs. Business Angels in the non-visible segment are
particularly difficult to identify and there was neither time nor resources available for a comprehensive
survey. The input in relation to that part of the market is based on the input from experts, the Business
Angels Network Associations and other secondary sources.
The initial desk research aimed to review the relevant literature and to identify available sources of
information related to Business Angels’ activities. The initial review of the literature was also important
in identifying issues related to the definition of the Business Angels market and determining the
approach to be followed for the measurement of the market presented in section 2.3 above.
The second part of the study included in-depth research in eight larger EU Member States (Germany,
France, Italy, the Netherlands, Italy, Poland, Spain, Sweden, UK).
The research in each of the Member States investigated focused on two main areas:
•
•
Estimation of the size of the Business Angels’ market – We conducted a detailed analysis of data
from existing information sources including reports from the national Business Angels’ associations,
and academic studies – when available - and also analysis of the data provided in the 2009 and 2010
EBAN survey. The available data were in some cases complemented by estimates provided by
representatives of the national Business Angels associations, government officials and other experts
interviewed during the course of the study.
Analysis of the Policy Framework – We conducted a review of the situation of start-ups and SMEs in
terms of access to Business Angels’ finance and the policy tools that, either directly or indirectly,
have an impact on the Business Angels. This work was based on available reports and any interviews
conducted. The objective was to go beyond a description of the tools and assess the efficiency,
effectiveness and the main lessons learned. However, with very few exceptions, relevant
information was not available. Most of the policy tools were introduced only very recently and there
are no monitoring data available. When possible, the interviews with experts supported an
9
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
assessment of the relevance of the specific tools and some preliminary assessment of the success in
terms of supporting the development of the Business Angels’ market.
A detailed list of interviews is provided in Annex 10. A total of 37 interviews were carried out. In
addition there were shorter discussions with other individuals. We also discussed the emerging findings
of the study at the EBAN summer conference in May 2012, attended by several hundred delegates, and
received suggestions which have been incorporated in this report. We also attended a conference of the
German Business Angels Network.
Grossing up data from the sample to all EU27 countries
In order to provide estimates for the total size of the EU27 Business Angels’ market we relied on any
available data but, most often, used the estimates provided in the eight cases studies and extrapolated
on the basis of the share in the EU GDP or population. The eight countries in the sample represent 69%
of EU27 GDP and 64% of the EU27 population. To gross up the estimates from the sample to the EU as a
whole, we have used factors based on the ratios of the sample to the data for the EU as a whole. The
more detailed country data used for these calculations are provided in Appendix 9.
Table 2.1: Population and GDP, 2010
GDP at market prices (million €)
Population
EU27
12,260,495
501,104,164
Sample countries
8,463,917
318,595,732
Sample as % of total
69.0
63.6
Grossing up factor
1.45
1.57
Source : Eurostat
10
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
This section summarises data on the numbers of Business Angels.
3.1 - Introduction
In this section we estimate the number of Business Angels in the eight sample countries examined and
for the EU 27 as a whole.
As indicated in the previous section, there is no single accurate method of measuring the number of
Business Angels. Accordingly, in this section, we present four approaches which are:
•
•
•
•
An estimate of the number of Business Angels in the visible market based on data collected by EBAN
for the calendar year 2010 (some EBAN data for other countries is also shown);
A wider estimate of the number of Business Angels in the visible market based on data collected at
national level during our study;
Estimates of the non-visible market as a proportion of the visible market;
An estimate of the number of potential angels in the visible and non-visible markets based on survey
data from the GEM project. Because of data limitations, this approach is likely to overestimate the
number of active Business Angels.
3.2 - EBAN data on the visible market
A first important source of information in relation to the visible part of the Business Angels’ market is
the annual survey by EBAN.
This survey collects data on a wide range of indicators related to the activity of BANs across Europe. The
responses are collected by the national associations that are members of EBAN and reported back to the
EBAN12. However, the survey has a number of limitations including the fact that not all responses are
complete and that there are differences from year to year in terms of the number of responses per
country. Also, the level of participation varies greatly among countries (e.g. close to 100% in France to
less than 30% in Germany or Spain) but also not all BANs are members of the national associations. This
share varies again from country to country. Thus, the data from EBAN survey represent a low end
estimate of the number of Business Angels in Europe.
On the basis of the data available for 2009 and 2010 the average network has a total of 70-75 angels
registered although only around 50% are active, namely they have made at least one investment during
the year of the survey13. For 2010, just over half (51.3%) the number of Angels made investments. In
terms of the female participation, the survey data indicate that female Business Angels represent
around 5% of the total number of Business Angels in the networks.
12
CSES was given access to the aggregate results for each country as submitted by the national associations. In
some cases the responses were also available at an individual BAN level.
13
This definition of active Business Angel could be considered as rather strict. In other studies reviewed, active
angels were considered to be those that had invested during the last three or five years.
11
Evaluation of EU Member State Business Angel Markets and Policies
Section
Numbers of Business Angels
3
Table 3.1: Number of Business Angels in Europe based on data reported to EBAN
2009
196
14,785
6,111
620
Number of Business Angels Networks reporting
Number of Business Angels
Number of Active Business Angels
Number of Female Business Angel investors
2010
174
12,299
6,302
686
Source : 2010 EBAN statistics compendium
Table 3.2 provides a more detailed analysis of the networks in different countries. Besides the apparent
differences in responses received, there are also differences in the average size of BANs (ranging from
the extreme case of 215 members in the Netherlands to only 22 in the UK) and the share of active
members (from 75% in France to 33% in the UK). Female participation is more consistent, as in all
countries the share of female Business Angels in BANs in 2010 was less than 10%. Given the limitations
of the data indicated earlier, it is clear that there is significant variation among Member States.
Table 3.2: Characteristics of the Business Angels in BANs – National data in the basis EBAN survey
201014
% of
female
investors
Number of
Business
Angels
investing in
companies
through the
network
Average
number of
Business
Angels per
investment
round in
2010
375
9.3%
2,400
5
66%
7
2.3%
126
3
218
54%
20
4.9%
60
1.9
215.9
1070
45%
30
1.3%
109
3
134
44.7
83
62%
12
9.0%
2
n/a
13
807
62.1
276
34%
18
2.2%
82
1
5
135
27.0
57
42%
10
7.4%
26
1
24.4
177
33%
30
5.6%
43
3
Number of
BANs
responding
Total
number
of
Business
Angels in
network
Number
of
Business
Angels
per
network
Number
of active
Business
Angels
France
66
4,030
61.1
Italy
10
301
13
% of
active
Business
Angels
Number
of
women
Business
Angels
3,015
75%
30.1
200
407
31.3
11
2375
Poland
3
Spain
Sweden
14
Germany
14
Netherlands
UK
22
537
Source : EBAN surveys 2009 and 2010
3.3 - Other estimates of the visible market
Going beyond the data of the EBAN survey the research in each of the 8 Member States reviewed data
from other studies, when available, and estimates provided by experts with experience of the market.
These experts included representatives of the national BANs associations, academic or government
officials working in the sector. In addition to that, we also made extrapolations from the data from the
EBAN survey based on information on the total number of BANs operating. These estimates are
summarised in Table 3.3 and are explained in greater detail in each of the national reports in the
annexes.
14
Data for Germany and the Netherlands are for 2009
12
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
Table 3.3: Overall estimate of the number of visible Business Angels, 2010
France
Italy
Germany
Netherlands
EBAN data
Estimated total
4,030
4,50015
313
450-620
40716
2,375
16
1,000-1,400
4,470*
Poland
134
200
Spain
807
1,729
Sweden
135
750-1,000
UK
537
4,555**
Total
Gross up factor
EU 27 estimate
Comment
Data from national
association
Data from national
association
Extrapolation from EBAN
data
Data from national
federation
Extrapolation from EBAN
data
Data from national
federation
Extrapolation from EBAN
data
Data from national
federation
18,000 to 19,000
1.57
28,500 to 30,000
Sources : CSES research in each country, see annexes
* – based on 2009 information provided by the Netherlands’ national federation. 2010 data, not included in the
EBAN analysis, showed much lower estimates, but probably incomplete
** – figure excluding Scotland, based on BBAA data
In total, the number of Business Angels in the visible market in the eight countries examined is likely to
be just 18,000-19,000. As described in section 2, the sample countries represent 63.6% of the EU27
population, so the total number of Business Angels in the visible market in the EU27 may be a little
below 30,000. However, given that the eight countries examined are mostly countries where the
Business Angels market is relatively developed, the total estimate should probably be lower, possibly
closer to 25,000.
3.4 - Non visible market
Going beyond the visible market, our estimate of the non-visible Business Angels – those that are not
members of BANs- has been based on two approaches:
•
•
15
16
Estimations on the basis of the visible market in combination with data from other studies
identified at national level and the opinion of experts;
Estimations on the basis of data available from the annual Global Entrepreneurship Monitor
survey.
Includes data on the non measured market
Data for 2009
13
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
3.4.1 - Estimates based on data from the visible market
The country teams attempted to estimate the size of the non-measured market as compared to the
visible market. These estimates were based on available reports and other studies at the national level
as well as estimates provided by experts with experience in the national Business Angels market.
A summary of the findings for each market is provided in the table below.
Text box 3.1: Comments on the size of the non-measured market
France - On the supply side of the market, France Angels estimates the number of Angels not part of
networks to be between 2,000 and 4,000, however, this is only a rough guess on the part of France
Angels. The Conseil d’analyse stratégique estimates that there are potentially 350,000 individuals in
France with sufficient financial resources to invest €100,000 in a company’s equity without exposing
themselves to that risk by over 5%.
Germany - The most often cited study of ZEW in 2007, based on information on first round investments
received only by high-tech start-ups in the period 2001-2005, indicates a total number of around 2,7003,400 active Business Angels in Germany. Another estimation based on data from financed exits
indicated a total of around 5,200-5,40017. The BANs association (BAND) suggested that the total number
of Business Angel investors is in the range of 5,000-10,000.
Italy - According to IBAN, the total number of Business Angels in Italy is in the region of 500. On the
basis of the data for the visible part (450) provided earlier, suggests that invisible market is very small.
This number, if accurate, deviates greatly from the numbers from most other European countries where
the invisible share of the Business Angel market usually represents more than 50%, and very often up to
90% of the total.
Netherlands – There is no formal research conducted. The interviews conducted suggested that the
invisible market may be 7 times the visible market, namely close to 30,000.
Poland - Research with regards to non-visible market in Poland has not been yet conducted in Poland. It
is therefore difficult to estimate what share of the market is non-visible. However, as it was pointed out
in interviews from the total amount of investments made in Poland, around 5-10% goes through
Business Angels networks and it is possible that slightly lower percentage of Business Angels could be
operating outside the networks (in the non-visible market). However, the investors working outside
Polish networks are usually more experienced and they use their own contacts to receive interesting
projects offers. Despite a smaller number of those investors, they still make more investments that
those in the networks.
Spain - According to the Spanish representative in the Board of Directors of EBAN, the invisible part of
the Business Angel market is most probably around 20 or 25 times greater than the visible or formal
Business Angel market, thus up to 43,300 (1,729 x 25). Overall, and taking into account both sources, the
non-visible market could be between 34,600 and 67,700 individuals in 2010. His estimates suggest that,
compared with other countries, the invisible Business Angel market is relatively large in Spain in relation
to the measured/visible part. This is quite possible, given the business culture in Spain.
Sweden - The first study of Business Angels in Sweden carried out in 2004 developed a database of
Business Angels including members of Business Angels Networks, investors in companies registered in
17
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
14
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
the Swedish Patent and Registration Office and through information in articles and journals. It
concluded with a total of 894 Business Angels. The above number represents the lowest estimate since
some individual investors should be expected to be missed by this approach. It should also be expected
to be biased towards members of BANs as this was the first and easier source of information.
A different approach was followed in the study conducted by Sofia Avdeitchikova18 in 2004 based on a
survey of a random sample of the population. From a total of 24,166 responses, around 861 individuals
claimed making informal venture capital investments19 in the last 5 years. Further analysis of a smaller
number of them (401) led to a total of 298 (69.3%) identified as actual informal investors. Extrapolating
the results from the sample the author estimated that the number of informal investments in Sweden
was between 27,800 and 32,600 annually and the number of businesses financed around 7,500 per year.
In our interview with the author it was suggested that the data available indicate that the number of
Business Angels in 2004 was 5,000 and that this number must have slightly increased since. Finally, the
Swedish Venture Capital Associations estimates that there are 3,000 to 5,000 angels in Sweden.
United Kingdom – The annual report on the Business Angel market in the UK20 reiterates a previous
estimate of the ratio of the visible to the non visible market. In the absence of any evidence-based
estimates of the ratio of the visible to the invisible angel market we applied last year the estimate of
20% used in the 1999 estimates of the scale of the market, indicating a total of 25000 Business Angels in
the UK. (Mason and Harrison, 2000).
The table below summarises the data obtained from each country. Grossing up the country data to the
total EU27, we estimate a total number of Business Angels - including both the visible and non-visible
segments, between 170,000 and 240,000.
Table 3.4: Estimate of the total number of Business Angels (visible and invisible market)
France
Italy
Germany
Netherlands
Poland
Spain
Sweden
UK
Total
Gross up factor
EU 27 estimate
Total number of
Business Angels
8,000
500
5,000 to 10,000
30,000
500
34,600 to 67,700
3,000 to 5,000
25,000
110,000 – 150,000
1.57
170,000 – 240,000
Share of visible
Business Angel in total
70%
100%
10 – 25%
14%
50%
4% - 5%
na
20%
Source : CSES research in countries, see annexes for details
18
Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital: An International Journal of Entrepreneurial Finance, 10:1, 55-85
19
The definition used was : individuals that had, within the previous five years, made non-collateral investments in
unquoted companies to which they did not have any family connections,
20
Annual Report on the Business Angel market in the UK: 2009/10, Mason & Harrison
15
Evaluation of EU Member State Business Angel Markets and Policies
Section
Numbers of Business Angels
3
3.4.2 - Estimates of the Business Angels market based on GEM survey data
The data of the annual Global Entrepreneurship Monitor21 survey provide the basis for an alternative
approach in estimating the number of Business Angels in the EU27.
One of the data sets collected by GEM teams is the informal investor rate, namely the percentage of
working age (18-64) population who have personally provided funds for a new business, started by
someone else, in the past three years. Not all of these informal investors will be Business Angels and
many are friends or family of the person starting the business. However, in some cases the national
GEM teams have also asked respondents to indicate whether the person starting the business is known
to the investor, so an estimate of investors in strangers businesses can be obtained. This provides for a
closer approximation to the Business Angels definition even if not all the criteria of the Business Angels’
definition are met. For example, the investors may not be involved in any form in the running of the
business as is required by the definition. Thus, an estimate based on GEM data provides a high-end
estimate of the total Business Angels numbers.
Estimates of the informal investor rates are available for most countries in the sample for some years.
These are shown in the table below, together with similar data for the United States for comparative
purposes.
As can be seen, in almost all years the informal investor rate in United States is higher than the
equivalent rate in the countries in the sample in Europe. Using the data for the years 2009 to 2011, the
average informal investor rate for the eight countries is 2.9%.
Table 3.5: Informal Investors Rate : Percentage of 18-64 population who have personally provided
funds for a new business, started by someone else, in the past three years
Country
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
France
1.8
1.2
0.7
4.9
3.6
4.7
5.6
3.8
3.8
3.2
4.6
Germany
3.2
3.4
2.7
2.7
1.8
1.7
-
1.8
1.5
3.6
-
Italy
1.4
1.4
1.5
3
2.3
1.6
3
2.1
1.8
3
-
Netherlands
1.5
1.8
1.3
1.3
2
1.1
2.3
1.7
1.8
3.4
3.7
Poland
2.4
0.6
-
3.9
-
-
-
-
-
-
3.1
Spain
3
3.1
3.5
2.5
2.5
2.8
3.2
2.8
3
3.3
3.6
Sweden
2.6
2.8
2.3
2.4
2.3
2.6
3.7
-
-
6.6
8.7
United Kingdom
2.6
1.7
1.6
1.4
1.7
1.6
1.4
1.7
1.1
3.2
2.5
United States of America
5.5
5
4.9
4.3
4
6
4.9
5.2
4.1
6
4.8
Source : GEM project
The survey also provides some data on the rate of informal investors who finance strangers businesses,
as opposed to friends and family. Data are available for only some countries. Where it is not available
we have used an estimate from the previous GEM surveys. The combination of these two indicators
21
http://www.gemconsortium.org/
16
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
leads to an estimate for potential Business Angels - individuals of working age that have invested in a
stranger’s business in the past three years - between 0.14% and 0.81%. On the basis of working
population data from Eurostat we estimate that there are 663,000 such investors in the sample
countries and about 1.04 million for the EU 27 as a whole.
The table that follows shows the underlying data.
Table 3.6: Estimate of the potential total number of business angels on the basis of GEM survey data
Country
France
Germany
Italy
Netherlands
Poland
Spain
Sweden
United Kingdom
Total
Gross up factor
EU27 estimate
Informal
investors
(% of
working
population)
3.9
2.3
2.3
2.7
3.1
3.2
7.7
2.1
% of informal
investors who
financed
strangers’
business
7.0
7.0
5.0
18.8
7.0
7.2
7.0
6.4
%
potential
angels
0.273
0.24
0.24
0.5
0.33
0.23
0.81
0.14
Working
population
(1000s)
41,922
53,908
39,644
11,122
27,213
31,365
6,099
41,000
252,272
Number of
Informal
investors
(1000s)
1,635
1,240
912
300
844
1,004
470
861
7,265
1.57
11,406
Number of
potential
business
angels
(1000s)
114
129
95
56
90
72
49
57
663
1.57
1,041
Source: Analysis of GEM data by CSES
It should be noted that these estimates provide a high estimate of the number of potential Business
Angels in Europe. For example, there is no certainty that all the potential Business Angels actually
provide advice to the companies they invest in.
A comparison with available estimates for the United States’ market suggests that this is, most probably,
an overestimate of the number of Business Angels in Europe. There are some 850 active Business Angels
per million population in the US while the data for EU27 presented above suggests a number of
potential Business Angels of around 1,749 per million population. Given that the informal investor rate
in Europe (2.9%) is, according to the GEM data, around 60% of the similar rate in the United States
(5.0%), the number of Business Angels in Europe should also, most likely, be less than in the US. Thus, if
we assume that the number of Business Angels per million in the EU is 60% of that US rate, we arrive at
a rate of 513 Business Angels per million population, corresponding to a total of 256,000 Business Angels
for the EU27. This result is of a similar order of magnitude to the result provided in the previous section.
17
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
3.5 - Summary
On the basis of data collected from a range of sources the size of the visible Business Angels market
should be around 28,000-30,000 Business Angels, of whom about half are active.
This estimate does not include Business Angels who are not members of networks (invisible market).
Estimates based on the data obtained in the eight countries where fieldwork was carried out for this
study suggest that the total number of Business Angels in the EU is of the order of 170,000 to 240,000.
In addition, the analysis of available data from the Global Entrepreneurship Monitor indicates a total of
up to 1.1 million people who invested in strangers companies in the EU in the last three years. However,
not all of the above provide advice to companies and will fall within the definition of Business Angels. If
we adjust the estimates on the basis of comparison with U.S. data, we arrive at an estimate of
approximately 250,000 Business Angels in the EU27.
We can conclude that the total Business Angel market is likely to be perhaps seven times the size of the
visible market.
18
Evaluation of EU Member State Business Angel Markets and Policies
Investment by Business Angels
Section
4
This section of our report includes an estimate of the investment carried out by Business Angels in
2010. We provide data for the visible part of the market, and where possible other data for the nonvisible part.
4.1 - Introduction
This section provides data and estimates on the size of the Business Angels market and the value of the
investments. It also considers the size of deals, the breakdown of investments by sector, stage of
investments in the firms’ development path and level of co-investment. The data are based primarily on
EBAN surveys of the visible market, supplemented, where available, by other sources and estimates.
4.2 - EBAN data on the visible market
The following two tables (4.1 and 4.2) provide an overall picture of visible Business Angel activity based
on the 2010 EBAN survey and, in the case of Germany and the Netherlands22, the 2009 survey. Data for
some other countries are shown in table 4.2 below but in the case of Austria, Belgium, Finland, Greece
and Slovenia they are based on responses from only one network.
There is a great variation in the total value of investments with France representing more than 25% of
the total of the visible market and Italy, Germany and UK between 8-13%. However, these numbers are
a reflection of the different response rate to the EBAN survey among different countries and are not
necessarily representative of the share of the different countries in the total EU Business Angels market.
The average size of the deal is in the range of €100,000 - 200,000 for most countries. The average
investment per Business Angel, tends to vary much more, starting from as low as €18,000 to over
€150,000. However, we should note here that the calculation of the average (mean) value on the basis
of the EBAN data is problematic as it can be easily affected by a small number of large-size deals.
According to our research the frequency distribution of investment size is skewed towards lower values.
In such cases, the median or the mode values (central or most frequent) are more appropriate when
referring to the typical Business Angel investment. However, the calculation of the median or the mode
require data on the value of individual deals completed and are not available. Table 4.3 below provides
the mean and the median value of the average values by BANs as reported in 2009 and 2010 and shows
that the median value for the average investment is around €50,000.
22
A small amount of Netherlands 2010 data was also received
19
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Table 4.1: Business Angel Investment value in sampled EU countries – Data from EBAN networks
Number of BAN
that responded
Average amount
per investor (€s)
Value of investments by
angels in BANs(€s)
Average amount
of the deal (€s)
66
62,500,000
177,000
18,000
10
20,005,000
191,000
111,400
13
33,300,000
145,000
45,500
11
25,320,000
365,000
140,000
Poland
3
na
na
na
Spain
13
8,162,000
182,197
137,000
Sweden
5
3,020,000
91,850
65,500
UK
22
18,090,556
142,500
25,000
France
23
Germany
Italy
Netherlands
23
Source : EBAN 2009 and 2010 survey data
Table 4.2: Business Angel Investment value in other EU countries – Data from EBAN networks
Number of BAN
that responded
Value of investments
by angels (€s)
Average amount
of the deal (€s)
Average amount
per investor (€s)
Austria
1
542,500
136,000
n/a
Belgium
1
3,101,000
107,000
75,000
Finland
1
2,922,000
139,000
50,000
Greece
1
n/a
n/a
n/a
Ireland
2
5,950,000
225,500
65,250
Portugal
14
2,060,000
121,000
43,000
Slovenia
1
n/a
n/a
n/a
Source : EBAN 2010 survey data
Table 4.3: Mean and median values of investment per deal and per Business Angels on the basis of
EBAN survey data
Average amount invested per deal
Mean
Median24
2010
€ 114,513
€ 121,176
2009
€ 160,078
€ 150,000
Average amount invested per angel
2010
€ 90,969
€ 50,000
2009
€ 64,976
€ 50,000
Source: EBAN survey 2009 and 2010
23
Data for Germany and the Netherlands come from the EBAN 2009 survey based on 13 and 11 responses. The
2010 survey is based only on 3 responses for Germany and at its initial stage no data for the Netherlands.
24
This median is the median of the returns made by individual syndicates or networks. Data is not available at deal
level
20
Evaluation of EU Member State Business Angel Markets and Policies
Investment by Business Angels
Section
4
Additional data from some of the countries examined indicate that the average size of investments per
Business Angel may be even smaller:
•
•
•
In Sweden in the case of the informal market, one study25 found that total investments are, in 92%
of the cases, less than €100k with average individual investments as low as €6k;
According to a recent EIF report26, in Germany the amounts invested per individual investee
company vary significantly but often amounts between €50k and €100k are mentioned as average.
However, during the financial crisis these amounts went down significantly;
In Scotland, where most Angel investment is carried out by syndicates rather than a network, one of
the largest syndicates suggested a minimum investment per Angel of £10,000 (€12,000). The general
policy followed is as follows: “If the total investment is less than £100,000, the core investor group
are likely to cover the investment themselves. If the total investment exceeds £100,000 then all
syndicate members will be offered the opportunity to invest on the same basis as the core investor
group. Minimum investment level for each non-core investor is likely to be £10,000”.
Data on changes in the average investment by Business Angels over time are also quite limited. One
source is the German Business Angels panel that covers the period 2002-2011. The data provided
concern the total level of investment per angel on a quarterly basis. Chart 4.1 presents the data
aggregated on an annual basis. It clearly shows a decline in the total amount invested over the last 3
years and the significant difference with the second dot-com bubble period around 2004. Similar data
are not available in other countries but information provided during the interviews in some countries
supported the view of declining trend. In relation to the average deal size, data from IBAN in Italy
suggested that the average investment has declined from €183,000 in 2007 to €145,000 in 2010. A
similar trends was not evident in Spain where, according to available data27, the average size of
investment remained above €200,000 in period 2005-2009.
25
Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital: An International Journal of Entrepreneurial Finance, 10:1, 55-85
26
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
27
Data from Cotec in Spain suggest that average size of a deal in 2005 was around €205,000, in 2008 €270,000 and
in 2009 220,000.
21
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Chart 4.1 – Evolution of the total annual investment per business angel over the period 2002-2011,
Germany
800,000
692,000
700,000
600,000
500,000
422,000
400,000
319,500
282,878
300,000
248,316
272,500
189,000
180,600
200,000
130,000
106000
100,000
-
2002
2003
2004
Source: VDI Business Angels panel
2005
2006
2007
2008
2009
2010
2011
28
Additional data collected by the research team on the visible market and extrapolation from the EBAN
survey for the total number of BANs provide for a more complete view of the total value of the market.
Table 4.4: Business Angel Investment value in 2010 (€s) - Visible market segment only
France
Germany
Based on EBAN data
(€s)
Based on all networks where available
(€s)
62,500,000
157,000,000
29
19,600,000
55,000,000
Italy
33,300,000
33,300,000
Netherlands
7,400,000
na
Poland
na
na
Spain
8,162,000
28,300,000
Sweden
3,020,000
21,000,000 - 30,000,000
UK
18,090,000
18,090,00030
Total
152,000,000
Gross up factor
1.45
EU 27 estimate
220,000,000
660,000,000
Source : based on EBAN data and CSES research
28
http://www.vdi-nachrichten.com/aktuell/technikfinanzen/redaktion_00000134/ba-panel/cache.aspx
based on 2009 data
30
based on a rate of €1.2 per £
29
22
Evaluation of EU Member State Business Angel Markets and Policies
Investment by Business Angels
Section
4
For countries where additional data was available, the size of the whole visible market appears to be
about three times the size of the market covered by those networks reporting to EBAN. On this basis,
the visible part of the business angels market in Europe in 2010 would appear to be of the order of €660
million.
In relation to the non-visible part of the market no relevant data were identified. The previous section of
our report suggested that the non-visible market is perhaps seven times greater than the visible market.
Assuming that size of investments in the invisible market are of the same size as in the non visible
segment, then total investment in the whole EU27 market might have been of the order of €4 to €5
billion in 2010.
It should still be appreciated that there are serious limitations in the quality of this data. Limitations
include:
•
•
•
A difficultly in ascertaining whether trends shown in data are reflective of the wider population;
Complications in evaluating what percentage of Business Angel association are members of
EBAN/national associations and, since the data is largely anonymous, which associations have
provided data;
Significant differences in the level of data provided for each country.
In comparison with the US, the data provided by the Center for Venture Research at the University of
New Hampshire31 suggest that the US business angel investor market in 2010 reached a total volume of
$20.1 billion (€16 bn), four times greater than our estimate for the market in the EU27. A total of 61,900
entrepreneurial ventures received angel funding in 2010, an increase of 8.2% over 2009. The number of
active investors in 2010 was 265,400 individuals, a small growth of 2.3% from 2009.
4.4 - Market analysis
Besides data on the number of business angels and the size of the market, the EBAN survey provides
additional information in relation to the operation of the BANs including the number of business deals
and firms supported, the breakdown of investments by sector, location and by the stage in the firms’ life
cycle. It also includes information on the level of co-investment. Similar data are, with few exceptions,
not available for the non-visible wider market32.
Quantity of Business Angel investment through EBAN affiliated networks in 2010
Table 4.5 presents statistics on the total activity of BAN members in 2010 including the number of
business plans received, number of deals and number of new businesses financed by Business Angels
through each network and the number of new and follow-on rounds of investment. The figures help
gauge the level of Business Angel activity in each country but there are wide discrepancies in the level of
reporting in (e.g. Germany vs. France) that make any interpretation of the figures or extrapolation to a
broader population problematic.
31
Jeffrey Sohl (2011), “The Angel Investor Market in 2010: A Market on the Rebound”, Center for Venture
Research
32
Given that for all other countries the responses to the EBAN survey came from 1 or 2 BANs only and have many
gaps and missing values we preferred to focus on the 8 countries examined in more detail
23
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Table 4.5: Business Angel Investments through BANs in 2010 – Key statistics on the basis of EBAN
survey for selected EU Member States 33
Number of
BAN that
responded
Number of business
plans submitted
(successfully
presented) to
Business Angels
Number of deals
made through the
network
Number of new
companies
financed
Number of
follow-on
rounds
France
66
339
331
220
2
Germany
10
212
14
9
3
Italy
13
1,346
222
154
7
Netherlands
11
442
109
6
3
Poland
3
61
2
2
0
Spain
13
594
58
38
2
Sweden
5
98
25
17
5
22
115
127
40
4
UK
Source: EBAN 2010 and 2009
BAN members’ Investment by sector
Table 4.6 below presents a sector breakdown of the total number of deals that took place through the
BANs. The tables clearly show that, while there are significant discrepancies between the amount
invested in different sectors between countries, the ICT, Biotech and Healthcare sectors constitute the
largest categories of investment, most often representing more than 50% of the total number of deals.
In the case of Italy, the finance and business services sector was quite important among IBANs members
(22% of deals) together with the creative industries and environment and clean technologies sectors. In
the Netherlands, social and sustainable investments and retail and distribution also had important
shares (over 10% of the deals in 2010).
Table 4.6: Share of Business Angels’ investment by sector - Data from EBAN survey on selected EU
Member States (% of deals)
ICT
Mobile (incl. software and
service applications)
Creative Industries
Biotech and Life sciences
Health Care/Medical
technology
Social and Sustainable
Investments
Energy
Environment and Clean
technologies
33
34
FR
DE34
IT
NL
PL
ES
SE
UK
40
38.3
13
17.5
100
33
26
26
7
11.1
5
10.3
0
2
13
1
2
14
7.5
5.7
10
7
0.9
2.1
0
0
14
10
2
13
6
24
8
5.5
10
16.2
0
3
31
11
4
n/a
0
12.3
0
1
0
0
0
4.5
0
3
4
3
9
0.0
0
10
11
6
8
9
11.3
Data for Germany and the Netherlands are from 2009
Data for Germany and the Netherlands are based on the 2009 survey
24
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
Retail and Distribution
Finance and Business
Services
Logistics and
transportation
Manufacturing
Other
Source: EBAN
4
0
4.6
8
12.3
0
3
0
1
0
1.9
22
5.3
0
1
0
0
0
n/a
0
n/a
0
3
0
0
0
9
6
7.7
7
8
n/a
n/a
0
0
13
4
0
0
19
3
Geographical distribution of BAN members investments
Table 4.7 provides an indication of the location of the ventures where network affiliated Business Angels
in each country choose to invest. The data show that, with the exception of German Business Angels,
the vast majority of investment takes place in the same country or region where the networks are
located. This is very much in line with the conclusions of a number of studies that have also found that
most business angels invest in firms within geographical proximity (Mansonn and Landstrom,200635 and
Avdeitchikova,200736 in Sweden, Wallisch,2009 in Germany).
Table 4.7: Business Angels’ investment by location of recipient firms - Data from EBAN survey on
selected EU Member States (% of deals)
In the region
where the Network
is located
In the same
country, but not in
the same region
Crossborder in
Europe
Outside of
Europe
Not known
France
84
15
0
2
2
Germany
50
13
38
0
0
Italy
70
5
11
4
4
Netherlands
35
54
-
11
Poland
0
100
0
0
0
Spain
95
5
0
1
1
Sweden
0
0
0
0
0
UK
73
23
3
1
Source: EBAN survey, 2010 (Data for Germany and the Netherlands are from the 2009 survey)
0
Stage in the business’ Life Cycle of Business Angels’ investment
The data from the EBAN survey presented in Table 4.8 reveal that in most countries Business Angels
focus on the Seed and Early Stage/Start-Up level. Having said that, the expansion stage appears to be
attractive for a sizeable number of Business Angels (15-20% of deals), at least in the case of Germany,
Italy, Sweden and the UK.
35
Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of Sweden, Venture
Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
36
Sofia Avdeitchikova (2009): False expectations: Reconsidering the role of informal venture capital in closing the
regional equity gap, Entrepreneurship & Regional Development: An International Journal, 21:2, 99-130
25
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Table 4.8: Business Life Cycle Stage of Investment in selected EU Member States - Data from EBAN
survey
Pre-seed
Seed
Early stage
and start-up
Expansion
Pre-IPO
Buy-out and
turnaround
Other
0.00
0.00
100.00
0.00
0.00
0.00
0.00
14.20
30.40
31.8
22.8
0.00
0.80
0.00
Italy
0.00
36.57
21.71
20.71
0.00
0.00
11.00
Netherlands
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Poland
40.00
30.00
30.00
0.00
0.00
0.00
0.00
Spain
3.08
40.31
48.92
7.69
0.00
0.00
0.00
Sweden
0.00
8.75
73.75
17.50
0.00
0.00
0.00
UK
0.00
7.13
71.58
19.35
1.94
0.00
0.00
France
Germany
37
Source: EBAN survey 2010 and 2009
Level of co-investment between business angels and other bodies
The EBAN survey also provides also some indications on the level of co-investment that takes place. The
total amount of additional investment in SMEs that were supported by the networks – including angel
finance but also co-investment with other funds, syndicated deals, VCs and other investors- is in many
countries more than double (up to 10 times greater in Sweden) the amount invested by the angels in the
networks.
Table 4.9: Co-investment in SMEs supported by BANs in selected EU Member States38
Number of complete
responses by BANs
Total value of
investments by angels in
BANs(€s)
Total value of investment on
SMEs supported by BANs
(including co-investment) (€s)
66
62,500,000
125,000,000
Germany
10
20,005,000
24,305,000
Italy
Netherlands23
11
34,720,000
18,020,000
122,300,000
24,450,000
Poland
na
na
Spain
3
11
5,700,000
7,200,000
Sweden
5
3,020,000
30,600,000
UK
22
18,090,556
57,170,000
France
39
11
Source: EBAN survey
37
Data for Germany are from 2009
The numbers in the second column – investment by angels in BANs – do not always coincide with that in tables
4.1 and 4.3 since some of them are based on a smaller number of responses. In a number of occasions BANs did
not provide data related to the third column – the total level of investments, including co-investment.
39
Data for Germany and the Netherlands come from the EBAN 2009 survey based on 13 and 11 responses. The
2010 survey is based only on 3 responses for Germany and at its initial stage no data for the Netherlands.
38
26
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Concerning the main types of co-investors, the survey data from EBAN are rather inconsistent but, from
what is available, we can conclude that in most cases it is either other angels - inside or outside the
specific network – and early stage funds that are the main co-investors. In the case of Sweden
institutional investors also appear to have a very important role, such as the government led ALMI
Invest scheme in Sweden that requires 50% co-investment and has attracted a significant number of
Business Angels. Other co-investors include, in The Netherlands the Technostarter Funds, in Scotland the
Scottish Seed Fund and the Scottish Co-Investment Fund and in Italy the Fondo Rotativo per le nuove
imprese innovative della Camera di Commercio di Pisa. Venture Capital funds are also indicated as coinvestors for a smaller, but still sizeable, number of deals (around 10%).
Table 4.10: Level of Business Angels Co-investment in selected EU Member States - (% of total number
of deals completed through BANs in 2010)
49.2
with
Business
Angel
outside of
the
network
24.6
26.3
16.3
31.3
13.8
3.8
8.8
0.00
Poland
50.00
33.00
0.00
0.00
0.00
0.00
17.00
41
Spain
29.23
5.38
0.00
10.38
0.00
1.92
0.00
Sweden
13.3
23.3
10.00
13.3
0.00
26.7
0.00
UK41
95.24
6.02
3.90
0.90
17.78
0.59
57.00
with
Business
Angel
inside the
network
France
Germany
40
with an
early stage
fund
with a
venture
capital
fund
with a
family
office
with
institutional
investors
with other
investors
26.1
0.00
0.00
0.00
0.00
41
Italy
Netherlands
Source : EBAN survey
4.5 - Summary
The main conclusions of this section are:
•
•
•
On the basis of the data from EBAN and other sources the total value of the visible segment of the
Business Angel market in Europe in 2010 would appear to be of the order of €660 million;
Data on the non-visible segment of the market – namely the part that takes place outside BANs –
are very limited. On the basis of various sources we can estimate that is probably around seven
times greater than the visible market, bringing the whole size of the Business Angel’ market in
Europe in 2010 to a total of €4-5 billion and no more than 25% of the size of the United States’
market;
Broadly speaking, Business Angel investments tend to concentrate on ventures in ICT (where there
are often lower capital requirements), Biotech and the Healthcare sectors;
40
Data for Germany and Poland are from the 2009 survey
Data for Italy, Spain and the UK did not add up to 100% either because of missing values or possibly because of
wrong interpretation of the survey question. They are presented here only for reasons of completeness.
41
27
Evaluation of EU Member State Business Angel Markets and Policies
Investment by Business Angels
•
•
•
Section
4
The majority of funding takes place at the Seed and Early Stage/Start-Up level although in a number
of countries Business Angels are also involved in expansion stage finance which is typically a stage
that attracts Venture Capital;
Business Angels tend to support ventures that are in relative geographical proximity with prime
focus on the regional level;
Business Angels are increasingly using syndicates to structure their investments.
Business Angel investments through BANs appears to attract additional investment, the amount of
which ranges greatly among BANs in different countries. Other Business Angels are the most common
co-investors but other early stage funds, institutional investors (including government schemes) and VC
are also co-investing with Business Angels.
28
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
In this section of the report we provide a brief review of characteristics of existing public policies in
relation to Business Angels and of the existing evidence concerning the effectiveness of public
support.
5.1 - Introduction
This section examines the available evidence about the outcome of public policy tools supporting
Business Angels. The development of policy tools to support the angels’ market is part of the broader
policy for supporting entrepreneurship and new firm creation, ultimately leading to economic
development and employment creation. In that respect, the development of a climate where investors
are willing to invest in start-up businesses is clearly an important objective.
Much of the available information was reviewed in a recent OECD review of Business Angel policies in
Europe42. In addition, a small number of academic papers and a few formal evaluations of public
programmes in some EU countries (Sweden, UK) have also been used in this report. One reason for the
rather limited evaluation work is that most policy interventions in the angel market have been rather
recent, starting in the early 1990’s in the United Kingdom and the late 1990s in the other parts of
Western Europe (Mason, 2009) and, more recently, other regions around the world.
The main policy tools examined in the evaluation studies identified include:
•
•
•
Support for the creation and operation of Business Angels networks;
Tax incentives or tax relief schemes;
Co-financing schemes.
The most common questions considered in these studies focus on scheme level outcomes, i.e. the
performance of the scheme as a whole in achieving new investment by Business Angels and in creating
employment, and the added-value for Business Angels and entrepreneurs. Firm level issues, i.e. the
performance of the firms supported, are also sometimes considered.
The following paragraphs summarise the key conclusions of the studies identified. These are also
summarised in table 5.1 at the end of this section. However, we first place public support for Business
Angels in the context of the effectiveness of business angel investing as a whole.
5.2 - Effectiveness of business angel investments
Before considering the effectiveness of the various policy tools a first important consideration is the
return of the Business Angel investment for the investor, the entrepreneurs and the governments that
support Business Angels.
There are mixed views on the outcome of business angel investment from the point of view of the
investor. While there are many well-publicised success stories from individual investments, data on the
outcome for investors of a portfolio of angel investments is not readily available. Given the lack of
market data and the long maturity period of investments, this is unsurprising. Studies such as those of
Scott Shane(2008)43 suggest that the returns to Angels’ investments are generally low. However,
working in groups tends to be more effective and some of the earlier Angel syndicates have returned
42
OECD (2011), Financing High-Growth Firms: The Role of Angel Investors, OECD Publishing.
http://dx.doi.org/10.1787/9789264118782-en
43
Scott Shane (2008), Fool's Gold? The Truth Behind Angel Investing in America, 2008 ISBN13: 9780195331080
29
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
significant amounts of capital to investors. It is not unusual for just a few highly successful investments
to emerge from many with low or negative returns.
From the point of view of the entrepreneur, besides the provisions of capital, the non-financial
assistance to the businesses in which Business Angels invest can be critical. The non-financial assistance
is particularly important in the earliest development stages where the management team is incomplete
or inexperienced. Business Angels may work on developing the firm’s business plan, offer advice and
contacts and improve the profile of the firms through their own reputation (EIF, 2011). In a recent
survey of Business Angel-supported firms by the KfW (2010)44, contacts and Business Angels’ know-how
were considered more important than the provision of finance.
From the government point of view there is some evidence on the effectiveness of the support to
Business Angels in terms of returns on public investment. Estimates by a syndicate in Scotland45 point
out that the increased flow of personal tax and social security contributions from a new small business
and the resulting reduced expenditure by government mean that tax relief on new investments is often
recovered in less than one year. In Ireland46, Angel investments of €12m in 2011 created 344 jobs,
equivalent to an annual investment of €35,000 per job. Tax relief on such an investment will be
recovered in a short period. A similar study in Portugal showed that, because of the delay in granting tax
relief, angel investing was always cash positive for the government. Essentially, the savings resulting
from the benefits of new jobs are much greater than the level of government support.
5.3 - Support to Angel Associations, Networks and Groups
Turning to the public policy tools available, a measure introduced in some countries has focused on the
promotion of BANs. Such networks support matching of ventures with Business Angels. They also can
provide consulting services to ventures to make them investment-ready. In some countries (e.g.
Germany, Spain, Sweden) government has also financially supported the formation of national angels’
associations or federations of networks, in order to contribute to the development of the angel market
in a given country by raising awareness about angel investment, collecting relevant data, providing
training and promoting the interests of Business Angels in the public policy sphere. In Spain there is an
initiative to provide certification for BANs in return for funding and good record keeping.
Some countries have sought to develop the Business Angel market by encouraging syndicates. Examples
include the Netherlands through the Technostarter Funds, and Scotland through LINC. According to the
OECD study cited earlier, the initial support from the EU and national governments actually led to a
dramatic increase in the number of BANs in Europe. However, the eventual success and the investment
activity of these BANs varies. The study of Collewaert et al. (2010)47 in Belgium showed that BANs have
contributed to the identification of 82% of the deals of visible angel investors and that they play an
important role in bringing together angels. However, it also found that sometimes the best investment
opportunities are channelled to the better known angel investors that do not necessarily need or want
44
KfW Bankengruppe (2010), Beteiligungsmark t nach der Krise : Optimistischer Ausblick Aber Angebotslücke beim
Wachstums capital wird grosser (in German)
45
Based on a discussion with the largest Scottish syndicate, Archangel
46
Halo Business Angel Network (HBAN), April 2012
30
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
to co-invest through a BAN. Similar conclusions were reached in a study by a well established BAN in
Germany.
The studies reviewed in the OECD report cited earlier also refer to the costs for the operation of these
networks. Government support for the BANs in the early years of operation is critical but in the long
term the BAN need to be self-sustainable. This relies on the capacity of the organisations to fill a real
need in the market and their performance to be measured against measurable targets. The studies of
Aernoudlt et al (2007) and Knyphausen-Aufsess and Westphal (2008) indicate that Business Angels are
often sceptical on the added-value provided by networks and raise doubts on their viability in the
absence of public support.
A further form of support is to encourage the development of syndicates of investors. LINC Scotland, for
example, has a remit to promote new Business Angel syndicates and receives some government
financing to support this objective
It should be appreciated that support focused on BANs refers only to the visible section of the market
which represents the minor part of the market. As a result, the promotion of BANs can only have a
limited direct effect on the Business Angels market. However, the activities of most BANs and national
associations focusing on investment readiness or the promotion of Business Angels interest, and interest
in Business Angels can also have positive indirect effects.
5.4 - Tax incentives
Another form of support for Business Angels adopted in a number of countries is the introduction of tax
incentive schemes, such as tax breaks or tax shields. In comparison to the focused support for BANs,
such form of support can have an impact on the whole of the Business Angels’ market, including the
unmeasured part of the market.
Among the eight countries examined in this study, seven of them have either introduced in the past or
are planning/considering some form of tax scheme aiming to support investment in small or new firms
directly aiming at Business Angels. Poland is the only exception.
Examples of tax incentives in the countries examined include the UK Enterprise Investment Scheme
(EIS), which has been in place since 1995 and is the most often cited example. The OECD study indicates
that the evaluation of the programme showed that 80% of investors surveyed by NESTA48 had used the
Enterprise Investment Scheme (EIS) at least once and another study (Wiltbank, 2009) found that that
24% of investments would not have been made without EIS. Other studies of the EIS also confirmed its
additionality in terms of the amount invested and a positive impact on the companies in which they
invested (Mason, 2009). There is currently a proposal to enhance the EIS referred to above with a
scheme specifically targeted at Business Angels, the Seed Enterprise Investment Scheme (SEIS)49.
In other countries – e.g. Sweden and Netherlands - the tax deduction schemes introduced were
terminated and were generally considered as not successful in attracting Business Angels interest while
the experience from the recently introduced schemes in Spain and Italy is insufficient to draw
conclusions from as yet. In Germany, a survey of Business Angels indicated that, while not irrelevant, tax
relief was not considered as important for more than half of respondents but there are diverging views
expressed on this issue by representatives of Business Angels in other countries examined (e.g. Spain).
48
49
National Endowment for Science and Technology
For details see http://www.hmrc.gov.uk/seedeis/index.htm
31
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
In the case of France, the Avantage Madelin provides a tax credit of 25% (up to a maximum of €40,000)
for any investment in a SME provided the equity is kept for more than five years. In 2007, the loi TEPA
(Loi en faveur du travail, de l’emploi et du pouvoir d’achat) was adopted concerning tax-payers
subjected to the Solidarity tax on wealth (ISF – Impot sur la fortune) providing a tax break of 75% of any
investment in SMEs up to a maximum of €50,000. This break was reduced to 50% in 2010. However, in
the case of the French tax scheme the feedback provided by the Business Angels is that the main issue
was the rather limited capacity to target Business Angels exclusively and that it has been used for all
types of financial investments, including limiting inheritance tax. The French schemes have also suffered
from the frequent changes that have made them complicated and less attractive.
In sum, the effectiveness and success of tax schemes aiming to support Business Angels seems to vary
greatly. They require careful design, monitoring, evaluation and targeted adjustments to ensure the
intended results are achieved.
5.5 - Co-investment funds
Co-investment schemes have been set up with the objective of encouraging the development of the
Business Angel market and the early stage venture capital market. They help fill a finance gap by
providing extra capacity at these stages. This type of direct financing of an entrepreneurial firm usually
takes the form of loans or equity, with the public sector’s contribution usually matching the financing
provided by the Business Angel pari passu. Some programmes focus exclusively on angel investors while
others include a broader range of investors such as venture capitalists.
As noted in the OECD study, a significant amount of time in planning (and, in many cases, securing all
the necessary approvals) is often necessary before such funds are launched. In terms of effectiveness,
the evaluation of the Scottish Co-Investment Fund (SCF) - the most commonly cited example - showed
that the SCF had a critical role in the raising of capital for over half of the investee companies. 78% of
them considered that the fund was vital to their survival (Harrison, 2009) and there were positive
economic impacts in terms of turnover, gross value added and employment.
The OECD report refers also to the Technostarters Seed Facility in the Netherlands. The evaluation
conducted concluded that the scheme functioned well and helped boost funding for early-stage
technology firms.
A similar scheme has also been developed in Sweden with funding from the Structural Funds (ERDF). A
number of regional venture capital funds were created across a number of regions and were mostly run
by local subsidiaries of a publicly controlled financial institution (ALMI). While they did not focus
exclusively on Business Angels, more than 50% of the co-investors have been Business Angels and the
input received during the fieldwork is that the presence of public support and the process of selection
had a positive role in attracting Business Angels50. A survey of entrepreneurs in Spain on similar coinvestment schemes also indicated a positive view of the role of such co-investment schemes (59% think
it can help “a lot” or “somewhat”).
According to the OECD report co-investment schemes can be an important driver in building, growing
and professionalising the angel market as they provide a more structured investment process and the
pre-existence of angel groups is considered a key success factor of the co-investment funds. However,
50
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt,
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/evaluations/sweden/files/1111_swede
n_venture_eval_en.pdf
32
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
an exception was the case of the co-investment fund established by the Danish Investment Fund in
2007, Vaekstfonden, where the OECD study points to the limited attention given to the Fund by the
Danish Venture Capital and Private Equity Association (DVCA) that was responsible for its promotion but
was also running a parallel scheme for VCs. While the VC scheme had a success in the venture capital
segment of the market the angel co-investment fund, Partner Capital, was not successful as there were
too few angels making too few investments.
Table 5.1: Summary of selected reviews of assessments of public support measures for Business
Angels
No Tool
examined
Study name
Information on the Main conclusions
tool
1
Business
angels
networks
Rudy
Aernoudt,
Amparo San
José & Juan
Roure
(2007)51
European Commission
three year horizon call
for proposal (in 1998)
offering support for
the creation of
business angel
networks, feasibility
studies on their
establishment and
dissemination actions.
2
Business
angels
networks
Dodo Zu
Northern Bavarian
Knyphausen- Business Angels
Aufseß &
Network in Germany.
Rouven
Westphal
(2008)
Strong doubts on the viability of BANs, no
real recognition of the value added of the
services provided and the demand from
Business Angels, potential distortion of
market toward young ventures that would
not be otherwise supported
3
Business
angels
networks
Veroniek
Collewaert,
Sophie
Manigart &
Rudy
Aernoudt
(2010)52
The companies contributed to economic
development and growth. The 55 BANbacked companies together added €73.2
million in value from the year of Business
Angel participation onwards. Each euro of
government subsidy on Flemish BANs
generated an estimated €85.39 in value
added.
The first Belgian BAN,
Vlerick BAN, was
subsidised by the
Flemish government in
1999. Three other
BANs were
subsequently founded
and subsidized.
Together, they were
the only BANs
- In 2006 there were 282 networks in
Europe, of which 101 (36%) were UKbased.
- The main benefit was the demonstration
of the potential of business angel
investment and raising awareness.
- Very few of the networks financed
became self-supporting. Most of the
subsidies granted, had to be extended
otherwise the network’s activity would
cease.
The BAN-backed companies in the sample
paid €547k in taxes in a five-year period
51
Rudy Aernoudt, Amparo San José & Juan Roure (2007): Executive forum: Public support for the business angel
market in Europe – a critical review, Venture Capital: An International Journal of Entrepreneurial Finance, 9:1, 7184
52
Veroniek Collewaert, Sophie Manigart & Rudy Aernoudt (2010): Assessment of Government Funding of Business
Angel Networks in Flanders, Regional Studies, 44:1, 119-130
33
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
No Tool
examined
Study name
Section
5
Information on the Main conclusions
tool
operating in Flanders
until 2004 (after which
they all merged) and
all operated in the
same way, through
investor forums.
starting from the year of the Business
Angel participation. Each euro of
government money spent on the BANs
generated a direct return of €1.03 in taxes.
Employee growth was significantly higher
in BAN-backed companies than in nonBusiness Angel-backed companies but
comparable with that in companies that
received Business Angel financing through
another channel.
Each BAN-backed company created 1.84
jobs on average over the observation
period
It is hard to assess whether the supported
companies create value in the long-term. In
the short-term, they seem to destroy value,
but there is an upward trend in value
adding and profitability in the last years of
the analysis.
BAN-backed companies create significantly
less value than similar non-backed firms
BANs reduce information and financing
problems of entrepreneurial companies.
Entrepreneurs and Business Angels stated
that they would not have known each
other without BANs. The programme
increased the supply of funds to
entrepreneurial companies, rather than
crowding out the private sector.
4
Tax
measures
NESTA
United Kingdom
Enterprise Investment
Scheme (EIS) tax
investment scheme ,
in place since 1995.
Following a review,
the taxation relief
available to investors
in EIS schemes was
increased to up to 30%
on the amount
NESTA study showed that 80% of investors
surveyed used the Enterprise Investment
Scheme (EIS) at least once and 57% of
investments made use of EIS.
Investors indicated that 24% of
investments would not have been made
without EIS (Wiltbank, 2009).
Earlier evaluations were also positive and
suggested significant additionality in terms
of the amount of money invested (over
50%) as well as a positive impact on the
34
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
No Tool
examined
Study name
Section
5
Information on the Main conclusions
tool
invested.
companies in which they invested (Mason,
2009).
5
Tax
measures
OECD
France: ISF scheme –
deduction on wealth
tax
ISF attracted many financial investors
instead of the targeted angel investors
6
Tax
measures
Rudy
Aernoudt,
Amparo San
José & Juan
Roure
(2007)
Enterprise Investment
Scheme (EIS) providing
a 20% tax relief on the
amount invested
EIS scheme is considered to be successful
in attracting a critical mass of investments
to the target segment (Mason and
Harrison, 1999; Boyns et al., 2003).
Rudy
Aernoudt,
Amparo San
José & Juan
Roure
(2007)
Netherlands
guarantee scheme
from 1995-2000
The scheme was abolished after an
evaluation revealed that the scheme was
not considered good value for public
money.
Flanders guarantee
scheme (1996-2005)
The scheme was abolished based on an
evaluation showing all the 75 deals
applying to the scheme would have been
closed without the guarantee support
Belgium: initiative of
the Participation Fund.
Grants subordinated
loan of €125,000 if
matched by finance
from a business angel.
The average deal brought to the
programme was similar to the average deal
closed through Belgian networks.
7
Guarantee
of Business
Angels
Investments
8
Guarantee
of Business
Angels
Investments
9
Coinvestment
funds
Rudy
Aernoudt,
Amparo San
José & Juan
Roure
(2007)
It was not proved whether this programme
has raised additional investment or
whether some of the deals would not have
been closed without the tax advantages
granted.
The programme provides more capital to
the investee companies than is invested by
Business Angels.
Characteristics (size, sector) of the deal,
conversion rate, role of the Business Angels
are not affected by the scheme.
10
Coinvestment
Tllivaxverket
Sweden Regional
venture capital funds
The main contribution is the sharing of the
risk, expertise, through due diligence
35
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
No Tool
examined
funds
Study name
Information on the Main conclusions
tool
(2011)53
with the support of
Structural funds–
investment provided
on the basis of
matching from private
sector – including
Business Angels.
Section
5
conducted and the simplification and
standardisation of contractual procedures.
The cooperation with the venture capital
funds increased their knowledge, skills and
ability to implement investments (71% of
respondents), extend their network (66%)
and their knowledge about investment
opportunities in the region (around 52%).
The initiative has so far led to an increased
volume of investment for around half of
respondents. 45% of co-investors said they
would probably not have implemented the
investment and 10% that they probably
would have implemented a smaller
investment.
11
12
53
Coinvestment
funds
Coinvestment
funds
Hayton and
Gen (see
also CSES
study)
OECD
Scottish CoInvestment Fund (UK)
- Funding coming
from public sources
and the ERDF, total
£44.6 million.
A Scottish Enterprise evaluation showed
that over half of SCF investee companies
felt their chances of raising capital would
not have been possible without SCF and
78% stated that the fund was vital to their
survival (Harrison, 2009).
Complement
investments by various
types of investors
including Business
Angels. .
SCF has had a positive economic impact on
the companies they have supported in
terms of turnover, gross value added and
employment.
The
Technostarters The funds helped boost funding for earlySeed Facility
stage technology firms.
The facility matches
funds
from
both
venture capital firms
and angel syndicates.
The key success factor was the three phase
payback scheme, which provides earlier
payback to the private investors and
potentially higher reward if the companies
perform well.
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt
36
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
5.6 - Summary
The review of the evidence on public policy schemes supporting Business Angels suggests a rather mixed
picture. Each of the various types of public policy tool has its own advantages and disadvantages and a
combination of tools may be needed in many cases.
On the one hand there is evidence of positive contribution of tax or other co-investment schemes in
terms of the returns to the investment for government – directly or indirectly. There is also a generally
supportive assessment made of the support of BANs in terms of raising awareness and also, in some
cases, bringing together investors and linking them with firms. On the other hand, the evidence is,
however, not as clear in terms of their viability, the added value of most of their services and their
capacity to reach the whole of the Business Angels’ market. Tax incentives can reach the broader market
but can become too wide in their scope, being used for other types of investments and possibly
providing limited value for money. Co-investment schemes seem to be effective in stimulating the
Business Angels market. However, such schemes require a significant level of resources for proper
planning and management from the public sector side.
In sum, the practicalities of public intervention reflect the problems of dealing with the market failures
in question: high search costs, high transaction costs, and insufficient economies of scale which have
also constrained the entry of private sector institutions into this market.
37
Evaluation of EU Member State Business Angel Markets and Policies
Section
Business Angels and SME financing
6
This section considers Business Angel funding in the context of SME funding as a whole, and assesses
other issues in the terms of reference including the need for public action and exits and rates of
return. Finally, we summarise issues of data availability
6.1 – Business Angels in the context of SME financing
Most SMEs are financed through bank loans. Equity financing forms a smaller (but still important)
tranche of financing. DG Enterprise’s access to finance survey asked companies what type of external
financing they would most prefer to realise their growth ambitions. Only 6.3% of companies with less
than 10 employees would prefer equity capital, with loans being the preferred source.
Table 6.1: Preferred sources of finance
Bank loan
Loan from other sources
Equity investment
Subordinated loans, participation loans etc
Other
No answer
DK/NA
1-9
employees
60.1
14.9
6.3
3.2
6.2
2.6
6.9
10-49
employees
66.2
14.2
6.7
2.7
4.5
2.2
3.5
50-249
employees
64.5
12.5
7.5
3.4
6.2
2.1
3.8
>250
employees
56.5
18.2
9.1
3.7
4.6
3
4.9
54
Source : DG Enterprise SMEs' Access to Finance Survey 2011
Equity capital is of course available from Business Angels and from other sources, in particular venture
capital funds. This report has suggested that visible market investment by Business Angels in Europe
might be of the order of €660 million and the total market, including the non-visible market might be
between €4bn and €5bn. The total venture capital market in Europe, according to EVCA, is €43 billion for
2010, ten times the size of Angel investment. However, only a small part of the venture capital market is
in the start-up and seed areas.
An analysis of the venture capital market in Europe by stage of investment is shown by EVCA as follows
Table 6.2: Investments by stage in the venture capital market
2010
2011
€billion
Buyout
Replacement capital
Rescue/turnaround
Growth capital
Later stage venture capital
Start up
54
29.5
1.7
0.5
6.4
1.8
1.8
34.1
0.9
0.4
5.1
1.7
1.8
accessed at http://ec.europa.eu/enterprise/policies/finance/files/smes_demb.xls
38
Evaluation of EU Member State Business Angel Markets and Policies
Business Angels and SME financing
Seed
Total
0.1
41.8
Section
6
0.2
44.2
Source :EVCA yearbook 2012
If we compare the total of start-up and seed capital investments identified in the EVCA year book, we
find total investments of €1.9 billion in 2010. This is more than the visible Business Angel market (€0.66
billion), but less than the total Business Angel market of between €4 billion and €5 billion. At the start up
and seed part of the market, Business Angels appear to be the major source of risk capital. Venture
capital is the major source at later stages.
6.2 – The funding gap and the need for action
We can now consider whether the supply of early-stage or start-up risk capital from all sources is
adequate or whether there is a funding gap that needs to be filled. This subject has been extensively
debated and virtually all studies point to the existence of a funding gap at some levels of investment –
broadly from the point at which “friends and family” are unable to finance a business, to the point at
which venture capital or other sources of finance become available. Most public bodies, not least the
Commission, have had action plans to help increase the supply of risk capital to SMEs and indeed this
study is part of the work envisaged in the Commission’s Communication “An action plan to improve
access to finance for SMEs”55. And the EIB changed the focus of its €5m Risk capital mandate to allow it
to allocate risk capital to new market areas such as Business Angel co-investments, impact investing and
technology transfer.
The extent to which there has been public support for Business Angels as a source for funding of SMEs
has been related to two main factors: the extent to which such a funding gap has been perceived to
exist by the Member State in question and the extent to which the appropriate public sector
organisation (i.e. ministry of government department) has been aware of the potential of Business
Angels to help meet such a gap where it exists and has had the tools – legal and financial – to intervene,
or had the will to create such tools.
Thus, for example, in the case of Sweden the view of the authorities has generally been that SMEs are
relatively well-served by the regulated market and the existing financial support institutions, so that
separate intervention on behalf of Business Angels is not a major policy priority. On the other hand, in
Germany there is seen to be considerable potential for Business Angels, and in France they are also well
supported, working closely with organisations such as Oseo, the CDE and FSI. In Spain they are also seen
as offering considerable potential and it is understood that legislation is being prepared to support
them. In Poland, while recognised as important and able to make an important contribution to SME
financing, there is also a good deal of attention being paid to creating the correct framework conditions
for their development. In Scotland, Business Angels are being leveraged as a tool for economic
development finance through the development of syndicates.
Also, as indicated earlier in this report, studies in the UK found that there is an “equity gap affecting
SMEs seeking between €300,000 to €6m of equity finance. There are also cyclical issues relating to
the supply and demand of finance”. It was felt that very few venture capitalists invest below €6m
million. Below the level of €300,000 friends and family, grants and Business Angels are the key
55
Com 2011 870 final 7 Dec 2011
39
Evaluation of EU Member State Business Angel Markets and Policies
Business Angels and SME financing
Section
6
sources. The response was the provision of new public support in the form of the Seed Enterprise
Investment Scheme providing enhanced tax breaks to all Business Angel investors.
In summary, the main policy choices are either to support all Business Angels by the provision of tax
breaks, or to support Angel networks or syndicates to enhance the flow of information, reduce
transaction costs and increase transaction volumes. The support to networks or syndicates is
usually relatively small in amount but it reaches only the visible part of the Angel market.
Having said that, the low share of projects brought to networks that are actually funded (some 35%) suggests that either there is still a good deal of scope for expansion of Business Angel activities,
or the quality of projects brought to the market is not very high and the funding gap may not be as
large as is thought.
6.3 – Exits by Business Angels
Exit strategies tend to be an area of concern in all Member States where we undertook more in-depth
research. Most studies suggest that Business Angels hold their investments for about 4 to 7, or 3 to 5
years. Exits are also strongly influenced by prevailing economic and financial conditions. In Italy, there
were substantially less exits reported in 2011 than in 2010 and this appears to be due to inability to find
acceptable purchasers in the prevailing financial environment.
Among the various exit options, the least prevalent tend to be IPOs, followed by exit due to closing the
business. Most exits are through trade sales and buy-backs.
Firm data on returns to Business Angels is not often available and EBAN is sponsoring a long term
research project in this area. A recent study in the UK provides useful data as follows
The most likely outcome in any one angel investment is failure, but ‘winning’ investments are very
attractive. Fifty six per cent of the exits failed to return capital, while 9 per cent generate more than ten
times the capital. Because the 44 per cent of investments that generate positive exits win at a larger
multiple than the costs of the negative exits, the overall return to business angel investing in the UK is 2.2
times the invested capital. These 9 per cent large investment exits produced nearly 80 per cent of all the
positive cash flows. Given the holding period of just under four years, this is approximately a 22 per cent
gross internal Rate of Return (IRR).56
Angel investment is capable of providing good returns, but the risks are substantial.
6.4 – Data availability
As with all previous studies, this study has found a lack of available information on the Business Angel
market and the behaviour of Angels. Even on the visible market, data is not consistent or complete. And
data on the non-visible part of the market (the large majority of Business Angels) is very limited.
The extent to which data and research studies exists on the Business Angel market in different Member
States varies considerably. Thus in Sweden and Germany there have been several studies, both of an
academic nature and by public sector organisations, whereas in other countries there has been
relatively little, as in the case of Italy, where there have been no studies on Business Angels by the
government. However, one key factor in common with these studies has been that they have not been
56
Robert E. Wiltbank ( ), “Siding With The Angels”, Research study of NESTA , Data from the British Business
Angels Association and their members
40
Evaluation of EU Member State Business Angel Markets and Policies
Business Angels and SME financing
Section
6
systematic with varying definitions and methodologies adopted for measuring the visible and non-visible
parts of the market. This makes their results difficult to compare and consolidate into an overall picture,
whether of the visible or the invisible market.
We indicated earlier in this report that there are in principle three main types of data that could be
obtained:
•
•
•
Top down surveys of BANs and potentially of known Business Angels. There is no doubt that this
approach is capable of providing detailed information of the activities of those surveyed, but the
approach will always provide a partial picture of the market with no certainty that the results
can be extrapolated to the market as a whole;
Large scale surveys of investors, such as the GEM data analysed in this report. Such large scale
surveys are capable of giving a picture of the whole market, but since Business Angels are likely
to be a small number of the group samples, the approach cannot give a detailed picture of their
work. Large sample sizes are needed to have confidence in the results;
Analysis of universal tax incentives. Whilst this approach is capable of producing useful
information in those countries that have such tax schemes, it may not always be possible to
know more than the basic details of the investment.
Concluding, none of the approaches provides a perfect solution. Possibly the most appropriate approach
would be a large scale survey of investors with a follow-up focusing on those that fit the definition of
Business Angels. However, given the substantial resources required in the short term the most practical
approach would be to develop and enhance the three partial solutions shown above while ensuring that
common definitions are used to enhance consistency and comparability of results.
6.5 – Summary
Looking at the role of Business Angels in the SME early-stage capital market, there were total
investments by venture capital organisations of €1.9 billion in 2010. This is greater than the visible
Business Angel market (€0.66 billion), but less than the total Business Angel market that is estimated
between €4 billion and €5 billion. At the start up and seed part of the market, Business Angels appear to
be the major source of risk capital while Venture capital is the major source at later stages.
There is continuing evidence from many studies of a funding gap. In summary, the policy choices are
either to support all Business Angels by the provision of tax breaks or to support BANs or syndicates to
enhance the flow of information, reduce transaction costs and increase deal volumes (both by increased
successes from existing volumes and by attracting in new Business Angels, Virgin and Latent investors).
The support to networks or syndicates is usually relatively small in amount – but of course reaches only
the visible part of the Angel market.
Among the various exit options, the available data suggest that most common exits are through trade
sales and buy-backs. The sought-after IPOs are the least prevalent, followed by exits due to the closing
of the business.
There are, in principle, three main types of data that could be obtained:
•
•
•
top down surveys of Business Angel networks;
large scale surveys of investors;
analysis of universal tax incentives.
41
Evaluation of EU Member State Business Angel Markets and Policies
Business Angels and SME financing
Section
6
None of these three approaches provides a perfect solution for measuring the Business Angel market.
The best approach would be a combination of a large scale survey of investors in general with a followup of targeting on Business Angels. But in the short term the practical approach is to develop and
enhance the three partial solutions shown above.
42
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
This section of our report analyses the evaluation questions set out in the terms of reference, and
then presents recommendations
7.1 – Introduction
This section of our report analyses the evaluation questions set out in the terms of reference and
presents points for further action. The evaluation questions are addressed in the same order as
contained in the terms of reference. We have included a brief summary of findings and analysis of the
question, where data is available. There is of course additional substantial data within the main body of
the report.
7.2
Relevance
Two matters are considered under the topic of relevance: the sources of data and public action.
What are the available data sources for the Business Angel market in EU Member States or regions?
There is a wide range of available data sources but they are of variable quality. In respect of the visible
part of the market, the main data sources include data collected by EBAN from national associations and
national BANs and data collected within countries including individual studies referred to in this report.
Data on the non visible part of the market is sparse. The GEM reports (referred to again later in this
section) provide a basis for estimating the number informal investors, some of whom will be Business
Angels. There have also been efforts to estimate the potential number of Angels, based on the number
of individuals that meet the wealth criteria that would enable them to act as Business Angels (for
example in France by the Conseil d’analyse stratégique). However, the data presents a very partial and
fragmented picture.
Underlying the data collected: both actual and imputed, is a layer of complexity that has not been fully
addressed, surrounding the definition and typology of Business Angels. It is difficult for the data to
distinguish between Business Angels and other informal investors such as friends and family. There are
also different motivations for Business Angels There is relatively little information about the potential
supply of Business Angels (except in France) and the factors influencing supply.
What is the identified need for public action (e.g. financing gap, market failure) to support Business
Angel financing and how have the programmes or policies of EU Member States been designed to meet
this need?
It has been well-established in many other studies that there is a funding gap for firms at the seed or
early stage. Firms largely rely on informal sources of capital and are too small to attract venture capital
or some forms of bank funding. This is particularly the case as in recent years venture capitalists have
been increasing their minimum thresholds, while banks have withdrawn even further from seed and
start-up funding.
Business Angels can meet funding requirements from as low as several thousand Euros. Where Business
Angels act in syndicates, or as co-investors, they can contribute to funding packages of 1-2 million Euros
when. So they can play a role in meeting this funding gap.
Data collected by the BANs also suggest that only a very low percentage of projects presented to Bans
are eventually backed - maybe even as low as 3-5%, sometimes less. The issue is, how many of the
43
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
rejected projects could have been backed if more Business Angels existed, or were those projects just
not of sufficient quality to be backed? Our view is that more projects could find backers if more Business
Angels existed. So, to the extent that Business Angels can meet this finance gap there is a rationale to
support them, and possibly also to encourage an increase in supply of Business Angels through policy
measures if possible to do so.
Given the relatively small size of many deals, the main market failures are search costs and transaction
costs which deter investors and those needing investment.
It does appear that the policies used to support Business Angels target these market failures. Tax
incentives should increase the profitability of participating in the market from the supply side. Coinvestment initiatives lead to shared transaction costs, uncertainties and risks (the public sector assumes
part of these). Support for BANs and syndicates can lead to expanding supply and demand to those who
have yet entered the market, reduced search and reduced transaction costs. Each of the three main
policy approaches has a place, and can play a role, but their effectiveness will depend on how they are
implemented – outcomes are not be “automatic”. At present it not possible to say which of the three
policy approaches are the most effective either, due to importance of how they are implemented. In
some Member States tax measures have been done away with and supplanted by support for cofinancing and BANs, in others tax measures are in the process of being implemented. In other parts
BANs are being discontinued as they do not bring additionality.
7.3 – Effectiveness
How effective are different data-collection procedures? Do they allow for consolidation of data on
cross-regional and cross-country level?
The annual survey of Business Angels by EBAN provides the most consistent source of data on Business
Angels in Europe. It is based on common indicators and common definitions that provide a wealth of
information on the characteristics of the networks that respond to the survey, and is capable of being
analysed across regions and member states.
However, the survey covers only that part of the visible market that chooses to respond to the survey.
The survey is sent to national federations and each year there is a different response rate both by
country and within countries from different BANs. So the survey results are not wholly consistent from
year to year. More importantly, a bottom-up survey of this nature cannot obtain data on the non-visible
segment which, our analysis suggests, is many times larger. So the EBAN survey, whilst providing much
interesting data, cannot be a comprehensive indicator of the market.
Alternative sources of information on the whole of the market can come from mass surveys of investors,
or from mass company surveys or data on tax schemes or other support schemes
A mass survey of investors is carried out by the GEM survey. This survey has a number of key
advantages. It covers all EU countries and is based on a common approach and definitions. Thus, it can
be used in order to get some top-end estimates of the overall Business Angel market, including the nonvisible segments. However the GEM survey does not explicitly focus on measuring the Business Angels’
population. As such, it does not always have good data on whether friends and family make
investments, and there is also no coverage of the important aspect of the involvement of investors in
the management of the firms. As a result, the GEM survey data can be used for making initial top-end
44
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
estimations and identifying trends but in this form cannot provide a complete basis for measuring the
Business Angel market.
Similarly, the approach used in France to estimate the potential supply of Business Angels by looking at
the number of individuals with sufficient wealth in a sufficiently liquid form to enable them to be
Business Angels is promising, but does not appear to have been replicated in other Member States. We
did not find any mass surveys of companies across all member states that provided useful data. Those
surveys that were available provided some financing data, but there is a limited requirement for SMEs to
publish finance data and accordingly this route may not be a helpful one to follow
Finally, the limited experience from data from tax schemes suggests that, in practice, they often attract
a broader range of investors than just Business Angels and do not provide a solid basis for measuring the
Business Angel market. Given the different characteristics of the schemes across the EU Member States,
any comparison and consolidation is problematic.
What are the main characteristics of the Business Angel financing in selected markets?
This report has included data on the characteristics of Business Angel financing and a short summary is
presented here. In total, the number of Business Angels in the visible market – namely the members of
BANs - in the eight countries examined is likely to be 18,000-19,000. For the total EU27 it is estimated
that the total number of Business Angels in networks and syndicates may be between 25,000 and
30,000. However, the EBAN data also suggest that only around 50% are active, namely that they have
made at least one investment during the year of the survey.
For the total market – visible and invisible - the total number of Business Angels in the EU27 is estimated
between 170,000 and 240,000, using a top down approach.
The data from EBAN suggests that the average size of investments per firm is generally in the range of
€100,000-200,000 in most countries. However, the investment per Business Angel tends to vary much
more, starting from as low as €18,000 to over €150,000. The median value is around €50,000. Of course,
in most cases Business Angels co-invest either with other Business Angels - the most common - but also
with early stage funds, institutional investors (including government schemes) and VCs. Data from
Germany and Italy indicate a decline in the average size of investment per individual Business Angel and
there were indications of similar trends in some other countries.
Firms in the ICT, Biotech and Healthcare sectors attract the most investments from Business Angels and
represent more than 50% of the total number of deals in the visible market in most countries. Other
sectors include finance and business services, creative industries, environment and clean technologies
with varying weight in the different countries.
In terms of the location of the firms, the vast majority of Business Angels invest in firms in the region or
the country where they are located. Cross-border investments are uncommon but appear to be
attracting more interest, especially for syndicates, as a way of spreading risk. This result is unsurprising
given the need to provide management support, while improved technology and transport
infrastructures can increase the geographic scope of operations.
As expected, Business Angels focus primarily on the initial stages of the firm’s life cycle - Seed and Early
Stage/Start-Up level - typically more than 75% of the total number of investments. In some countries Germany, Italy, Sweden and the UK - the data indicate a sizeable share of investments at the later
expansion stage.
45
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
The data from BANs suggest that female participation represents no more than 10%, and probably more
in the region of 3-5% of the total number of Angel investors.
We estimate the visible segment of the Business Angels market in Europe in 2010 to have invested
around €660 million. For the total market – both visible and non-visible - the rough estimations possible
indicate that total investment in the whole EU27 market in 2010 might be of the order of €4 to €5
billion.
To what extent has the Business Angel market contributed to the SMEs’ access to finance?
Equity finance is used by no more than 6.3% of firms with less than 10 employees. More traditional bank
loans remain the key source of finance for SMEs. However, this varies by sectors – mainly technology
intensive sectors - where firms most often seek equity finance and Business Angels assume a more
important role. Different sectors also have different capital intensities – software tends to need less
than medical technology, for example.
If we compare the total of start-up and seed capital investments identified in the EVCA year book, we
find total investments of €1.9 billion in 2010. This is more than the visible Business Angel market (€0.66
billion), but less than the total Business Angel market of between €4 to €5 billion. At the start- up and
seed stages, Business Angels appear to be the key source of risk capital while venture capital is the
major source at later stages.
How effective is Business Angel financing to bridge the equity gap in the seed and start-up phases of the
SME development? What, if anything, could be done to render Business Angel financing more effective as
a means to achieve these objectives?
As argued above, Business Angels appear to be a major source of risk capital at seed and start-up phases
of SME development. Venture capital is the major source at later stages.
Business Angels financing appears to be able to address only partly the equity gap faced by firms in the
seed and start-up phases. The information available indicates significant variation in its role and
effectiveness among Member States, with the UK market appearing more effective than in other
countries.
The high level of demand for Business Angel financing as evidenced by the number of funding requests
submitted to various BANs, suggests that there is scope to increase the contribution of funding by
Business Angels to seed and start-up projects, assuming they are of sufficient quality. So an increase in
the number of Business Angels might help to expand this market.
The question of the effectiveness, of Business Angel funding is complex. In the first place, it requires a
better understanding of the degree of effectiveness, and the causes of effectiveness than we have been
able to identify from the current literature. Secondly, there is still a learning process going on as the
Business Angels that are emerging in the current market are relatively new market players and the
institutions surrounding them – in particular the BANs (including their associated lawyers, accountants
and consultants) and co-investment funds (including public sector managers), are also learning.
The main part of the Business Angel market is informal and it is important that regulation, although wellintended, does not impede this part of the market. Public support programmes, described more fully
below, can also help.
At the same time, it should be emphasised that the financial support is only one aspect of the Business
Angels added value. Data from Germany, Spain and Sweden suggest that the management support and
knowledge that comes with Business Angel investment is often considered even more important.
46
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
7.4 – Efficiency
How can data sources and data-collection methodologies be improved to allow for comparability across
regions and countries?
None of the current approaches provides a perfect solution to measuring the Business Angel market.
Possibly the most appropriate approach would be a large scale survey of investors with a follow-up
focusing on those that fit the definition of Business Angels. However, given the substantial resources
required, in the short to medium term the most practical approach would be to develop and enhance the
existing solutions shown above while ensuring that common definitions are used to enhance consistency
and comparability of results.
In summary, the main data collection methodologies have the following advantages and disadvantages:
•
•
•
•
•
Top down surveys of BANs and potentially of known Business Angels. There is no doubt that this
approach is capable of providing detailed information of the activities of those surveyed, but the
approach will always provide a partial picture of the market with no certainty that the results can be
extrapolated to the market as a whole;
Large scale surveys of investors, such as the GEM data analysed in this report. Such large scale
surveys are capable of giving a picture of the whole market, but since BAs are likely to be a small
number of the group samples, the approach cannot give a detailed picture of their work. Large
sample sizes are needed to have confidence in the results;
Estimates based on the potential number of individuals with sufficient wealth, educational levels,
experience and willingness to become involved in companies as Business Angels. To calculate/
estimate the wealth of individuals in a given Member State and even for all 27 Member States may
be possible, but the assumptions required to filter that group arrived at down to the core group of
individuals that could be Business Angels may require some quite brave assumptions, which will
influence the robustness of the findings;
Records of Member States where registration is currently, or will in the future, be required to work
as a Business Angel (or BAN) in order to benefit from tax advantages or other forms of public sector
support could be useful, but it is unlikely that all member States will adopt such systems;
Analysis of universal tax incentives. Whilst this approach is capable of producing useful information
in those countries that have such tax schemes, it may not always be possible to know more than the
basic details of the investment which means it may be uncertain if it qualifies as a Business Angel
investment.
Some national BAN and BAN members interviewed have expressed a desire to work towards a more
widely accepted and comparable approach to measurement of Business Angels in the EU, so there is a
willingness to work towards such solutions and an appreciation of the value of having such data. It may
be worth suggesting to the industry to develop a solution, maybe based on a conference dealing with
the subject.
Which existing EU Member State support programmes or policies to facilitate the access to Business
Angel finance for SMEs are the most efficient or inefficient? Are there significant differences between
online and physical programmes or those that operate on a cross-border basis as opposed to a Single
Member state?
The main public policy tools examined in the evaluation studies identified include:
•
Support for the creation and operation of BANs;
47
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
•
•
Section
7
Tax incentives or tax relief schemes;
Co-investment schemes.
Each of the various types of public policy tool has its own advantages and disadvantages and a
combination of tools may be needed in many cases.
Support for the creation and operation of BANs and syndicates can take the form of helping improve the
investment climate, providing finance to start up networks or syndicates and helping with running costs.
Most assessments have been generally supportive of support of BANs in terms of raising awareness and
also bringing together investors and linking them with firms. However, some have been discontinued as
they did not provide additionality, and in some Member States they are dependent on public support for
their continued operations. In addition, support of this nature only reaches the visible market.
There is evidence of some positive contribution of tax or other co-investment schemes in terms of the
returns to the investment for government – directly or indirectly – but again this depends on the specific
system, how it is designed and operates. Tax incentives can reach the broader market but can become
too wide in their scope and the cost of implementing and operating the system also needs to be set off
against its benefits, when looking at it from a wider point of view. Unless they are carefully designed
they may be used for schemes designed to minimise tax liabilities.
Co-investment schemes seem to be effective in stimulating the Business Angel market. However, such
schemes require a significant level of management resources from the public sector side, and significant
investment funding. While there have been some positive evaluations of such schemes, it is too early to
be certain about the financial returns of co-investment schemes and not possible to make
generalisations in this respect.
What are the actual costs of operating the programmes and administrative burden to the SMEs or
Business Angels (for reporting, etc)?
There is very limited data on the costs of administering programmes to support Business Angels
The administrative cost of designing, managing and funding a BAN, or even several, can be kept
relatively low, involving a few individuals at most, and budgetary provision within a ministry or agency’s
operational planning.
Designing and operating tax schemes tends to be onerous in terms of the fact that tax codes have to be
developed (passed in parliament), promulgated, administered, adhered to by taxpayers, policed,
enforced, and even to change or abolish them requires resources. Benefits would have to be significant
to be able to offset these set-up, operational and termination (if appropriate) costs.
The administrative costs of co-investment schemes can also be substantial, but there are some that
could be operated on a less resource-intensive basis, such as the Technostarter Funds, for example, as
compared to those established within institutions such as SCF and Oseo.
However, the crucial factor is to evaluate the relationship between inputs and outputs of the various
approaches and, in this area, very little has been published that can be used to compare approaches
within the three main policy streams (e.g. one co-investment fund with another, or one tax system with
another), or between them.
48
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
How can the efficiency of the Business Angel programmes be improved? What are the best practices that
could be applied in other EU countries?
It will be appreciated that the main part of the Business Angels market is informal and receives no
support other than the schemes offering tax relief. So, aside from these general tax-based schemes, the
main part of the market receives no support.
To improve the efficiency of Business Angel programmes they should be designed around the following
axes:
•
•
•
Raising awareness of the role and nature of Business Angels with both potential Business Angels and
those that have a demand for finance;
Assist the development of new syndicates and BANs;
Ensure that there are mechanisms to prepare projects for investor readiness.
The principles underlying the design of programmes should be:
•
•
•
•
•
To increasing knowledge about the nature and existence of Business Angels (address market failures
in knowledge);
Reduction in search costs for willing buyers and sellers;
Reducing transaction costs;
Creating a more informed environment so as to reduce risks and uncertainties;
To increase the quantity of activity and transactions so as to engender economies of scale that could
draw investment into creating and supporting appropriate economic institutions.
In summary, whichever of the main policy choices are selected, whether to support all Business Angels
by the provision of tax breaks, or to support Angel networks or syndicates, or to encourage coinvestment, the above-mentioned guidelines should be adopted and built into the programmes to
improve their efficiency.
7.5 – Sustainability
Are the identified data sources, data-collection and consolidation procedures suitable for observation of
long-term trends in the Business Angel market?
The available data sources are problematic – if not insufficient - when trying to identify long terms in the
Business Angels market. It is like estimating the size of an iceberg based on its tip: it is possible but some
assumptions will have to be made. The information concerning the invisible segment is both limited in
terms of relevant studies and data collection. This is not the case for the visible segment through BANs
but in most countries it represents only a small share of the market. The EBAN survey data do offer a
basis for identifying long term trends, primarily in relation to aspects of the level of investment, the role
of co-investment, the sectors and stages preferred. But of course they offer information only on the
visible market.
For this reason, it is suggested that existing data collection procedures be continued, and continually
improved to create more comparability, consistency and completeness. However, these should be
supplemented with a series, or well-designed programme, of specific studies aimed at complementing
and meeting gaps in existing knowledge which are quite fundamental to the whole notion and support
of Business Angels. For example, methodologically robust studies on the long-term profitability of
Business Angel investment on pan-European scale is lacking. Because of the informal nature of the
49
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
market, data is scarce. EBAN is carrying out work to look at the long term profitability of the visible
market – but of course this does not cover the main part of the market.
Will the effects achieved by the support programmes last in the medium or long term?
Again, this issue needs to be considered in the context that most of the Business Angels market is
informal, and not covered by support programmes.
Some programmes to encourage the formation of syndicates or networks appear to offer sustainable
results, as discussed in this report, but others less so and are closed down. Equally, measures aiming to
improve investment capacity, including co-investment schemes, offer the prospect of sustainability but
it is still too early to analyse the financial results and the overall effectiveness of many of those
programmes. Programmes differ between themselves and, where some might be successful, others may
not be so. As yet, not a great deal of assessment has taken place in this relatively new area. Similarly,
the information from the various tax schemes suggests that only the UK Enterprise Investment Scheme
managed to have a long-lasting effect, and these relate more to capacity-creating than major increases
in employment or turnover but in other countries (e.g. France, Sweden) the experience has been rather
negative, either due to limited interest or problematic design and implementation. The overall picture
does not seem to indicate long-lasting effects in most countries. It is not possible to say much for the
more recently introduced tax schemes (Spain, Italy) or other schemes that are still in the pipeline, and it
is not clear what costs have been included in assessing the viability of schemes.
In the short term, effective support for Business Angels may provide quick returns to governments if
they result in new private investment and the creation of new jobs. Support schemes, including
capacity-building schemes and Co-investment schemes, have a role to play in this regard. Direct support
for networks and syndicates can also be helpful in building capacity. Tax breaks for Business Angels can
reach the whole of the market, including the unmeasured, unlike other schemes.
However, support of Business Angels is not a “quick win” scenario: programmes take time to design and
implement, and with Business Angels investing for between 3-5 years in a project before exiting, the
evaluation of the programme, depending on its aims, is likely to require time series data for quite a long
period that may make evaluation difficult, especially if there are major financial crises, or changes in
ownership, or other major corporate events in the intervening period. This is true for all three policy
types.
7.6 – Recommendations
Recommendations for further action based on the findings of this report include those referring to
data collection procedures, issues for public policy, and the support of Business Angels.
Data collection procedures – visible market
The existing EBAN survey offers the best data on the visible market and is the only practicable way of
obtaining in-depth data on the activities of those Business Angels who choose to make data available.
However, the survey cannot provide a comprehensive picture of the whole market because so much of
the market is hidden. To improve the coverage of the visible market it would be useful to:
•
Simplify the survey, focusing on a small number of key indicators (so as to increase compliance)
based on consistent definitions, that will help monitor the developments of the BAN market and to
give priority on ensuring a wide level of coverage of BANs and the capture of consistent data from
year to year;
50
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
•
•
Section
7
supplement the survey with a well-designed research programme aimed at filling gaps in knowledge
about the Business Angels market, and also to deal with highly relevant specific issues such as the
effectiveness of Business Angels as such, and Business Angels support.
ensure the use of common definitions and the tracking of the same core indicators in order to
increase comparability across the EU.
Data collection procedures – non measured market
•
The most promising source of data on the Business Angels market as a whole appears to be largescale surveys of individual investors. However, such surveys are expensive and demanding in terms
of the sample sizes needed in order to ensure a representative result. As a result, an EU-wide study
that would ensure comprehensive and consistent data would be difficult to realise. A possible
alternative, in coordination with the GEM is to introduce some additional questions more directly
related to Business Angels targeting entrepreneurs and investors. It is unlikely, however, that such
surveys can serve to provide in-depth detailed information covering the whole market, formal and
informal.
Public policy
•
Given the possible contribution of Business Angels as a source of finance for both mainstream and
technology-intensive early stage and new companies, public policy must take into consideration the
needs of Business Angels when new legislation or regulations are introduced. For example,
securities regulations that limit the sale of securities to the public need to be drawn up in such a way
as to not inhibit legitimate Business Angels activity. There is a need to protect the informal nature of
the market.
Public support for Business Angels
•
Public support measures that directly provide risk capital to start-up and early-stage business should
be designed in a way to attract investment by Business Angels, complementing their role and
making use of the non-financial aspect of their involvement including management expertise and
networking. Public support for BANs or syndicates could possibly focus on developing new
syndicates or BANs and, depending on the national context, the national associations.
51
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Annex
1
This annex contains a summary of data obtained in respect of the activities of Business Angels in
France.
1 - Introduction: Overview of the French Business Angel market
The main source of data on the Business Angel market in France is France Angels, the national
federation of Business Angel networks. France Angels federates 81 networks and over 4,000 angels.
However, as in other countries, the non-visible part of the market is more difficult to assess. Based on
discussions with actors in the field, it is possible to assess the number of non-visible angels to be roughly
the same as that of those who are part of the 81 networks that are part of France Angels. Overall, this
would take the total active Business Angels – visible and invisible - to 8,000. However, it is believed that
the average size of investment is higher and fewer angels participate in any given deal. This is also due
to the very high number of visible Business Angels involved in any given deal.
Also of more interest is the demand for Business Angels by SMEs for which some data are available. The
popularity of Business Angels as a means of financing SMEs has increased between 2007 and 2010 and is
expected to grow even more to 2013 and beyond.
Finally, Business Angels in France are quite well supported by public authorities as part of an holistic
approach adopted which includes public organisations such as Oséo, the CDC and the FSI (Fonds
Stratégique d’Investissement) and supplemented by (possibly less efficient) private schemes such as
Alternet.
2 – Data on the Business Angels market
This section summarises key market data on the visible and non-visible market for investment by
Business Angels
2.1 Visible market
There is substantial information concerning the visible side of the Business Angel market in France. The
national association - France Angels - publishes annual figures on the number of networks, Business
Angels and investments by its members. According to France Angels’ figures, as of 31 March 2011, there
were 85 BANs57 in France with around 4,000 Business Angels as members. In 2010, 320 companies had
been financed by Business Angels, with €40 million invested within the networks. 75% of those
investments were “first round” investments. Of those companies financed, 70% had a turnover of less
than €500,000 at the time the investment was made and two thirds of those operate in three sectors:
ICT, clean technologies and medical technologies58.
France Angels is currently (March 2012) compiling the figures for 2011. While those figures are not
available, there are currently around 4,000 active Business Angels members of networks in 85 networks
and 42 investment holdings. The number of investments is expected to rise to around 360, the amount
invested increased by around 30%. Early indications also point to an oversubscription rate of over 20:1.
The main national BANs can be divided into those with a specific type of sector focus, type of Business
Angel (e.g. alumni of specific tertiary education institutions (Grandes Ecoles, Business schools etc), and
regional focus. The main sectoral angels networks include Alidev Angels (Agrofood), Cleantech Business
57
58
The data presented is for 2010 at which point there were 81 BAN active and reporting.
France Angels, Activite: Les chiffres clés, 2010
52
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National Reports : France
1
Angels (environment), ForInvest (forestry), IT Angels and Seedforsoft (ICT), Angels santé (health) and
Sport Business Angels (sports). Alumni networks include Arts et Métiers Business Angels, Dauphine
Business Angels, EDHEC Business Angels, ENSAED Business Angels, GEN Angels and XMP Business Angels
Distribution of regional networks reflects the economic importance of each region, with for instance 14
networks in Ile-de-France and only one in regions such as Limousin or Champagne-Ardennes.
The data presented in this section has been provided by EBAN but are the same as the data compiled by
France Angels. Both the umbrella organisation and the French Ministry of Finance are planning to set up
certification schemes to ensure a level of harmonisation between the networks. It is estimated that
there are a similar number of angels outside the networks as inside (4,000).
Table 1: Main data on French Business Angels Networks (2010)
Indicator
Number of networks
Number of members (investors)
- Of which, number of active Business Angels
Average number of investors per network
Total number of women Business Angels (% of total)
Number of angel investors recruited during 2009
Number of women investors recruited during 2009
Number of angels who have left the networks
Average number of angels per investment round in 2009
EBAN data
(81 BANs)
81
4,030
3,015
50
9.3%
13
1
6
14
Source: EBAN, CSES
According to EBAN (using data from France Angels), €62.5 million were invested by Angels in 2010 –
double that figure if ones includes co-investors. Based on the assumption that the value of non-visible
Business Angel deals are equivalent to that of registered ones at €177 000,
Table 2: Angel investment, 2010, totals
Indicator
Total amount invested by angels
Average amount of the deal
Average amount per angel investor
Total amount invested – including co-investors
EBAN data
(81 BANs)
62.5 million
177,000
18,000
125 million
Total (estimate)
157 million59
N/A
N/A
N/A
Source :EBAN
According to EBAN data, 220 companies received investments from networks affiliated to France Angels,
an estimated 39% of all Business Angel companies invested in by Business Angels according to our
estimates detailed in the following section.
59
Based on an estimated average amount invested of €177,000
53
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National Reports : France
1
Table 3: Angel investment, 2010, numbers of companies
Indicator
Number of business plans received
Number of business plans submitted to angels
Number of new companies financed
Number of follow-on rounds
EBAN data
(81 BANs)
Total (estimate)
1 190
331
220
2
533
Source: EBAN, CSES
Unsurprisingly, the sector most benefiting from Business Angel investment is ICT, followed by Biotech
and Medtech. Together, these three sectors account for three quarters of visible Business Angel activity
in the country.
Table 4: Sectors in which Business Angels are involved (2010)
Sector
ICT
Biotech
Cleantech
Energy
Medtech
Mobile
Social and sustainable investments
Creative industries
Other
% share of investments
40
14
9
8
8
7
4
2
9
Source: EBAN
2.2 - Non visible market
As in most other countries, it is very difficult to assess the exact extent of the non-visible market for
Business Angels. On the supply side of the market, France Angels estimates the number of Angels not
part of networks to be between 2,000 and 4,000, indicating a total number of French Business Angels
between 6,000 and 8,000. However, this is only a rough estimate. The Conseil d’analyse stratégique
estimates that there are potentially 350,000 individuals in France with sufficient financial resources to
invest €100,000 in a company’s equity without exposing themselves to more than 5% risk. While this
figure can be seen as the total supply capacity of Business Angels in France, it must be noted that within
this group, there are large discrepancies as some Business Angels have a far larger investment capacity
than others.
A study commissioned by the Ministry of research in 200760 provides a basic typology of Business
Angels. “Occasional” Business Angels following trends, usually investing a maximum of €50,000 in one
or two companies; the “Aware” Business Angel invests in groups of 2 or 3 angels for an average of
€100,000 to €250,000, and they tend to be the structuring members and leaders of networks and
represent around 15-20% of the market. Finally, the “experienced” Business Angels tend to have a more
developed financial capability. They are often also involved in venture capital and typically invest
between €150,000 and €500,000. This last category tends not to participate in networks. This typology
60
Ernst & Young BAS (2007), Étude sur le financement des jeunes entreprises technologiques par les Business
Angels en France, rapport final remis au ministère de l’Enseignement supérieur et de la Recherche
54
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National Reports : France
1
underlines the difficulty in assessing the non-visible market as, while the number of “experienced”
Business Angel might be relatively small, the total values they represent can be disproportionate and
the support they can bring at key stages in the development of a company more structured and have
more influence.
One approach is to count the number of recipients of tax breaks received by Business Angels (see
section 4). However, this also includes “love money” and investments by family and friends that are not
considered Business Angels according to the definition used in this study. This analysis has never been
attempted.
Another approach is to focus on demand and estimate the number of companies seeking investment
from Business Angels. In 2011, the French statistical office (INSEE) conducted a survey on access to
finance for SMEs with more than 10 employees. This survey received over 78,000 responses, but the
number of respondents mentioning Bas was marginal. This may have been expected as Business Angels
tend to fund seed/ early stage start-ups who may not employ that many people. In 2010, only 0.29%
(229) of all respondents seeking access to finance did so by seeking the help of Business Angels, of
which 45% secured an investment. There is a steady increase in the share of companies seeking
investment through Business Angels between from 0.07% in 2007 to 0.29% in 2010, with 1.26% or
respondents stating that they would do so in the future.
This sample does not allow for statistically sound extrapolations but it can be used to develop scenarios
for estimating the size of the market. Based on the most recent statistics on the number of enterprises
in France, high, medium and low estimates on the demand for Business Angels in France can be made.
These are presented in the table below.
Table 5: Demand for Business Angels in France 2007 – 2013 (number of SMEs seeking finance support
from Business Angels)
2007
2010
2011-2013
(expected)
Low estimate
133
549
795
High estimate
442
1 830
2,651
Medium estimate
288
1 190
1,723
Source: INSEE, CSES calculations
The low estimate is based on figures representing all companies with less than 500 employees, while
the high estimate only includes firms between 9 and 500 employees. The mean estimate is the average
of the two and accounts for the fact that many of the smaller firms are small shops or restaurants who
may not seek investment from Business Angels.
2.3 Exits and exit strategies
Business Angels as recognised group are relatively new to France. In 2004 there were only 4 or 5 active
networks. Consequently, it is too early to assess the exit strategies. One Angel interviewed in the
process of this study mentioned that out of 20 investments made, only 2 had a positive outcome, with a
third one in the process becoming one.
55
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National Reports : France
1
The most successful exit strategy for Business Angel would be an IPO. However, the performance and
perceptions of the capital markets existing in France, Alternext and Euronext C are mixed61. As of
October 2011, only 434 SMEs and mid-caps were listed in either of the two stock markets62. Listed SMEs
and mid-caps only account for 0.3% of the total of SMEs and mid-caps in France with over 10
employees. More importantly, this number has not really evolved since 2008 when 394 companies were
listed.
Table 6: Number of SMEs and mid-caps listed in dedicated French stock markets (by year)
2008
2009
2010
2011
Euronext C
289
353
305
279
Alternext
105
102
133
155
Total
394
455
438
434
63
Source: Rapport sur le financement des pme-eti par le marché financier
Over the past three years, €1.5 billion was invested by the capital markets in SMEs and mid-caps. The
average capital financing stood at €20 million for companies being listed and €31 million for financial
operations. More detailed data are available for 2010, with a total of 438 SMEs and midcaps listed
(including 133 on Alternext). Overall, the average capitalisation per company stands at €47 million;
slightly lower for Alternext with €32 million.
Table 7: Capitalisation of SMEs and mid-caps – 2010 (amounts in € million)
Number of
companies
Capitalisation
Average
capitalisation
Capital
exchanged
Average capital
exchanged by
company
Euronext C
305
16 300
53
4 000
13
Alternext
133
4 300
32
1 100
8
Total
438
20 600
47
5 100
12
Source: Rapport sur le financement des pme-eti par le marché financier
The take-up by SMEs of opportunities in the financial markets has been relatively low since 2005. A
study by the Banque de France64 provides some interesting insights on the outcome of the capitalisation
of SMEs in financial markets. By looking at companies with some historical data, the study shows that
out of the 88 SMEs listed in 2005, 27% evolved into mid-caps (with the remaining 73% staying SMEs).
61
Euronext provides two opportunities for SMEs and mid-caps to be listed. Alternext is aimed principally at SMEs
although mid-caps are also included. Eurolist which includes Euronext A, B and C mainly lists mid-caps, although
SMEs are also listed on Euronext C
62
The Rapport sur le financement des pme-eti par le marché financier deals with both SMEs and Mid caps and
distinguishes between three Euronex classifications (Euronext B – market cap between €150 million and €1.5
billion, Euronext C – market cap of €150 million and Alternext ). For this section Euronext B companies have been
disregarded as they only concern mid-caps.
63
Market cap € 150 million
64
Banque de France DGAFP – Entreprise cotés sur les marchés à faible capitalisation créées en 2005, March 2010
56
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Annex
1
This is to compare with a control group for which only 18% of SMEs in 2005 evolved into mid-caps by
2008.
2.4 Other characteristics of the French Business Angel market
The average investment per Business Angel is relatively low, at €16 000 per Angel. Because of this the
number of Business Angels involved per project stands at 14 (as opposed to 2.5 in the UK for instance).
This can create a problem as a large number of Angels investing in one company might have different
views as to how to develop the business.
The distribution of regional networks reflects the economic importance of each region, with, for
instance, 14 networks in Ile-de-France and only one in regions such as Limousin or ChampagneArdennes. This is reflected in the number of companies receiving investment form Business Angels. In
2011, 40% of companies invested in were located in Ile-de-France, followed by Rhone-Alpes (12%),
Languedoc-Roussillon (10%) and PACA (7%)65.
Overall, 9.3% of all Business Angels were women in 2010. This is nearly double the figure for most other
Member States where data have been provided.
Another characteristic of the French Business Angel market is the importance of alumni networks. Most
Business Angels involved in networks will also be involved in other local or regional activities, such as
with the Chamber of Commerce and Industry.
3 - SME access to finance
This section examines the contribution of the Business Angel market to the SMEs’ access to finance and
the effectiveness of Business Angel financing in bridging the equity gap in the seed and start-up phases
of the SME development.
3.1 Overview
The number of SMEs having sought access to finance has increased by 8.5% between 2007 and 2010,
and is expected to further increase by 10.8% to 61.7% by 2013.
Figure 1: Share of SMEs having sought access to finance
61.7%
50.9%
42.4%
2007
65
2010
2011 to 2013
France Angels 2012
57
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Annex
1
Source: Insee
According to the SBA fact sheet for 2010, 19% of SMEs were denied access to credit in 2009, 17%
indicated a deterioration in access to public guaranteed and 30 indicated that there had been a decline
in banks willingness to provide loans. Relevant data are also provided from the Observatoire pour le
financement des enterprises’s report which provides a thorough analysis of the type of access to finance
for SMEs and Entreprises de Taille Intermediaire (ETIs)66, mainly through the private sector. While the
report does not distinguish between SMEs and ETIs, it does provide a very comprehensive picture of the
financing situation for SMEs.
Equity finance
The most important source of finance for SMEs seems to still be the companies’ own equity. In 2009,
SMEs and mid-caps67 capital increased by €7.7 billion. While no final data are yet available, early
pointers suggest that this has been done mainly through savings of past benefits, although at the cost of
new investments.
The French capital investment market has taken off in the 2000s and is now the second European
market for VC, behind the UK, having grown at a rate of 10-20% per annum between 1999 and 2010. In
2010 alone, 1,685 SMEs benefited from equity finance through members of AFIC68, totalling €6.6 billion.
The majority of those investments are still leverage buy-outs (LBO) but importantly, risk and
development capital is increasing.
Traditionally, the insurance sector also plays an important role of investor. The sector gathers an
important amount of private capital especially through life insurance and similar products. As of
December 2010, the sector was managing €1,617 billion (although this figure encompasses investments
in all type of ventures, including multinationals, bonds, etc.), €940 billion of which was used to finance
companies.
Financial markets also play a role in equity finance through the normal process of buying shares,
although this is a small part of equity finance, with only 574 SMEs and ETIs listed on the stock exchange
as of 31st December 2010 (Euronext B and C as well as Alternext).
Loans
While SMEs represent around a quarter of all commercial loans from French banks to companies, not all
of them have a similar access to loans. In particular, start-ups and innovative companies have difficulties
in acceding to commercial bank loans as they have little or no credit history and sometimes require a
relatively large initial sum to launch a product. There is also a fear amongst professionals that financial
institutions will be even less likely to lend to SMEs in the run up to the introduction of the Basel III
prudential measures in 2013, requiring banks to increase their CET1, which might in turn lead to a more
adverse inclination to take risks.
Supplier debts are seen as an important means by which SMEs finance themselves. According to INSEE,
debt to suppliers represent on average 10% of the balance sheet of companies in France and this share
appears to be ever larger for SMEs (although no empirical data is available). This is of course not an ideal
66
ETIs are considered in France to have between 251 and 4,999 employees.
French statistics often aggregate SMEs and Entreprises de Taille Intermédiaire (ETI) who have between 251 and
5,000 employees and a turnover of under €1.5 billion.
68
Association Francaise des Investisseurs en Capital
67
58
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Annex
1
situation, especially for the company waiting for a payment. Payment delays have reduced since 2007,
with one estimate suggesting a gain of €3 billion for SMEs.
The French state strives to promote capital investment through tax breaks (22% of income tax is
deducted from the total due when one invests in an SME, or provides funds to a FCPI or FIP) as well as a
50% reduction in the ISF when one invests directly in an SME or in a funds for SMEs). Those tax breaks
are estimated to have cost the public purse €1.1 billion in 2009 underlining the importance of this
mechanism.
One of the key aspects of the market failure problem is rationing of credit. The issue of credit rationing
can be explained by the lack of information available to the lender who therefore tends to overestimate
the risk in lending. This problem is particularly important for SMEs for which information is either
difficult to gather or unavailable. With regard loans, banks must retain a certain amount of equity per
loan they grant.69 The Basel III increases the equity requirement for riskier loans, which can potentially
put at least part of the existing loans market for SMEs in jeopardy.
4
Public support for Business Angels
This section examines the existing support schemes for Business Angel financing in France and, on the
basis of available information, provides an assessment of their performance.
4.1 Support measures introduced
The following fiscal measures have been introduced to encourage Business Angel in France:
The Avantage Madelin provides a tax credit of 25% (and a maximum of €40 000) for any investment in
an SME provided the equity is kept for more than five years. In 2007, the loi TEPA (Loi en faveur du
travail, de l’emploi et du pouvoir d’achat) was adopted, providing a 75% tax break to tax-payers
subjected to the Solidarity tax on wealth (ISF – Impot sur la fortune) for any investment in SMEs, up to a
maximum of €50,000. This break was reduced to 50% in 2010. SMEs financed cannot have over €1.5
million of such equity in their companies. The Ministry of Finance has also played a role in trying to help
angel networks consolidate and federate under the France Angels umbrella, this has included financial
support for the organisation. The ministry is also helping to set up a certification scheme and organises
projects to encourage individual Business Angels to set themselves up in networks. This is an effort to
set up networks which are then encouraged to converge towards the national organisation.
4.2 Evaluations of public support for Business Angels
To date, there has been no evaluation of the public support of Business Angels. The following table
summarises the main features of the direct and indirect support policy support measures related to
Business Angels as well as the conclusions in relation to their contribution to the development of the
Business Angel market.
Table 8: Main public policy measures for the promotion of Business Angels in France
Type of support
Main features
Support of Business Financial support to France Angels
Angels networks
Main conclusions on the basis of
existing information
Contribute to extend the reach BANs to
encompass more existing Business
69
Aubier, Maud and Cherbonnier, Frédéric, Les banques et le financement des PME en France, in Le financement
des PME, La Documentation française, Paris, 2009
59
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Tax breaks
50% tax break to investors subjected
to the Solidarity tax on wealth
Tax credit of 25% (and a maximum of
€40,000) for any investment in an SME
provided the equity is kept for more
than five years
Annex
1
Angels and France Angels to encompass
more BANs
Some contribution to awareness raising
and support investment readiness
Support in creating a certification
scheme to ensure a common level of
standards
Increase visibility of Business Angels
A number of the investments made
under the two measures benefitted
love money, rather than angel’s
investments
The measures have evolved and
changed too often so there is no clear
view as to what the situation is
currently. This lack of fiscal and
legislative stability has been harmful in
trying to use such measures as
incentives for Angels
60
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
This annex contains a summary of data obtained in respect of the activities of Business Angels in
Germany.
1 - Introduction : Overview of the German Business Angels market
The information presented in this report, and estimates provided, are based on a combination of
available studies from academics, research organisations (ZEW) and financial institutions (KfW) as well
as information from the national and the European Business Angels Networks (BAND and EBAN). These
were complemented by an interview with the Federal Ministry of Economics and Technology70.
According to available data, the BA market is comprised of around 5,000-10,000 individual informal
investors with a total size of €200-€300 million per annum. 10-20% of the Business Angel (1000-1400)
and 25-50% of the investments are made from Business Angels that are organised in BANs. There are
around 40 BANs operating in Germany, most of them also being members of the national BAN
association, BAND.
In general, the Business Angels market in Germany should be considered as still under development
with a much smaller number of informal investors per million population in comparison to the US or the
UK. According to the national association (BAND), the Business Angels market in Germany has the
potential to reach a total value of €5 billion.
A key element of the German market is the general risk-adverse attitude of the typical wealthy
individuals among which one usually finds Business Angels as well as a traditional reliance of firms on
debt and the relatively effective provision of it through national and regional banks and public support
schemes. This possibly reduces the demand for equity, even though the data available still suggest that
demand exceeds supply.
2 – Business Angels’ market data
2.1 Visible market
The visible part of the Business Angel market in Germany includes, according to data from EIF71 and
BAND72, 40 BANs that bring together 1000-1400 active Business Angels73. The 40 BANs have multiple
forms. Around half of them have the form of projects supported primarily by the public sector through
the Landesbanks (Regional development agencies) and have a clear geographical focus. 30% of the BANs
are incorporated societies (Verein) created by Business Angels and possibly VCs or banks. They operate
on the basis of the fees paid by their members and tend to have a broader geographical focus. A third
type of BANs is organised as private clubs - circles of friends - with a regional or nationwide focus or
sometimes a sector-specific focus. There are also a few BANs operating as profit driven (e.g. limited
liability) companies.
70
We also came in contact with BAND requesting an interview. Despite repeated efforts no representative was
made available.
71
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
72
http://www.business-angels.de/default.aspx/G/111327/L/1031/R/-1/T/132140/A/1/ID/133257
73
According to the German Ministry the total number of Business Angels in networks is closer to 3000 suggesting
that there are more BANs that are not member of BAND. This information has not been verified by other sources.
61
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
The EBAN survey data for 200974 on the basis of responses from 13 German BANs suggests that each
BAN has around 30 investors.
Table 1: Business Angels Networks in Germany – Data from EBAN 2009 surveys and for the total of
Business Angels’ Networks
Parameter
Number of networks
Number of members (investors)
- Of which, number of active Business Angels
Average number of investors per network
Total number of women Business Angels (% of total)
Number of angel investors recruited by BANs in 2009
Number of women investors recruited during 2009
Number of angels who have left the networks
Average number of angels per investment round in 2009
EBAN survey numbers
(data from 13 BANs)
13
407
218
29
20 (5%)
60
8
25
1
Total
estimate
for all German
BANs
40 (2010)
1,000-1,40075
400-600
Source: EBAN and CSES elaboration
EBAN data also provide information on the investment activity. According to the data from 9 BANs a
total of 3,391 plans were received and 531 plans were submitted to angels through the network, around
13% of which were eventually financed from a total of 60 Business Angels. The total investment was
around €20 million. While extrapolation to the total visible Business Angel market is rather difficult, on
the basis of the average size of a deal and the estimated total number of deals, we estimate a total value
of around €55 million.
According to the EBAN survey, Business Angels in Germany invest around €100k per company (median
value: €30k). The mean is high due to the few high-tech companies that received comparably high
amounts from the Business Angels, some of them more than €1 million. In comparison, the average VC
provided around EUR2.1 million per company, 20 times the value of an average Business Angel
participation.
The study of Stedler and Peters76 in 2003 - based on responses from 232 Business Angels members of
networks – found that Business Angels allocate a maximum of 20% of their entire capital, usually (in 75%
of cases) not more than €500,000, to investments in unquoted companies. It is possible to estimate that
each Business Angel has total capital assets of €2.5–€5 million. Their investments are spread across a
portfolio of between one and five companies. These companies are either at the seed or the start-up
phase. On average 10% of these investments are in university project spin-offs.
74
EBAN data for 2010 are based on only 3 BANs. As a result the 2009 were considered as more reliable as a basis
for making estimates on the total visible market.
75
BAND data
76
Heinrich Stedler and Hans Peters (2003), Business angels in Germany: an empirical study, VENTURE CAPITAL,
VOL. 5, NO. 3, 269 – 276
62
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
2
Table 2: Business Angels’ investment in networks: Type and volume in Germany in 2009 – Data from 9
BANs and estimate for total Business Angel Networks
Indicator
Number of business plans received
Number of business plans submitted to angels
Number of deals made through the network
Number of new companies financed
Number of investors that made investment in companies
presented through the network
Number of follow-on rounds
Total amount invested by angels through BANs (€)
Average amount of the deal (€)
Average amount per angel investor
Total amount invested – including co-investors
EBAN data
3,391
531
69
44
60
21 (8 BANs)
19.6 million (7 BANS)
178,000
111,000
22.3 million (7 BANS)
Total
(estimate)77
15,000
2,400
300
170
€55 million
Source: EBAN and CSES elaboration
In relation to the sector focus, the data from the EBAN survey and the study of Stedler and Peters
indicate a priority to the ICT sector. According to EBAN, ICT and mobile software and applications
represented close to 50% of the deals and 47% of the total investment in 2003. Biotech and healthcare
represented around 11% of the deals reported and around 14% of the amount invested while energy
and environment sectors also around 11% (13% of total invested).
Table 3: Percentage breakdown of Business Angel investment by sector (2009) - Data from 13 BANs
% of total number of
deals
% of total amount
invested
ICT
38.3
38.7
Mobile - including software and service applications
11.1
9.2
Biotech and Life sciences
5.7
9.2
Health Care and Medical technologies
5.5
4.8
Energy/ Environment and Clean-tech
11.3
12.8
Creative Industries
7.5
6.9
Retail and Distribution
4.6
2.7
Finance and Business Services
1.9
2.9
6
5.6
7.7
8.3
Sector
Manufacturing
Other
Source: EBAN survey (2009)
77
Estimates are based on the ratio of total BANs to BANs in the survey.
63
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
2
The EBAN survey also supports the general held view that Business Angels tend to invest in firms in their
proximity with the majority (around 62%) of deals in 2010 concerning firms in the region where the
respective BANs was located.
Table 4: Geographical concentration of Business Angels’ Investment – share of deals by location of
recipient firm
Location of recipient firm
% of deals
In the region where the Network is located
61.9
In the same country, but not in the same region
30.5
Cross-border in Europe
8.0
Outside of Europe
0.0
Source: EBAN survey
The EBAN data suggest that Business Angels in BANs tend to focus on early stages (pre-seed, seed, early
stage and start-up) of the firms life cycle, representing 77% of the deals in 2010. However, a significant
23% is also invested in the second round expansion stages.
Table 5: Business Life Cycle Stage of Investment
Stage of investment
Share of total (%)
Pre-seed
14.2
Seed
30.4
Early stage and start-up
31.8
Expansion
22.8
Pre-IPO
Buy-out and turnaround
0
0.8
Source: EBAN Survey 2009
Finally, according to the EBAN survey, Business Angels tend to co-invest with other Business Angels
inside or outside their own network but also with other early stage or VC funds. The results are very
similar to those reported by Stedler and Peters in 200378 that identified as main partners other Business
Angels, venture capital companies and the government technology venture capital company TBG79 of
the Deutsche Ausgleichsbank. A key aspect is the fact that Business Angels regard other Business Angels
and venture capital companies as providing the most significant due diligence because of their
specialised expertise. The Business Angels panel data confirm this preference and indicate that more
and more Business Angels prefer to operate in syndicates (more than 50% of Business Angels stated this
in 2011 compared to 14% in 2009).
78
Heinrich Stedler and Hans Peters (2003), Business angels in Germany: an empirical study, VENTURE CAPITAL, ,
VOL. 5, NO. 3, 269 – 276
79
Technologie-Beteiligungs-Gesellschaft mbH
64
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
2
Table 6: Level of Business Angel Co-investment
Co-investors
Share of total (%)
Business Angels inside the network
26.3
BAS outside of the network
16.3
Early stage fund
31.3
Venture capital fund
13.8
Family office
3.8
Institutional investors
8.8
Other investors
0
Source: EBAN
Concerning the contribution of Business Angels Networks in Germany, their key role appears to be the
facilitation of deal flows. Involvement in these networks provides Business Angels with access to
investment opportunities. In the case of BAND, a key activity, among others, is the German Business
Angels Day – taking place with the support of the government. This attracted 100 participants (firms or
investors) in 2001, increasing to more than 500 participants in 2008 ..
2.2 Data on non-visible Business Angels market
There are a few sources available providing the basis for estimating the number of Business Angels and
the total size of the Business Angel market in Germany.
The most often cited study of ZEW in 2007, based on information on first round investments received by
high-tech start-ups in the period 2001-2005, indicates a total number of around 2,700-3,400 active
Business Angels. Clearly this number is an underestimate of the total market. Another estimation based
on data from financed exits indicated a total of around 5,200-5,40080. BAND suggested that the total
number of Business Angel investors is in the range of 5,000-10,00081 and that in comparison to the 850
active Business Angels per million population in the USA, German Business Angels are no more than 3341 per million. This number is based on the ZEW estimate and focuses on active investors. As already
indicated, around 1,400 of the Business Angels are organised in BANs, a share of around 10-25%,
depending on which of the above estimates is used.82
Using a different approach, the 2010 Global Entrepreneurship Monitor report83 that provides data on
the number of informal investors among the adult population also allows us to develop an estimate of
the total number of Business Angels. According the GEM data for Germany the share of individuals
between 18-64 years old that have invested in someone else’s business in the last two years was 3.6%. A
large share of such investments are directed to friends and family and do not fit with the Business Angel
80
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
81
http://www.business-angels.de/default.aspx/G/111327/L/1031/R/-1/T/130582/A/1/ID/133257
82
http://www.vc-magazin.de/themen/business-angels///business-angels-in-europa-ein-genauer-vergleichlohnt.html
83
GEM consortium (2010), GEM Germany 2010 report (in German),
http://www.gemconsortium.org/docs/507/gem-germany-2010-report-german
65
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
definition. While there are no specific data available for Germany, the GEM study does provide
information for other EU countries on the percentage of such investments directed to “strangers with a
good business idea”. On the basis of the average value of around 7% for the EU countries available84 we
reach a total number of around 2,500 investors per million people, thus a total number of individuals
that have invested in the last three years of close to 150,00085. This number is not realistic. The 2,500
investors per million population is significantly higher than the 850 per million population indicated in
the US, a country where the Business Angels market is, according to all sources and experts, much more
developed than in Germany. In addition, the accepted Business Angels’ definition implies subsequent
involvement in the business and provision of support, a point that is not considered in the GEM data.
Finally, one should take into account that, according to all sources available, female Business Angels
represent no more than 5% of the Business Angels (see below). Put together, a more realistic upper
estimate should be in the range of 25,000-30,00086.
Concerning the value of the market, according to the ZEW study the amount of capital invested by
Business Angels in 2005 - without other funding and not considering deals in the non-high-tech sectors was €190 million. According to the EIF, the total market is around €300 million annually which appears
more plausible, given the limitations of the ZEW estimates. BAND provides a broader range of €250
million-€1 billion but suggests that the €250 million is the more realistic estimate87.
In terms of the number of deals, the ZEW study identified a total of 3,730 business deals in the period
2001-2005, around 750 annually. The number represented close to 5% of the total high-tech start-ups
identified in the study (73,000). According to ZEW the average amount per investment is typically in the
range of €50-100k and this number seems to be in line with the results from the Business Angels’ panel
survey run by BAND and VDI88. It should be noted that there seems to be a decline in the size of the
deals in comparison to the 2002-2004 period when investments were most often in the range of €100€200k (EIF). Rather similar figures arise on the basis of the responses in the Business Angels panel, the
average total amount invested by a single business angel in 2010 was around €130,000 and in 2011
€110,000. In 2002-2004 the average total amount invested was closer to €500,000-€600,000. The
financial crisis has played a role in the reduction of both the size of the investments and the total
amount of investment, the 2002-2004 period linked also with the dot.com bubble. On the basis of a
total of 5,000 Business Angels this leads to a total market size of €650 million for 2010. However, this is
probably an overestimate since the Business Angels in the panel are all active angels with a higher
number of deals (1.5-2 on an annual basis) than the average Business Angel.
Most sources indicate that Business Angels focus on the seed – or even pre-seed stage – and the startup stage. An earlier study (Brettel,2003)89 of 48 Business Angels also found that the focus is on the pre
start-up/seed stage (41% of investments), start-up (28%) and early-stage (21%). The expansion stage
concerned 10% of investments. Nonetheless, the ZEW study in 2007 indicated that around one third of
84
GEM website, see above
On the basis of the 18-64 cohort representing around 60% of the total population of 81 million.
86
On the basis of 850 investors per million population and only 5% of the female population.
87
Fryges, H., Gottschalk, S., Licht, G. and Müller, K. (2007). Hightech-Gründungen und Business Angels. Final Report
for the German Ministry of Economics and Technology. October 2007
88
The Business Angels panel is based on responses of 20-30 active business and is conducted on a quarterly basis
since 2002.
89
Malte Brettel (2003): Business angels in Germany: A research note, Venture Capital: An International Journal of
Entrepreneurial Finance, 5:3, 251-268
85
66
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
2
Business Angels also provided support for the expansion of existing firms, in the form of second-round
follow-up investments.
On average German Business Angels hold 5 to 7 participations and the average holding period is around
4 to 7 years (Fryges et al, 2007). Wallisch (2009)90 suggests a wider range of 3 to 10 years with an
average of below 5 years).
In relation to the sector focus of Business Angels in Germany, these most often invest in the high-tech
sector or in tech-oriented services. The EBAN survey indicated a focus on ICT and mobile software and
applications, biotech and healthcare, energy and environment. The Stedler and Peters (2003) study
suggested a similar focus with around 52% of investments in the IT sector and 22% in life sciences and
20% in services. The business panel quarterly reports indicate that over the last few years, Business
Angels have given preference to investments in the energy and environmental (technologies),
medical/health (life sciences) and the IT sectors.
Another important aspect is the R&D intensity of the firms supported. According to the ZEW study
which focused on high-tech firms, in comparison to Venture Capital funds Business Angels are less
demanding in relation to the R&D intensity of the firms (20% in comparison to 40% in relation to
turnover) or the use of patents (33% among firms backed by VCs in comparison to 12%). Most of them
could still be considered high-tech companies but it includes, not only cutting edge high-technology, but
also other high quality technology and technology-oriented services.
Typically, the contact of Business Angels and companies was originally established on an informal basis
(according to Fryges et al, 2007: 93%). The Business Angels’ panel data indicate a total of around 50-60
business plans received, 15-20% of which leading to follow-up meetings. According to the ZEW study,
only a third of such contacts are successful, leading to financing. Such data could possibly be seen as an
indication of excess demand for Business Angel financing.
Table 7: Summary table of estimates of total Business Angel market and key characteristics
Estimate on the basis of the
various sources
Number of Business angels (estimate)
% of female in total
Total market size (€ million/year)
Total number of investments/year
Share of seed/start-up finance
Average investment size
Business Angels panel (active investors)
Business plans received/investor/ year
Plans considered
No. of Investments per individual
Total amount invested/Business Angel
Average investment size
5000-10,000
650 (2010)
70%-80%
<€50,000
ZEW study (2007)
Period 2001-2005
2700-3400
3%
300 (2007)
750
€50-100k
50-60
10-15
3-4
100,000-200,000 (2009-2011)
53,000
90
Wallisch, M. (2009). Der informelle Beteiligungsmarkt in Deutschland. Rahmenbedingungen, Netzwerke und
räumliche Investitionsmuster. München, 2009
67
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
Typical share of Business Angels in
individual firm
Average firms per investor
Main sectors
2
20-25%
3.5-5.5
Medical, Environmental
technologies, IT
4-5
Sources: Various sources and CSES elaboration
2.3
Number of exits and exit strategies
The potential for exit is a key concern for Business Angels in Germany and the existing studies indicate
that this remains an issue. According to the ZEW study cited earlier, the most common exit route of
Business Angels has been the buy-back route through the repurchase of shares by the founders. Exit
channels in the form of "trade sale" through the purchase of company shares by a strategic investor or
through an IPO are generally rare. Nor was there any significant use of exit through the purchase of
share by venture capital firms.
The Business Angels’ panel data provide additional evidence in relation to this. Among 125 total exits in
the period 2006-2011, 38 were trade sales to strategic investors (other firms), 23 were buy-backs from
founders, 19 were purchase of shares by financial investors, only 7 IPOs – and none reported since 2007
while there were 18 liquidations. This limited number of IPOs comes in contrast to initial expectations
recorded in Brettel’s study (2003) when almost 50% of Business Angels indicated flotation as the
preferred method for exit.
2.4
Other market and Business Angels’ characteristics
As far as the demographic characteristics of Business Angels are concerned, the existing studies indicate
that the share of female angel investors in the total is very limited. According to the most recent study
97% of the Business Angels in Germany are male, their average age is around 50 years and typically they
are ex CEOs, MDs, or entrepreneurs, and often with own experience in founding companies91. Typically,
the private wealth of Business Angels is higher than €5m (EIF, 2011). Whereas male Business Angels
invest more in the life sciences sector and the electronics industry, female Business Angels show a
strong preference for the service industry sector.92
With regard to spatial patterns of angel investing, as in other countries, Business Angels tend to invest
in firms that are in close proximity. The survey conducted by Wallisch (2009) found that almost 40% of
the companies were within one hour reach for the Business Angels and more than 60% of the
companies were reachable within three hours. An earlier study of Stedler and Peters (2003) indicated
that there is a concentration of Business Angels in the most economically advanced Western and South
Germany (52% and 29% respectively).
2.5
Quality of data sources on Business Angels in Germany
In relation to the other EU countries, the existing data appear sufficient to provide a rather good picture
of the operation and development of the Business Angel market. Even though an estimation of the total
number of Business Angels or the total volume of investments will always suffer from the fact that in
91
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
92
Heinrich Stedler and Hans Peters (2003), Business angels in Germany: an empirical study, VENTURE CAPITAL, ,
VOL. 5, NO. 3, 269 – 276
68
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
many cases such investments are not formally reported, the combination of studies of the ZEW and KfW
and the BAND business panel cover a range of aspects and give a relatively detailed picture of the
market. Still, according to a recent article in VC-Magazin93, “the data from non-visible market are rather
problematic and academic studies are still not of high standard or frequent”.
The Business Angels' panel94 organised by BAND, University of Duisburg-Essen, RWTH Aachen and VDI
news since 2002 is unique. The panel comprises around 30 Business Angels that provide, every quarter,
information on their investment activities. The participants have been selected taking into account
regional balance. The data collected from the angels includes information on sectors of investment, the
geographical focus, their views on the development of the market and the motivations of the angels.
Furthermore, the panel responds to questions about the transfer of know-how, deal flow and invested
amounts. These are complemented with one or two topical questions every quarter, and the
participants are also expected to evaluate the mood of other angels. Usually the data is complemented
with interviews and entrepreneur portraits.
3 - SME access to finance in Germany
This section assesses the contribution of German Business Angels to SMEs’ access to finance and the
effectiveness of Business Angel finance to bridge the equity gap in the seed and start-up phases of the
SME development.
3.1 Overview
German SME financing is traditionally based on debt-finance and relies on the so-called "house bank"
principle ("Hausbankprinzip"). Most small and medium-sized firms maintain a close, confidential and
long-term-oriented relationship with one main bank, their "house bank". The majority of SMEs tend to
co-operate (mostly for many years) with one or two "house banks". The German finance system is longterm-oriented specialised in providing (relatively cheap) long-term credits to SMEs. International
comparisons indicate that, on average, German SMEs have lower equity ratios than comparable
enterprises in other countries, reflecting SMEs' preferences and institutional and legal framework
conditions. However, as a result of recent changes in the financial markets and the banking sector
(reinforced by "Basel II") the equity ratio has gained considerable importance for the financing
conditions. As a consequence, SMEs' average equity capital rate increased from just 6% in 1997 to 20%
in 2009.
In comparison to other EU countries, access to finance for SMEs seems to be relatively easier than the
EU average. According to information from the most recent Small Business Act Fact Sheet for
Germany95, the share of unsuccessful bank loan applications by SMEs is only a little higher than in other
EU countries while around 27% of SMEs responding indicated a deterioration in the banks’ willingness to
provide loans – close to the EU average. German SMEs have to pay higher interest to take up loans of
less than €1 million compared to similar firms in other EU countries (a 29% difference in Germany
compared to 24% in the EU as a whole).
93
http://www.vc-magazin.de/themen/business-angels///business-angels-in-europa-ein-genauer-vergleichlohnt.html
94
www.ba-panel.de
95
EU (2011), SBA Fact Sheet- Germany 2010/2011, http://ec.europa.eu/enterprise/policies/sme/facts-figuresanalysis/performance-review/files/countries-sheets/2010-2011/germany_en.pdf
69
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
Table 8: Access to finance for SMEs – Key indicators for Germany and EU
Indicator
EU average
Share of bank loan applications by SMEs that were not successful, 2009
23%
Willingness of banks to provide a loan (% share of firms that indicated a
deterioration)
30%
Relative difference in interest rate levels between loans above €1 million
and loans below €1 million, 2010
24%
Venture capital investments - early stage (% of GDP), 2009
0.014%
Access to public financial support including guarantees
22%
(% that indicated a deterioration)
Germany
26%
27%
28.9%
0.018%
13%
Source: Small Business Act Fact Sheet for Germany
In terms of government support, the picture from the Fact Sheet is that, overall, the situation in
Germany has been better than the EU average. Germany has a comprehensive system of public support
at national and regional level including debt capital, mezzanine capital, loan guarantees and microcredits as well as – more recently - equity capital support. The large variety of support programmes is
available in the internet database run by the Federal Ministry of Economic Affairs and Technology
(BMWi)96. (http://www.foerderdatenbank.de). Recently (2010), small and micro enterprises were given
access to finance via the German micro-credit fund. German SMEs also have access to credit mediators
(financed by the Federal Government) that help small businesses get access to finance by establishing
contacts with banks and other providers of finance and by moderating negotiations. These mediators
also offer consulting on public support opportunities.
In the terms of access to equity capital, the Fact Sheet suggests that, at a national level, early stage
venture capital is more readily available than on average in the EU. However, a recent analysis of KfW
concluded that in Germany the existing Venture Capital is not able to meet the excess demand of young
innovative companies and only 2-5% of high-tech growth-oriented firms end up receiving VC funding.97.
Furthermore, the study concludes that there is a consistent shift towards later stage finance leaving
significant gaps in relation to early stage finance. The focus is on larger size investments – most typically
of over €1 million – and typically on the expansion stage while seed capital is very limited. There is thus
a clear gap identified when it comes to early equity capital. Another study of the KfW in 201198 indicates
that the demand for venture capital (VC) is positive but that there is insufficient supply. The EIF report99
also states that there is excess demand for early stage financing. The public sector has attempted to
address part of this fund with various measures and programmes including the Investment Fund for
High-tech Start-ups. The fund is a public-private partnership aiming to provide venture capital to young
technology-intensive start-ups.
96
http://www.foerderdatenbank.de
KfW Research (2010), Beteiligungsmarkt nach der Krise : Optimistischer Ausblick Aber Angebotslücke be im
Wachstums capital wird grösser
98
KfW Research, Business Angels aus der sicht von Venture Capitalgesellschaften, Nr. 49, August 2011
99
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
97
70
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
3.2
Annex
2
Role of Business Angels
On the basis of the existing equity gap, all studies mentioned earlier made reference to the potential
role of Business Angels for the financing of early stage companies with seed or start-up capital,
particularly in relation to SMEs in high-tech sectors.
As indicated earlier (ZEW, 2007), around 5% of the total high-tech start-ups that were looking for
funding were supported by Business Angels, on average two per firm. Business Angels typically take
minority stakes, most often not investing more than €50,000.
The 2010 investment market study of KfW97 on the role of Business Angels indicates that, while
relevant, the financial support provided is not the most important aspect. The findings of the study
suggest that the main added value from Business Angels comes from the provision of contacts through
their networks and the consulting support and know-how provided. On a scale for 1 (very high) to 6
(very low) these two aspects were given an average rate of 2.3 in comparison to an average of 3.1 for
financial support.
4 - Public support for Business Angels
In this section we examine the existing support schemes for Business Angel financing in Germany and,
on the basis of available information, provide an assessment of their performance.
4.1 Direct support measures
Public support in relation for Business Angels includes a combination of some - albeit limited - tax relief
for capital gains, the support for the development of networks – including the national association of
BANs and the creation of public-private funds co-investing in high-tech start-ups.
The tax scheme in Germany in relation to Business Angels is based on the following elements:
-
-
-
-
-
The top tax rate is 42% and, since 2007, 45% for singles with income of €250,000 and for
€500,000 for married couples. There is also an additional solidarity surcharge that increases this
to 44.3 and 47.8% respectively;
Income coming from shares of corporations of which the shareholder holds more than 1% - as
most Business Angels - is liable for taxation. Since 2009, 60% of the capital gain is liable for
taxation with a tax rate of 26.38%. If the amount held is less than 1%, any capital gain is tax free
if the share has been purchased before 2009 and if it has been held for more than a year. For
shares purchased after December 31st 2008 the tax rate on capital gain is 26.38%;
If the Business Angel is acting through a corporation, 95% of the capital gain is not liable for the
corporate income tax (Körperschaftssteuer). The remaining 5% share is liable at a tax rate of
approximately 30%. Capital gain distributions collected after December 31st 2008, are liable to
the “Abzugssteuer” at a tax rate of 26, 38%;
The taxation of co-investments depends on the fund’s legal form. If the fund is a nonincorporated firm the income tax rates apply. If the fund is a corporate enterprise (GmbH or
AG), the capital gains tax rates apply;
There is no wealth tax as in other countries and, as a result, no property-related tax shield
related to investments from Business Angels.
The discussions with the Federal Ministry of Economy indicate that there are ideas of supporting the
economic returns on investment from Business Angels and certain proposals have been made on the
basis of a so-called roll-over principle in which capital gains are tax free when re-invested in start-
71
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
ups. The government has presented a draft bill introducing investment allowances for Business Angels
financing and it is currently being discussed among stakeholders. Pending issues include the minimum as
well as the maximum limit of investment that should be considered, how to best ensure focus on small
firms and the application of the scheme in the case of investments through a corporation100.
In addition, in cooperation with the European Investment Fund, the Federal Ministry of Economics
launched in 2012 a Business Angels Fund with a total budget of €60 million101. The Federal government
has also created national funds aiming for start-ups, especially in the high-tech sectors. These include
the ERP Start Fund or the High-Tech Start-Up Fund II that are relevant for early investors.102
In relation to the promotion of networks, the national BANs association - BAND - was created with the
support of the Federal Government and private sponsors. It operates as a network of networks and
organises the Business Angels Day, a national network for experience exchange and the Angel of the
Year award. Other activities include the sponsoring of the Business Angel panel presented earlier and
the promotion of investment readiness activities. In addition, as a national association, it represents and
promotes the interests of Business Angels.
Support to Business Angels also comes from some regional authorities. However, a recent article of the
director of BAND in VC Magazin103 suggests that, in terms of financial support, public support for
Business Angels is rather limited, with the notable exception of the Frankfurt (Hess region). In most
other regions the main activities include the promotion of the Business Angels concept (e.g. road
shows), the support to local Business Angels Networks and the strengthening investment readiness
aspect including business plan competitions.
4.2
Evaluation of public support for Business Angels
There are no studies and other relevant information available at this stage to allow for a formal
assessment of the public support schemes provided and their effectiveness.
Stedler and Peter (2003)104 survey of 48 Business Angels considered the importance of framework
conditions and public support measures. The provision of public venture capital support was considered
a significant support factor by the majority of Business Angels in Germany. In their investment activities
Business Angels often work with such public bodies as the Deutsche Ausgleichsbank which specialises in
start-up investment and the KfW. Tax relief was not considered as important for more than 50% of
Business Angels in their informal investment activities although, if the taxation framework was to be
changed, reducing the investment relief quota, half of them suggested that they would respond by
founding their own holding company. Still, Business Angels consider deregulation of the investment
capital market as more important than the provision of tax relief. Such measures could include, for
example, the easing of restrictions on non-stock market shares in enterprises and application of the
fourth financial market promotion law currently under discussion.
100
BAND (2012), Erste Konturen der Investitionszulage für Business Angels Finanzierungen, http://www.businessangels.de/default.aspx/G/111327/L/1031/R/-1/T/130782/A/1/ID/134744
101
http://www.business-angels.de/default.aspx/G/111327/L/1031/R/-1/T/131081/A/1/ID/134718/P/0/LK/-1
102
http://www.vc-magazin.de/themen/interviews/artikel/es-ist-wichtig-eine-business-angels-kultur-indeutschland-zu-schaffen.html
103
http://www.vc-magazin.de/themen/interviews/artikel/es-ist-wichtig-eine-business-angels-kultur-indeutschland-zu-schaffen.html
104
Heinrich Stedler & Hans Heinrich Peters (2003): Business angels in Germany: An empirical study, Venture
Capital: An International Journal of Entrepreneurial Finance, 5:3, 269-276
72
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
Table 9 – Role of framework conditions for Business Angels
Framework conditions
Tax relief
Response to changes in the tax framework
De-regulation of capital market
Importance of public venture capital
Findings
46% important
54% less important
52% found own investment company
25% increase syndication
60% important
40% less important
57% high
20% minor
27% not applied for
Source: Stedler and Peter (2003)
73
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
This annex contains a summary of data obtained in respect of the activities of Business Angels in
Italy105.
1 - Introduction: Overview of the Italian Business Angel market
A key issue that emerges when examining the Business Angels market in Italy is the actual definition of
BAs. In interviews with representatives of Italian organisations involved in the market for Business
Angels, the point was made that in Italy there is not a distinction made at present between investment
in the companies of friends, family and known business associates on the one hand and “strangers” on
the other. The annual survey conducted by the Italian Business Angels Network (IBAN) does not make
such distinction. It was also stated that one of the key factors making Business Angels useful and
important is that they have a very deep knowledge of local realities and businesses and contacts which
gives them access to informal networks in the region which they then access to make investments.
Having said that, Italy was a late starter in the Business Angel market and as the networks that have
been set up since the establishment of IBAN in 1999 grow, there is an increased flow of projects for
consideration and more contact with “strangers” so this aspect of the market is set to grow, particularly
as Italian Business Angels increase their investments in projects in other EU Member States106.
According to Capizzi and Giovaninni there are two types of Business Angel in Italy: financially oriented
Business Angels who do not get involved in operational management (except very marginally); and
industrial Business Angels, who get involved in management of the firm with their know-how and
contacts107. Italian Business Angels tend to invest in seed or start-up rather than turnaround
situations108. Another issue is the difficulty of finding details about the Business Angels deals and their
size109. There is no public register of Business Angels and they also have a preference for privacy which
makes it hard to find them – both for other entrepreneurs and researchers. Often they have a very
strong desire to maintain their anonymity.
Given all these caveats, the data from IBAN survey and interviews with IBAN representatives suggest
that the total number of Business Angels in Italy is around 450-600, 65-75% of which represent the
visible part of the market. The total value of the measured market in 2010 was €33 million.
In its overview of the informal risk capital market in Italy for 2010110, IBAN suggests that the economic
cycle has not had a negative influence on the growth of investments by Business Angels which had
increased both in number and value compared to the previous year. This poses the question as to
whether Business Angels are evolving as an alternative to bank finance and guarantees in the prevailing
105
We wish to thank the Italian Business Angels network (IBAN) for the support provided by making available their
survey data to the study team.
106
An additional comment made was that what constitutes a “friend” is somewhat unclear. For example in the
case of “the friend of a friend”.
107
Capizzi, V. and Giovannini, R. (2010) : Business Angels e Informal Venture Capital in Italia, Bancaria Editrice,
Rome, p.27
108
Marzotto Caotorta, Presentation at the Xth Convention of IBAN, 25 June, 2009, referred to in Capizzi and
Giovannini, p.27
109
Capizzi, V. (2011): What drives the Returns of Business Angels’ Investments? An Empirical Analysis of the Italian
Informal Venture Capital Market, International Journal on GSTF Business Review, Vol. 1, No 2, October 2011, p.55.
110
IBAN (2011): Il mercato Italiano del dapitale del rischio informale – Sintesi Survey 2010, Milan.
74
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
financial climate. Angel investing is becoming an increasingly prevalent phenomenon in the Italian
economic scene.
In terms of government support to Business Angels, the main measure taken so far has been the
introduction in 2008 of a tax relief scheme targeting Business Angel investments. Other measures have
not been taken, despite the efforts of the IBAN, but it appears that the government is now listening to
some proposals. There has not been any evaluation of the tax relief scheme or of the overall policy
towards Business Angels to this point.
2 – Data on the Business Angels’ market in Italy
This section summarises key data on the visible and non-visible market for investment by Business
Angels.
2.1 The visible market
The main source of information on the Italian Business Angel market is IBAN. IBAN has been conducting
a survey of Business Angels for the past 10 years with a continuous series of data since then. The
number of responses has grown, reaching a total of 313 in 2010 which, according to the IBAN,
represents 50-70% of the total number of Business Angels, thus around 450-620 in total. They also get
some data from the Italian Private Equity and Venture Capital Association.
According to the IBAN survey, informal venture capital in Italy has grown from only €400,000 to over
€33 million between 2000 and 2010. Capizzi111 suggests this growth is due to the organisation and
structuring of the market over the past decade, driven, to a large extent, by IBAN.
At the same time, the average investment has declined from €183,000 in 2007 to €145,000 in 2010. The
number of investments (per year) also increased from 105 to 229 over the same period. In addition,
according to IBAN:
•
•
•
•
The number of projects examined seriously has increased from 635 in 2007 to 1,362 in 2010: this
has meant more Business Angels are involved and has also increased the quality of projects;
There has been an emerging trend towards smaller deals to diversify and reduce risks (many
Business Angels tend to only invest up to 10% of their personal wealth in this way);
Some 160 start-up and highly innovative firms were created in Italy thanks to the contribution of
Business Angels in 2010;
Business Angels are more highly diffused than was first thought in Italy; some 30% of survey
respondents do not belong to IBAN.
Table 1: Number of transactions and values invested 2007 – 2010
Year
2007
2008
2009
2010
Total invested (million €s)
19.5
31.1
31.5
33.3
Number of transactions
105
120
179
229
Source: IBAN
111
(2011): What drives the Returns of Business Angels’ Investments? An Empirical Analysis of the Italian Informal
Venture Capital Market, International Journal on GSTF Business Review, Vol. 1, No 2, October 2011, p.56.
75
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
•
•
•
•
•
Annex
3
63% of investments were for values of less than €100 000;
Business Angels tend to invest some 10-15% of their liquid wealth, and more than 90% of the
sample is of the view that the share can increase, which suggests there is substantial scope for the
growth of angel investing;
The Business Angel is increasingly professional and a serial investor: some 12% of respondents
indicated that they had carried out more than 10 transactions in recent years;
There is a reduction in the share of transactions by single investors, as well as an increase in the
share of European transactions as compared to regional ones;
A reduced number of respondents replied to the question about exits, but there were just over 30
recorded. Of these a third involved a cessation of activities, a third a sale to or merger with a
different company, and a third a sale to the project team or larger third investors.
Table 2: IBAN survey – Key Results for the period 2007-2010
Year
2007
2008
2009
2010
Number
of Projects
responding
examined
Business Angels
104
635
140
658
268
1 394
313
1 362
Projects
invested in
105
120
179
229
Average value of Declared exits
projects (€s)
183,000
213,000
176,000,
145,000
23
32
33
31
Source: IBAN
Table 3: Data on the visible Business Angels market in 2010
Indicator
Total amount invested by angels
Number of investments
Average amount of the deal (average investment)
Average amount per angel investor
Total amount invested – including co-investors
IBAN data
(2010)
€33 million
229
145,000
<€60,000
na
Table 4: Business Angels Networks, 2010
Indicator
Number of business plans received by BANs
Number of business plans submitted to angels (“examined”)
Number of new companies financed
Number of follow-on rounds = not syndication – very little info about that; e.g. coinvestment with seed capital,
IBAN data
na
1,362
around 150
na
76
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
Table 5: Business Angels Networks, 2010
Parameter
Number of networks
Number of members (investors)
- Of which, number of active Business Angels
Average number of investors per network
Total number of women Business Angels (% of total)
Number of angel investors recruited during 2009
Number of women investors recruited during 2009
Number of angels who have left the networks
Average number of angels per investment round
IBAN survey numbers (2010)
14
450
75-90 %
Varies: e.g. Ital Angels for Growth = 90,
Trentino = 9. Average approx.: 32
5%
Increased approx. 5-10%
Stays similar share
Very few if any
60% of investments more than 7 (2011);
Around 5% single investors
As regards industry shares, according to the IBAN survey data, in 2010 most of the deals concerned
firms in the ICT sector (20%) followed by business services (16%), entertainment (12%), bio and medical
technology and energy and environment (10% respectively). However, in 2009 the bio/med technology
sector was the one with the higher share.
Table 6: Sectors invested in by Business Angels in Italy (2010) – numbers of transactions
Sector
ICT
Business Services
Entertainment
Biotechnology and Med Tech
Energy and Environment
Commerce and Distribution
Manufacturing
Finance and Insurance
Internet
Agro-Food
Other
Percentage
20
16
12
10
10
8
7
6
5
3
5
Source: IBAN survey 2010
As regards the stage of the development of companies invested in during 2009-11, IBAN points out that
Business Angel investment is an integral element of “early stage” investment in Italy, an area where
Business Angel investing is becoming increasingly important. Taking the aggregate values published by
IBAN and AIFI together, some 70% of deals in this area originate from Business Angels, and the trend
seems to be gradually increasing.
77
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Italy
3
Chart 1: Stage of development of companies invested in, 2009-2011, %.
Initial growth
Start-up
2011
2010
2009
Seed
Other
0
10
20
30
40
50
60
Source: IBAN, 2012
Additional data from the IBAN survey indicate that the most common investment is smaller than
€60,000. Investments are usually held for less than four years. Usually the Business Angels own 20% of
the share capital of the financed firms. In 2011 almost a third of Business Angels responding to the
survey had no investments in their portfolio (this may be related to the recent growth in their numbers
and/ or the state of the economic environment) while the majority (around 55%) had between 1 and 3.
Most Business Angels prefer to work with S.r.L. companies (limited companies, usually with little
capital). Most important determinants for deciding investments are the quality of the management
team of the financed company, followed by market potential of the project112.
2.2 Data on the non-visible market
According to IBAN, the total number of Business Angels in Italy is in the region of 500, which, on the
basis of the data provided earlier, suggests that invisible market includes some 50 - 100 Business Angels.
This number, if accurate, deviates greatly from the numbers from most other European countries where
the invisible share of the Business Angel market usually represents more than 50%, and very often up to
90% of the total.
Considering the data of the GEM survey, around 3% of Italians in the age group 18-64 (close to
1,830,000) are informal investors (i.e. have invested in the business of another person in the last three
years). There are no specific data for Italy but across Europe 5-10% of these invest in the business of
strangers. In the case of Italy, the discussions indicate that this tradition is rather uncommon and we
consider that even an estimate on the basis of 5% (around 90,000) is probably an overestimate. Given
112
IBAN (2012): Il mercato Italiano del dapitale del rischio informale – Survey 2011, Milan.
78
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
that the great majority of investors (95%) are men even this number is most probably an overestimate.
In addition, the GEM data do not differentiate between investors that are actively involved in the
management of the firm. Thus, it is not possible to reach a more specific estimate with a reasonable
level of certainty. Still, on the basis of these numbers, the estimates of IBAN for a very small non-visible
Business Angel market may be somewhat conservative.
2.3
Exits and exit strategies
According to the IBAN survey data, 40% of respondents specify their intended exit strategy at the
moment of investing, and only 7% do not have a predetermined approach. The preferred exit strategy is
that of selling to, or the fusion with, another company (38%), followed by a sale to other investors
(31%).
Using the IBAN data, Capizzi examined some 90 disinvestments made during the period 2007-2010 in
Italy113. It suggests that exit strategy is an important variable to consider when investing in the capital of
an unlisted company. Of the companies on the database, 16.7% were closed activities, with lowest IRRs;
buy-back from the management team has a low IRR (28.9% of exits); sale to/ acquisition by another firm
(35.6%) has the highest return; followed by a stock listing (2.2%); and sale to other investors (16.7%).
Buy-back is usually the last-best strategy after failure of other exit strategies. The average duration with
which investments that were part of the study were held is 3.3 years, and the IRR dramatically falls as
years rise, although increasing after year five. 63% of losses occur in year two of the investment. The
best performing industry was biotech/ medtech (only 1 investment showed a loss), followed by ICT and
then retail. Overall, about one in three investments resulted in a loss (partial or total).
According to IBAN’s most recent survey data, whereas in previous years the average number of exits
declared in the survey was in the region of 30, in the 2011 survey there were only 14 exits declared. It
may be that this is due to the unfavourable economic and financial environment, which has led to
postponing of disinvestments until more favourable circumstances emerge. The average period for
which investments are held was 4.6 years, as opposed to 4 years for the preceding years. Most
disinvestments were in Northern Italy.
The sectors most disinvested from in 2011 were ICT 34% (22% in 2010), followed by manufacturing at
29% (22% in 2010) and energy and environment at 14% (7% in 2010). 64% of disinvestments were in
high-tech companies.
113
Capizzi, V. (2011): What drives the Returns of Business Angels’ Investments? An Empirical Analysis of the Italian
Informal Venture Capital Market, International Journal on GSTF Business Review, Vol. 1, No 2, October 2011, p.57.
79
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Italy
3
Chart 2: Losses and Gains on disinvestment, 2009-2011
Loss>100%
Partial loss
2011
2010
0-19%
2009
20-49%
50-99%
100-200%
>200%
0
10
20
30
40
50
60
Source: IBAN, 2012
Chart 3: Business Angel exit strategies, 2009-2011
Exchange listing
Sale to/ integration with other firm
2011
Sale to other investors
2010
2009
Sale to project team
Cessation of activities
0
5
10
15
20
25
30
35
40
Source: IBAN 2012
The exit strategies selected show some variation. This is probably related to the state of prevailing
economic conditions. For example in 2011 there were no exchange listings.
80
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
2.4
Annex
3
Other market characteristics
According to the IBAN, the “typical” Italian Business Angel is a man (some 5% are female) aged between
44 and 50, has a university degree (58% have a degree, 35% a post graduate title, 7% have a mediumsuperior school diploma) and has private wealth excluding his personal residence of between several
hundreds of thousands of Euros and €1.5 million (38% between €500,000 and €2 million). Around 10%
of this wealth is invested in unlisted firms. In addition, the typical Business Angel usually involves at least
one other Business Angel in his investments and is affiliated to a BAN. Only about 12% were serial
investors. In addition, at least among the Business Angels that are members of BANs, Business Angels
are concentrated in Northern Italy (50% in Lombardia and 11% in Emilio Romagna).
The most important contribution Business Angels bring is strategy, followed by contacts and the capital
and financial knowledge.
The IBAN survey also indicates that the share of Business Angels that would prefer to invest in their own
province, as opposed to nationally of on a pan-European scale, is gradually declining.
Creation of syndicates is increasingly popular among Business Angels. Usually syndicates are formed by
expert angels, and there is a Lead Investor who co-ordinates with other investors and interfaces with the
financed company. This allows diversification of risk and larger sums to be invested. These investments
are targeted at companies that are not yet out of the start-up phase but need funding for the expansion
phase until VCs can enter and close the second equity gap. Syndicates can also attract less expert
Business Angels, encouraging them to be more active, as well as latent Business Angels.
They might also collaborate with the VC organisation AIFI (the Italian Association of Private Equity and
Venture Capital) to jointly support companies throughout their growth and development cycle. They
also co-operate with public sector funds for purposes of making co-investments. Seed funds to finance
ideas and business at first stages exist in Italy that Business Angels can readily co-invest with in
companies. For example, there is the Fondo Eporgen Bioindustry Park del Canavese, the Fondo Rotativo
per le nuove imprese innovative della Camera di Commercio di Pisa, and the New Venture Development
S.p.A.
2.5
Quality of data sources
At present the most robust and reliable source of data about the Business Angel market in Italy is that
developed by IBAN since 2000. IBAN carries out a yearly survey through which it obtains details about
Business Angels in Italy and their activities since 2000, providing a continuous database for that period.
Usually between 30-40% of survey respondents are not members of networks. This is a cross-country
data source and allows for useful comparisons in trends since the data has been collected.
A recent change in tax laws has meant that Business Angels can claim tax relief on their investments
which should allow an additional source of measurement of the extent of the market, however, as yet
data about these numbers, or research based on that, has not yet become available. One issue is that
such data would include all those that claim tax relief under the law, which could include more than just
Business Angels.
A combination of these two data sets should provide a more accurate picture of activity when the data
become available.
81
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Italy
3
3 - SME access to finance - overview
According to the SBA Fact Sheet of 2010-2011, Italy ranks below the EU average in the area of access to
finance for SMEs, with only a few indicators hovering around the average and most falling behind. As
regards the indicators measuring access to private capital (venture capital, difference in interest rate
levels and willingness of banks to provide loans), Italy performs below the EU average. For example,
Italian small firms that want to take out a loan of over €1 million also have to accept a larger interest
rate spread compared to loans above that threshold than their EU peers (36.28% of difference in Italy,
compared to an EU average of 23.98% difference). Moreover, the share of Italian firms that also
identified access to finance as the most pressing problem is higher than the EU average (19% vs.
15.41%).
Table 7: Access to finance for SMEs – Comparison of key indicators for Italy and the EU
Indicator
Share of bank loan applications by SMEs that were not successful, 2009
Access to public financial support including guarantees
(% that indicated a deterioration)
Willingness of banks to provide a loan (% share that indicated a deterioration)
Relative difference in interest rate levels between loans above 1 million EUR and
loans below EUR 1 million, 2010
Venture capital investments - early stage (% of GDP), 2009
Share of Italian firms that identified access to finance as the most pressing
problem
EU
average
23%
22%
Italy
17%
20%
30%
32%
24%
0.01%
36.3%
0.003%
15.4%
19%
Source: SBA Fact Sheet
Policy measures have been taken lately to improve the situation in Italy. Of relevance to the Business
Angel market, is that during the course of 2010, training courses and seminars were organised to
increase the knowledge of venture capital among SMEs. These courses precede the creation (expected
in 2011) of a network of trained accountants, called ‘Equity Angels’, to help SMEs access venture capital.
In addition, exporting SMEs can, since April 2010, apply for targeted financial support that also gives
them the option to become minority shareholders of enterprises investing in innovation and research.
Under this scheme, the financial support amounts to a maximum 25% of the net capital of the
enterprise but no more than €500,000.
3.1
Role of Business Angels
Business Angels of some nature have been present in the market for some time in Italy. However, it has
only been since they have been organised through networks that the market has developed strongly,
and the term Business Angel is still quite unknown in Italy, even among some important Italian SMEfocused organisations, although once explained it is clearer. This suggests that more awareness-raising
activity can still be undertaken by IBAN.
According to Capizzi and Giovannini114 the initial role of BANs as they appeared in the USA in the early
1980’s was to act as a market for bringing supply and demand together. Subsequently, during the
1990’s, they added more services such as pre-screening of projects, selection of appropriate Business
82
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
Angels, consultancy and post-financing services. The crisis of the new economy with the bursting of the
dot.com bubble led to a weeding out of Business Angels and the grouping of more serious and
professional among them into associations. Members tend to be recruited on a more selective basis
than before 2003 and how they can contribute overall is also a factor in such selection.
In Italy, BANs evolved more slowly than in many other European countries. The first BAN was IBAN that
was set up in 1999, followed by additional networks soon after. IBAN became the key player, acting not
only as a referral point and matching agent, but also as a driver of change, dealing with all the themes
relevant to Business Angels in the Italian financial and business environment. The BANs helped resolve
some of the key problems of the Business Angel market: quasi invisibility of the Business Angels and the
high cost of search for new investment opportunities in SMEs that seek funding. Printed marketing
materials distributed through the media did not achieve a great deal of success in persuading Business
Angels to reveal themselves, but web-based approaches such as www.angelsoft.org were more
successful
As a network of networks, IBAN has helped set up regional BANs. Currently there are 13 BANs in Italy,
two of which are thematic - digital (Digital BAN) and life sciences (BAN Life Sciences/ Seven Hills Venture
Partners Consortium) - and one is a « club » (Italian Angels for Growth). The remaining are regional BANs
(e.g. Bologna, Brescia, Lazio). Syndication is an increasingly prevalent phenomenon in the operation of
BANs. However, the deep desire for anonymity among many Business Angels is still a problem in the
efficient operating of the market.
IBAN participates in EBAN and some EU projects such as « Ready for equity » (training for Business
Angels and entrepreneurs, part of the Leonardo programme) and « EASY »115.
It has not been possible to identify a study dealing specifically with the SME funding gap in Italy, but
through their activities, and also their close collaboration with venture and private capital (AIFI) and
other seed funds, Business Angels in Italy are making a contribution to filling the financing gap and
creation of new firms: for example, in 2011, 53% of investments were in companies with zero turnover,
and 69% in companies with less than €100,000, while some two thirds of total investments were in hightech firms.
3.2
Evaluation of the role of Business Angels
We have not been able identify any evaluation of the role of Business Angels in Italy.
4 - Public support for Business Angels
4.1
Direct support measures
In terms of government support to the Business Angel market, the Italian Government has recently
approved a tax relief scheme on capital gains from Business Angel investments (D.L. 112/2008, art.3).
Tax breaks are provided as follows116:
-
Direct investments by a private individual resident in Italy for tax purposes:
115
www.earlstageinvestors.org; www.Startupbusiness.com in Italy is also an on-line platform for bringing together
demand and supply, and information about opportunities.
116
For more detail e.g. as regards restrictions please see EBAN Compendium of Fiscal incentives available to
Business Angels in Europe.
83
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
Dividends–
Dividends from non-qualified participations are subject to a final withholding tax levied at 2.5%.
When the dividends come from a foreign company the withholding tax, if any, suffered in the source
country (i.e. the country of fiscal residence of the foreign company) can never be recovered in Italy.
As of 1.1.2009 (D.M. 2.4.2008), 50.28% of dividends from qualified participations are tax exempt.
Capital GainsCapital gains realised on non-qualified participations are subject to a final withholding/substitute tax
levied at the rate of 12.5%. From 1.1.2009, capital gains realised on qualified participations are taxexempt for 50.28% of their amount. The remaining 49.72% is included in the taxable income of the
shareholder-individual subject to IRPEF117 levied at progressive rates. It is possible to offset such
gains with the losses realised on the selling of participations of the same category.
As of July 2008 (D.L. 112/2008), capital gains realised on qualified and non- qualified participations
by private individual investors, not in a business capacity, are tax-exempt if
• Participations have been owned for at least three years;
• Companies of the referred participations, have been established for no longer than seven years;
• Companies, of the referred participations, have to have realised “productive” investments;
• Capital gains must be reinvested into “start-up” companies within 2 years since the gain accrued.
All requirements mentioned above must occur.
This is also extended to non-Italian private individuals investing in Italy under the same conditions as
residents, although there are some specific dispositions deriving from bilateral agreements against
double taxation.
-
Investment through a public/ private limited company resident in Italy for tax purposes:
DividendsDividends distributed to resident companies are exempt from withholding tax, substitute tax or
other deduction at source. 5% of such dividends are included in the taxable income of the
companies, subject to corporation tax (IRES - levied at the ordinary rate of 27.5%). The effective tax
burden connected with the dividend is therefore equal to 1.375% of the gross amount (5 x 27,%). In
this case as well, no dividend tax credit is available in order to offset that tax.
Capital Gains Capital gains realised by resident corporate entities upon disposal of domestic or foreign
participation could be partially exempt (95%) from corporation tax according to the "participation
exemption" regime. Such regime needs the fulfilment of specific requirements.
If, upon the disposal of the participation, one or more of the requirements are not satisfied, the
capital gain is totally subject to corporation tax levied at its ordinary rate (currently 27.5%).
Whether the participation exemption regime does not apply and the participation is classified in the
fixed financial assets category and is, upon its disposal, held for at least three years, the gain could
be taxed over five years (20% per year), starting from the disposal.
117
L'Imposta sul Reddito delle Persone Fisiche – personal income tax.
84
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
-
Annex
3
Investment by a private individual in business capacity resident in Italy for tax purposes:
Dividends As of 01.01.2009, 50.28% of dividends are exempt. The remaining 49.72% is included, as business
income, in the taxable income of the individual, subject to IRPEF levied at progressive rates.
Capital GainsCapital gains realised on the disposal of participation could benefit from the participation exemption
regime if all the requirements described above are satisfied. In such a case, starting from
01.01.2009, 50.28% of the gains are tax-exempt. The remaining 49.72% is included, as business
income, in the taxable income of the individual subject to IRPEF levied at progressive rates.
Where the participation exemption regime does not apply capital gains are totally included, as
business income, in the taxable income of the individual subject to IRPEF levied at progressive rates.
It is possible to tax the gain in five years as the requirements above described are satisfied.
-
Investment by a partnership resident in Italy for tax purposes
Dividends From 01.01.2009, 50.28% of dividends are tax-exempt. The remaining 49.72% is attributed (together
with the overall taxable income of the partnership) and taxed in the hands of its shareholders.
Capital GainsCapital gains realised on the disposal of participation could benefit from the participation exemption
regime if all the requirements described above are satisfied. In such a case, from 01.01.2009,
50.28% of gains are tax-exempt. The remaining 49.72% is attributed (together with the overall
taxable income of the partnership) and taxed in the hands of its shareholders.
Besides the tax relief scheme, we have not been able to identify any direct public support measure for
Business Angels in Italy.
The Bank of Italy has recently commenced a research project on R&D and innovation, which also
includes financing innovation and brings Business Angels into its ambit. However, the Bank is still at the
onset of the research and specific conclusions about policies have not yet been made. IBAN also reports
that they are campaigning strongly for public support for Business Angels but, while the relevant
departments in the government are listening, it is still early days and no specific measures have been
introduced.
Some spill-over effect supporting the Business Angels market may come from the “Equity Angels”
programme launched to support venture capital.
4.2
Evaluations of public support for Business Angels
There has not been any formal evaluation of the tax relief scheme so far, nor any other evaluations of
the policy towards Business Angels.
85
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Netherlands
Annex
4
This annex contains a summary of data obtained in respect of the activities of Business Angels in The
Netherlands.
1 - Introduction: Overview of business angels market in The Netherlands
Business Angels have been present in the Netherlands for some years – for example, the BAN Meesters
van die Toekoms was established in 1996. In recent years the topic of informal investment has gained
increasing attention in the Netherlands from a policy point of view. In 2010 the Business Angels Network
Nederland was set up to act as an overarching network for all BANs in The Netherlands.
According to the 2010 Global Entrepreneurship Monitor (GEM) Report for the Netherlands, in the past
decade a substantial movement from a ”job culture”, to a more entrepreneurial society, has occurred,
which is reflected in an increase in both early-stage and incumbent rates of entrepreneurial activity.118
This has contributed to an increased demand for early-stage/ seed funds, especially as at the same time
banks and venture capital funds have been moving away from this end of the market.
While, according to the GEM Report, the Netherlands has not performed as well as the group of
innovation-driven economies (economies identified by the World economic Forum as driven by
knowledge-based investment) that it is benchmarked against as regards “informal investment”, there
was a strong, sudden increase in the informal investment rate in 2010 (as also occurred in the countries
it is benchmarked against). Thus, in 2001, whereas the prevalence rate of informal investors was 1.3%
against 3.0% in the benchmark countries, in 2010 these rates were 3.4% and 3.6%, respectively.
Importantly, it needs to be remembered that in the GEM the category ‘informal investors’ consists of
two groups: one made up of friends, family and former colleagues; and another, minority, of strangers –
these latter ones being called “Business Angels” in their report.
According to the GEM Report, informal investment activity in The Netherlands almost doubled between
2009 and 2010, reflecting an increased demand for external finance while banks were still cautious
about lending to new businesses and SMEs. In The Netherlands the amount invested per informal
investor has tended to be relatively high, reflecting the higher share of Business Angels in informal
investors compared to other countries. Over the period 2008-2010, the share of Business Angels in
informal investors was 15% in The Netherlands, lower than the preceding period from 2007 – 2009,
when it was 19% but higher than from 2001 – 2004 when it was 12%. The GEM report suggests that the
great increase in informal investment activity in The Netherlands from 2009 to 2010 was due to nonBusiness Angel investment (friends, family and colleagues)119.
The report Informal Investment in Nederland120 suggests that, overall, informal investment market in
The Netherlands is seen in a positive light: there is sufficient capital available and the authorities support
market development. However, a survey published in April 2012 found that as investors see the future
with increased uncertainty due to the economic environment, they are acting with more
circumspection, seed and venture capital funds are reducing and the size of sums invested are declining
– many firms think “the worst is yet to come”121.
118
Global Entrepreneurship Monitor 2010 The Netherlands The emergence of an entrepreneurial society, p.13
Global Entrepreneurship Monitor 2010 The Netherlands The emergence of an entrepreneurial society, p.69
120
Emerging technology Research p.5
121
Emerging Technology Research Europe (2012); Nederlands investeringsklimaat voor Technostarters, Tornado
Insider, 6-meting, April 2010, for Agentschap NL, p.3
119
86
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
2 – Data on the Business Angels’ market The Netherlands
This section summarises key market data on the visible and non-visible market for investment by
Business Angels.
2.1 The visible market
The main source of information on the visible market in the Netherlands is the data collected by the
Netherlands Angels Association and submitted to EBAN. Unfortunately, because of a reorganisation of
the business angels market in the Netherlands, the 2010 survey included responses from only 4 of the 8
main networks of Angels. Thus, in order to have a more complete picture in relation to the visible part of
the Business Angel market in the Netherlands we present data for both 2009 and 2010.
Table 1: Business Angels Networks in the Netherlands– Data from EBAN 2009 and 2010 surveys and
for the total of Business Angels’ Networks
Parameter
2009 survey
2010 survey
11
4
2375
4470
1070
No data
Total number of women Business Angels (% of total)
30
No data
Number of angel investors recruited by BANs in 2009
202
No data
Number of women investors recruited during 2009
6
No data
Number of angels who have left the networks
72
No data
Average number of angels per investment round in 2009
3
No data
Number of networks
Number of members (investors)
-
Of which, number of active business angels
Source: EBAN and CSES elaboration
Table 2: Business Angels’ investment in Business Angels networks in the Netherlands - Type and
volume (Data from the 2009 and 2010 EBAN surveys)
Indicator
EBAN data
2009
Number of business plans received
3735
Number of business plans submitted to angels
442
Number of deals made through the network
109
Number of new companies financed
Number of investors that made investment in companies presented
through the network
Number of follow-on rounds
Total amount invested by angels through BANs (€)
EBAN data
2010
6
179
44
3
25320000
7400000
87
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
Average amount of the deal (€)
364875
Average amount per angel investor
139875
Total amount invested – including co-investors
24450000
Source: EBAN and CSES elaboration
Table 3: Percentage breakdown of Business Angel investment by sector
Sector
ICT
Mobile - including software and service applications
Biotech and Life sciences
Health Care and Medical technologies
Energy/ Environment and Clean-tech
Creative Industries
Retail and Distribution
Finance and Business Services
Manufacturing
Other
% in total number of deals, 2009
18.6
17.5
0.9
2.1
16.2
10.3
12.3
4.5
12.3
5.3
Source: EBAN survey (2009)
Geographical location
The Nulmeting Informal Investment122 report found that although personal contact between the
informal investor and the business was important from the point of view of coaching and guidance, this
did not necessarily mean that being in the immediate vicinity was critically important. Based on the
EBAN 2009 survey, half of the respondents indicated that they had no preference for participating in
companies within a radius of 50 kilometres of their home, and only 11% had a strong preference for
such close investments.
Table 4: Geographical concentration of Business Angels’ Investment – share of deals though BANs by
location of recipient firm
Location of recipient firm
% of deals
In the region where the Network is located
35.5
In the same country, but not in the same region
53.6
Cross-border in Europe
Outside of Europe
Not known
0
10.9
0
Source: EBAN survey 2009
Survey results revealed quite a difference as regards the stage of investment that Business Angels
invested in. According to the 2011 survey, most investments (40%) were made in young firms at the
stage of exponential growth, followed by the stage just before and at start-up (30% each). In the 2012
122
Bureau Bartels (NV) (2011); Nulmeting Informal Investment, for Agentschap NL, pp.19-20.
88
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
survey there was much more concentration around the start-up (59%), just after start-up (58%) and prestart phase (40%). No data was available for the stage in the business life cycle that investments were
made.
Table 5: Level of Business Angel Co-investment
Co-investors
Share in total (%)
Business Angels inside the network
15.5
BAS outside of the network
5.5
Early stage fund
11
Venture capital fund
7.5
Family office
0
Institutional investors
10
Other investors
2.5
Source: EBAN survey 2009
2.2 Data on the non-visible market
There is no formal detailed study conducted providing evidence on the size of the non-visible part of the
Business Angels market in the Netherlands. The Netherlands Business Angels Association suggested that
the invisible market may be 7 times the visible market (in terms of number of Business Angels) but it has
not been possible to check this number through any other source. As in other Member States, Business
Angels tend to be hard to trace and are often publicity-averse.
The GEM survey provides a possible alternative source. According to the GEM data the percentage of
18-64 population in the Netherlands who had personally provided funds for a new business, started by
someone else, in the past three years was in the range of 1.5-2% for most of the period 2001-2008 but
has increased to over 3% in 2010 and 2011. The authors of the GEM report concluded that the rise was
due to a rise in the number of informal investors investing in the businesses of family, friends or
colleagues.
Table 6: Informal Investors Rate: Percentage of 18-64 population who have personally provided funds
for a new business, started by someone else, in the past three years
Netherlands
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
1.5
1.8
1.3
1.3
2
1.1
2.3
1.7
1.8
3.4
3.7
Source : GEM project
Still, the GEM survey also suggested that for the period 2008-2010 the proportion of informal investors
who invested in strangers’ businesses was around 15%, higher than the average of 10.6% for all
developed economies.
On the basis of these two indicators for 2010, we calculate that around 0.5% of the working population
aged 18-64 can be considered as potential Business Angels, a total of around 57,000 potential angels.
89
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
Data from four of the eight BANs in the BANs 2010 suggested that the visible market had 4,470 angels,
so the GEM data shows that the number of potential Angels in the Netherlands is 13 times the reported
visible market. Given that the visible market is incompletely reported, this estimate is not inconsistent
with the Netherlands Business Angels Association suggestion that the invisible market may be 7 times
the visible market.
2.3
Exits and exit strategies
The 2012 survey 123(p.33) found that informal investors tended not to have detailed plans about exit
strategy and timing. However, respondents did say that they found that it was more difficult to find
buyers and realise good values in the current market.
2.4
Other market characteristics
The profile of Business Angels tended to be similar to those other Member States. The Nulmeting
(2011) survey found that in terms of age some 90% of Business Angels were relatively equally
distributed between the 41-50, 51-60 and 61-70 years age categories. The follow-up survey of 2012
suggested there was a generational difference between the younger and the older Business Angels,
with the older ones considering the younger ones inexperienced and in need of help, and the younger
ones tending to be more involved in the business and considering older ones to “meddling”
unnecessarily in their work. 3% of respondents were female, 94% male (3% did not reply). About two
thirds had more than 5 years’ experience as a Business Angel. Importantly, some 50% of Business
Angels had experience of investing in the funds set up through the Technostarter and Creatieve Starter
initiative (see 4.1 below).
In September 2010, the kick-off meeting for the new overarching organisation linking the various BANs
in the Netherlands took place124 (a “network of networks”). The aim of BAN Nederland is to liaise and
with, and talk to, government and stakeholders on behalf of the member networks; act as a trainer as
regards trends and developments in informal investment; and, to develop a quality standard for BANs.
It also aims to encourage participation by banks and investment funds.
At the time of launch some 14 Bans were part of the BAN Nederland. A recent publication by
Koenraads125 for the BAN Nederland identified the following BANs and some features.
Table 7: Business Angel Networks in The Netherlands
Network
Year
established
Members
Participation
values
Stages
TIIN Capital
1998
600
300k-2m
Growth, MBI/ MBO
Investeerdersclub
2009
45
50-500k
Seed, start, growth
Informal Capital Network
2003
400
up to 1m
Growth, MBO, turnaround
BiD NETWORK
2005
115
10k-1m
All phases
FLIIN
2007
60
50-500k
Growth, start
Meesters van de Toekomst
1996
230
50k-1m
Start, growth
123
Emerging Technology Research Europe (2012); Informal Investment in Nederland, Tornado Insider, for
Agentschap NL, p.33
124
Press release: “Nieuwe koepelorganisatie Business Angels bevordert inovatiekracht in Nederland”, 29
September, 2010.
125
Koenraads, E., (2012); Handboek Informal Investment. De kunst van het investeren, BAN Nederland.
90
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Netherlands
Mind Hunter
2006
>100k
Women Professionals Group
2010
25-300k
Money Meets Ideas
2002
100k-1.5m
NextStage
2004
100
50k-1m
Seed, start, growth
Investormatch
2010
>500
50k-2m
Start, growth, expansion
Annex
4
All phases
Start, growth, MBI/ MBO
All phases
Source: Koenraads
While some of these are platforms and matchmakers rather than clubs with members, and it is also
unlikely that membership lists will be up-to-date and reported accurately, and there may also be
membership of more than one BAN by an individual Business Angel, this does throw some light on the
population of Business Angels (about 1500) that want to be known and to participate relatively publicly
in Business Angel activities.
2.5
Quality of data sources
The data provided to EBAN is affected by response rates and various contingencies so it is not complete
and comparable with earlier periods as a source of visible market data. The GEM survey is highly limited
as a source, due to definitional matters. With the launch of the BAN Nederland, the national BAN, it is
expected that the quality of data will improve.
3 - SME access to finance - overview
According to the SBA Fact Sheet, access to finance is the only area among the various SBA indicators
where The Netherlands is trailing the EU average by some distance. Indicators suggest that this is largely
due to lack of credit provision by private banks, as evidenced by the data in the table below. Overall the
trend is downwards.
91
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
Table 8: Access to finance for SMEs – Comparison of key indicators for The Netherlands and the EU
Indicator
Share of bank loan applications by SMEs that were not successful, 2009
Access to public financial support including guarantees (% that indicated a
deterioration) 2009
Willingness of banks to provide a loan (%share that indicated a deterioration)
2010
Relative difference in interest rate levels between loans above 1 million EUR and
loans below EUR 1 million, 2010
Venture capital investments - early stage (% of GDP), 2009
EU
average
23
Netherlands
54
22
28
30
32
24
37
0.01
0.02
Source: SBA Fact Sheet
The government has implemented some measures to deal with this issue. For example, in 2010 the
Foundation Microcredits Netherlands (collaboration between the big banks, the Ministry of Economic
Affairs, Agriculture and Innovation, and the Ministry of Social Affairs and Labour) attracted €30 million
for micro-financing start-up companies and SMEs for loans up to €35,000. In addition, a website was
launched (www.eigenbaas.nl – “own boss”) by the Foundation Micro credits and Entrepreneurship
Netherlands offering start-ups information, coaching and advice, both through the website and a
network of more than 30 locations where more detailed advice and support can be provided.
3.1
Role of Business Angels
Overall, it appears that Business Angels are making a small but meaningful contribution to funding of
investments where there is a gap left by reluctance of banks and venture capitalists to enter that
segment. However, Business Angels are also affected by the overall economic conditions and the quality
of projects they can possibly participate in.
In both the 2011 and 2012 surveys mentioned above it was found that the term “Business Angel” is
largely unknown to start-up SMEs in general, although once the concept was explained it was
understood. BANs also were relatively unknown to start ups. Business Angels that were members of
BANs found them, in general, to make a positive contribution, in particular to identify possible deals.
3.2
Evaluation of the role of Business Angels
As mentioned in the introduction, the role of Business Angels has been drawing increased attention
from public policy makers and the reports mentioned (Bureau Bartels, Emerging Technology research
Europe) focus specifically on informal investment, although not from the point of view of an evaluation
or impact assessment but from a monitoring point of view. The reports are intended to be
complementary to provide a time series of data that can be compared to identify trends and any other
developments that may emerge.
4 - Public support for Business Angels
4.1 Support measures
There is a direct support scheme for Business Angel networks in the Netherlands under which the
Government pays a subsidy towards the costs of network meetings. It is understood that the total
budget for this support is €250,000 per annum for the Netherlands as a whole, so the amount is
relatively small.
92
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Netherlands
Annex
4
A tax credit scheme for Business Angel investments was terminated two years ago as it was found that it
was not sufficiently targeted.
A recent initiative that has supported Business Angels is the Technostarter and Creatieve Starter126 funds
within the SEED Capital Funds which are part of the Innovation Fund. With these funds, investors are
supported to up to 50% of the investment budget. These are closed-end participation funds and the
budget for 2012 is €16 million. Although not specifically targeted at Business Angels, at present about
half of the 36 funds operating are operated by Business Angels. They have to have at least three
independent investors, and to avoid any conflicts of interest, they do not invest in the friends, family
and business relations category of the informal investment market. The overall aim of this initiative is to
increase the supply of seed capital funding, given the tendency of banks and venture capital funds to
move away from this market segment. By helping Business Angels to group together it should also make
larger investments possible (syndicates) and spread the risk of those investments. The programme is run
through Agentschap NL.
Agentschap NL also provides support to Business Angel networks through:
•
•
•
•
Stimulating collaboration between networks (e.g. support for BAN Nederland);
Awareness raising and information meetings;
Supporting investment and investor readiness;
Research and monitoring.
4.2 Evaluations of public support for Business Angels
We have not been able to identify any specific evaluations carried out of the Business Angel
support programme in the Netherlands, however, as mentioned earlier in the report, the
Technostarter Funds have been viewed favourably by other reviewers, and the Technostarter
funds are spoken of favourably by the Funds’ manager (Agentschap NL). It is also expected that
the renewed initiatives in support of a national BAN and support through provision of
information and research will have a positive impact on the development of Business Angels in
the Netherlands.
126
Definitions: a “technostarter” is a legal person running a business or preparing to start a business based on new
technical invention or new application of an existing technology (products, processes/ services – not advice); a
“Creatieve Starter” is a legal person running a business or preparing to start a business based on a new creative
invention or new application of an existing creative invention (products, processes/ services – not advice).
93
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
This annex summarises key market data on the visible and non-visible market for investment by
Business Angels in Poland
1 - Introduction : Overview of Polish angel market
The Business Angel market in Poland is still very young. Its development can be presented in three
periods:
-
1990-1995/97 - beginning of the development of entrepreneurship, with very low demand for this
type of investment, which resulted in lack of experience in this respect;
1995/97-2006 - contractors already had some experience in conducting business and the financial
resources and therefore there has been growing interest in this type of investment;
2006 - onwards – period of strong development, mainly because of the accession to the EU,
observed an increase the number of potential Business Angels.
Business Angels in Poland are concentrated around BANs that were mostly financed by the Operational
Programme (OP) Innovative Economy 3.3.1. Due to the specific Business Angels’ investment activity - the
networks are aimed at different regions of the country. Currently there are 10 regional BANs operating
in Poland. According to EBAN data there are around 15,000 Business Angels active in the networks.
The biggest and most active BANs are the Lewiatan Business Angels, PolBAN, Silban, and Amber with
smaller networks operating in different regions. A new initiative in this field in Poland was a creation of
the Association of Business Angels Networks (ABAN), which aims to improve multi-level cooperation
among early-stage market and to join networks of Business Angels and seed capital funds across Poland.
There are some important issues related to the operation of the Business Angel market in Poland. There
are legislative and fiscal difficulties associated with establishing and running a business. At the same
time, there is a low awareness of entrepreneurs of investment opportunities in private companies.
Another problem is the lack of fiscal incentives for business investments, lack of tax breaks and
appropriate solutions to a number of standard investment activities. The only visible tax incentive for
private investors in Poland at the moment is a special deduction for the purchase of new technology
(50%). Grants co-financed by the EU for financing Business Angel networks in Poland accounted for a
substantial capital injection for the market, but the question now is, how many of the already
established networks will be able to continue their operations after the period that support is granted
expires.
94
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
2 – Data on the Business Angels’ market in Poland
2.1
Visible market
In 2011 there were 10 Business Angels networks (see table 1). Most of the Polish networks do not have
a legal personality and they work as part of a larger organisation or association. According to estimates
in the Report of Polish Ministry of Economy, each network associate around 30 Business Angels.127
Table 1: Business Angels Networks in Poland 2011
Name of the Network:
City of establishment:
Year of
establishment
PolBAN Business Angels Club
Warszawa, Bydgoszcz
2003
Lewiatan Business Angels
Warszawa
2005
?l?ska Sie? Anio?ów Biznesu Silban
Katowice
2006
Sie? Inwestorów Prywatnych SATUS
Kraków
2006
Regionalna Sie? Inwestorów i Inwestycji Kraków
Kapita?owych RESIK
2007
Lubelska Sie? Anio?ów Biznesu (obecnie Lublin
Wschodnia Sie? Anio?ów Biznesu)
2007
Sie? Anio?ów Biznesu Amber
Szczecin
2009
Secus Wsparcie Biznesu
Pozna?, Warszawa,
Wroc?aw, Katowice
Ponadregionalna Sie? Anio?ów Biznesu
Katowice, Warszawa, Wroc?aw, 2010
Bia?ystok, Gorzów Wielkopolski,
Zielona-Góra
Gildia Anio?ów Biznesu
?ód?
Studencka Sie? Anio?ów Biznesu
Katowice, Warszawa, Wroc?aw, 2011
Bia?ystok
Kraków, 2010
2010
Source: Polish Ministry of Economy
Many Polish Business Angel Networks are non-profit institutions, but more of these organisations are
taking up commercial activities. In Poland, the Business Angel networks are looking for projects for
which capital needs range from 50,000 to 5 million z? (1,195,320 EURO).
The annual EBAN survey represents the most comprehensive source of information available in relation
to the size and characteristics of the BANs in Poland. The data from the 2010 survey are based on only
one response and do not allow for any meaningful conclusions. The 2009 data are based on the
responses of 5 BANs with 89 angels’ investors in operation, 41 of which were active.
127
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.pdf
95
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
Table 2: EBAN survey data on visible Business Angel market (combined data from 4 Business Angels
Networks in Poland)
Parameter
Number of members (investors) in network
Of which, number of active Business Angels
Number of female Business Angels
Number of angel investors recruited during the year
Number of women investors recruited during the year
Number of angels who have left the network
Number of angels investing in companies through the network
EBAN 2009 data
Total (estimate)
89
41
12
40
7
25
2
150-200
80-100
Source: EBAN and CSES elaboration
EBAN data also provides information on investment activity. According to the data from 4 BANs, a total
of 348 business plans were submitted and 32 of them were successful. According to the limited data –
from only 4 deals – the average deal was around €40,000 with each angel investing around €25,000 per
deal. The data provided by the Ministry of Economy for all BANs suggest that the BANs receive 97
projects each month (1,164pa), from which usually around a quarter are worth closer attention. It is
rather difficult to make projections for the total size of the visible BANs market from these data.
However, the data available do not allow for an estimate of the total market size.
Networks also have their priorities for the industry in which they wish to invest. In terms of the sectoral
focus, the 2009 EBAN survey indicates a strong focus on the high-tech sectors including ICT and mobile,
including software and service applications. In the survey of the Polish Ministry of Economy, networks
also declared preferences in high-tech sector: especially Internet (100 %), Computer, software: (100%),
Media and Multimedia: (100%), Telecommunications (86%), Ecology, environment (86%) and
Biotechnology and pharmaceuticals (86%).128
Concerning the stage of investment, the data from EBAN survey point to a focus on pre-seed (60%),
seed (30%) and early stage start-up (10%).
Table 3: Business Life Cycle Stage of Investment among formal Business Angels (data from EBAN 2009
survey)
Stage of investment
Pre-seed
Seed
Early stage and start-up
Expansion
Pre-IPO
Buy-out and turnaround
Other
Share of total (%)
60
30
10
0
0
0
0
Source: EBAN
Polish networks are in a phase of dynamic development, despite the fact that they face many barriers to
development and implementation of their tasks. According to the directors of the largest networks the
main barriers are reluctance of the scientific community for commercialisation of scientific
128
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.pdf
96
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
achievements, lack of business confidence for this form of financing of the project, or even sometimes
lack of projects to commercialise.
2.2
Non visible market
Research as regards the non-visible market in Poland has not yet been conducted in Poland. It is
therefore difficult to estimate what share of the market is non-visible. However, as it was pointed out in
interviews, of the total amount of investments made in Poland, around 5-10% go through BANs and it is
possible that a slightly lower percentage of Business Angels could be operating outside the networks (in
the non-visible market). However, the investors working outside Polish networks are usually more
experienced and they use their own contacts to receive interesting projects offers. Despite the smaller
number of those investors, they still make more investments than those in the networks.129
According to the GEM survey, in 2011 3.1% of the population age 18-64 have provided funding for the
starting of a new business by someone else in the last three years130. Unfortunately, there are no data
for Poland on the share of those individuals that have provided funding to strangers (not family and
friends). If we use the 5-10% EU average from the data available from other EU countries – possibly a
rather generous assumption in the case of Poland – we can reach an estimate of around 45,000-90,000
individuals131 that have provided funding for the starting a new business in the last three years. Given
the top-down approach of the GEM data and the absence of information concerning the level of
involvement in the business investments, this should only be considered an upper estimate.
2.3
Exits
According to a report on the barriers for Business Angel development, prepared by Polish Ministry of
Economy, the main possibility of exits for Business Angels in Poland 132 are:
-
The basic form of exit for Polish Business Angels is the trade sales to industrial or financial
investors (including Private Equity/Venture Capital funds);
-
Another exit is the entrance to the Stock Exchange (IPO - Initial Public Offering). The debut can
be made on the main Stock Market Exchange (Warsaw Stock Exchange- WSE). However,
conducting a public offering on the WSE is a very complicated procedural process, including the
necessity of admission of securities to the public market by the Financial Supervision
Commission. There is also the possibility of debuting on the NewConnect. The NewConnect
exchange is considered to be effective due to several factors. Firstly, there are limited formal
requirements and simple admission procedures;
-
Buy-back is redemption of shares with the aim of remitting them afterwards. It is only
successful when such purchase is held at higher or equal price to current ratings of the
company on the stock exchange or expectations of the investor. Buy-back has become an
alternative for dividends, however, self-buyouts are not yet as popular as dividends on the WSE,
although slump has caused a rapid increase in interest in buy-back transactions;
-
Another option of exit is repayment. The case of repayment is adjusted by a loan agreement
129
http://cdn.pi.gov.pl/PARP/HTTPFiles/media/_multimedia/656714E145EC457F89D99E61FB7449BE/20101214_1
15814%20business%20angels.pdf
130
http://www.gemconsortium.org/visualizations
131
Total population of Poland in 2011 was 38 million, with around 27 million in the 18-64 age group.
132
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.pdf
97
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
between the investor and the entrepreneur. However, if the loan repayment period is not
marked, the debtor is obliged to return the loan within six weeks after termination made by the
person providing the loan (Art. 723 CC);
-
Redemption of bonds is another possibility for Business Angels to exit the investment.
Redemption of bonds shall be in accordance with terms of the bonds and on the basis of Art.24
of Bond Act; to become a subject of cancelation. Another form is closure of mezzanine
financing - closing of the investment based on a mechanism based on the mezzanine debt
capital repayment, awarded under this funding and/ or potential execution permissions to the
share;
-
Finally, in the case of management buyout (MBO) – namely taking control of the company by
its existing management- there are significant limitations in Poland due to the prohibition of
support by a joint stock company to the purchase of own shares by a third party (so-called
financial assistance). This prohibition does not apply to companies with limited liability133.
While there are clear differences between the exist strategies of Business Angels and Venture Capital,
the data from the report on the Private Equity/Venture Capital market in Poland in 2010134, in the 20072009 period provide some indications. There were 76 exits from VCs that had invested in Polish
companies. The most common way of exiting was by selling to a strategic investor (18 transactions),
then the sale to another venture capital fund (13 transactions) while there were also 12 IPOs.
2.4
Other market characteristics
Business Angels in Poland are most commonly male and aged 35-65 years with higher education and
high asset values. Their investment portfolio has from 2 to 5 companies in which they invest on average
the range of 100,000 - 1 million z³ (€24,000-€100,000) which accounts for 15% of his net assets.135
According to EBAN data, of the 89 investors in the Polish BANs that responded to the survey, 12 were
female (13.4%). This share is rather high in comparison to other EU countries. However, the rather
limited data mean that we cannot have a high level of confidence in this figure.
The EBAN survey data also suggest a clear focus on the Polish Business Angel Networks in the regional
or national market. 66% of the deals closed in 2009 had a regional dimension (firms were located in the
same region as the Business Angel), whereas 33% had a national dimension. Networks in Poland have
been established with focus on the regions’ needs. The larger networks are mainly focusing on the most
developed region in Poland – Mazowieckie, mainly Warsaw.
2.5
Quality of data sources
In general, the data on Business Angels is still poor, lacking governmentally/academically initiated upto-date evaluations and assessments of the market. One of the measures to be undertaken by the
ABAN136 association in the coming months is to investigate the early-stage market in Poland that
is poorly penetrated. Currently, ABAN is researching a possible methodology and discussions
with potential partners who could assist us in conducting research and evaluation.
133
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.pdf
http://polban.pl/inwestycje-private-equityventure-capital-polsce-2/
135
European Business Angels Network, “EBAN Tool Kit. Introduction to Business Angels and Business Angels
network activities in Europe”; Brussels 2009.
136
http://www.aban.org.pl/
134
98
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
3 - SME access to finance
3.1
Overview
According to the SBA fact sheet for 2010, Poland performs on a par with the EU average on access to
finance. Private credit lending has been deteriorating at a similar pace as in the EU: 28% of SME owners
had noticed a declining willingness of banks to provide loans and about 25% of those who applied for
credit were actually refused a loan in 2009. When it comes to the cost of financing, the interest rate
difference between loans above and below 1 million EURO is significantly lower than in the EU, meaning
that SMEs in Poland can borrow money at a cost only slightly higher than large companies do. On the
other hand, the venture capital market is not yet very well developed, which does put some limits on
the availability of risk capital for highly innovative companies in early stages of development.
Table 4: Access to finance for SMEs – Comparison of key indicators for Poland and EU
Indicator
Share of bank loan applications by SMEs that were not successful, 2009
Access to public financial support including guarantees
(% that indicated a deterioration)
Willingness of banks to provide a loan (%share that indicated a deterioration)
Relative difference in interest rate levels between loans above 1 million EUR and
loans below EUR 1 million, 2010
Venture capital investments - early stage (% of GDP), 2009
EU Structural Funds dedicated to stimulating entrepreneurship and SMEs in 20072013 (% of total allocation by MS) (2011)
EAFRD dedicated to Support for business creation and development in 20072013 (% of total allocation) (2011)
EU
average
Poland
23%
25%
22%
27%
30%
28%
24%
3,38%
0.01%
0%
22%
5,5%
2,29%
5,73
Source: SBA Fact Sheet
A few policy measures have been initiated since 2010 to improve the situation in Poland, some of which
directly or indirectly related to access to equity. The current form of the financing policy framework has
been largely defined by the provisions of the National Development Plan 2007–2013137 (2004) reflected
in the government Strategy for Increasing the Innovativeness of the Economy for 2007–2013138 (MG
2006) and the programme for the simplification of commercial law. The latter identified the existing
regulatory barriers to the process of obtaining capital by businesses in the venture capital/private equity
and leasing segments and pointed to possible solutions.
137
138
Original: Narodowego Planu Rozwoju 2007-2013
Original: Kierunki zwi?kszania innowacyjno?ci gospodarki na lata 2007-2013
99
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
4 - Public support for Business Angels
4.1 Direct support
Polish law does not provide a specific legal basis (in the strict sense) for dedicated venture capital or
Business Angel activity.
In terms of the tax regime, the maximum income tax rate in Poland is 40%. If registered as an
entrepreneur or as a company, a flat tax rate applies of 19%. Currently, two capital gains taxes exist in
Poland: withholding tax 19% (Belka tax), which applies mainly to the dividends’ and yearly income tax
(also 19%) calculated as an income minus cost and applies to gains from the selling of shares. The only
tax incentive available currently is a special deduction for the purchase of new technology. The investor
may deduct some of the expenses that he invested in the purchase of machinery, equipment and
buildings from his taxable income139.
More direct support to Business Angels is through the financial support schemes for BANs. BANs in
Poland operate on a support system of grants co-financed by the European Union ERDF (Operational
Programme Innovative Economy) and the state budget: Priority 3 - Capital for innovation, Measure 3.3 Creating a system facilitating investment in SMEs. This allows the creation of advisory platforms (e.g.
Angel Investment Network or BAN), which are responsible for linking entrepreneurs looking for capital
with Business Angels.
This support is not expected to be continued. The grants have already been distributed and, according
to the Ministry, a further call for proposals for action 3.3.1 OP is not likely to be repeated. The grants
accounted for substantial support for the market and were critical for the creation and operation of
BANs in Poland. However, it was pointed out in interviews that the question that remains is how many
of the established networks will be able to continue their operations after the period of grant support
expires. It was suggested that ongoing financing has to be continued in the future to enable the
networks to continue the activities that they have taken up.
In relation to the access to equity, the following instruments are currently available:
•
National Capital Fund (NFC) – was established by the Polish Government on July 1st 2005, in
accordance with the National Capital Fund Act, with the aim of filling in the equity gap on the Polish
SME market. It is the central fund of venture capital/private equity funds (VC/PE) in Poland. The
NCF provides VC funds with financial support for their investments in SMEs of innovative character
showing strong development potential operating in Poland;
•
Seed funds (e.g. AIP SEED CAPITAL, IIF Group or Business Angel Seedfund) – these are venture
capital funds, specialising in investments in projects that are at the seed and start-up stage. In
Poland they are mainly based on public support, EU funds, VC and private equity funds. Average
amount of funds invested through seed funds in 2009 in Poland was more than 6,200,000 z?
(approximately €1.5 million);
•
NewConnect – this is a new stock market financing the growth of young companies with a large
growth potential, organised and operated by the Warsaw Stock Exchange, which was started in late
August 2007. NewConnect has the status of an organised market outside the regulated market as
an alternative trading system for young, growing companies, especially in the high-tech sector (but
companies from other sectors may also be eligible for trading). Because of this issuer profile,
139
EBAN: Tax incentives available to private informal investors or Business Angels in Europe; june 2006
100
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
NewConnect offers more liberal formal obligations and information requirements, which reduces
the cost of capital.
The establishment of the three instruments was expected to lead to a significant closing of the equity
gap, according to a study by Tamowicz in 2007140. In the report, the equity gap is understood as a
discontinuity in the supply side of capital (either a complete lack of capital on the market or weakness
of institutions offering some portion of funding). At that time, the equity gap in Poland was estimated
to be up to €10 million. Its existence was connected with weakness of venture funds and systematic
growth of private equity funds. It was estimated in the report that those three initiatives, along with
more active BANs, reduced it to €1.5 - 4 million. It is also pointed out that there are theories that the
equity gap in Poland has been addressed by availability of capital for various investments, including
different sectors and the level of companies’ development. However, the issues still remain, though not
connected to the availability of capital, but to the level of accessibility, information policy concerning
the funds and entrepreneurial education, that still require improvement in Poland.
4.2
Assessment of existing policy framework
There is no formal evaluation or other assessment of the policy support for the Business Angel market.
The support of BANs has been one initiative but there is no information on its effectiveness or the
viability of these networks. Similarly, there is no information on the impact of the government initiatives
on increasing the access to equity and to the Business Angels market more specifically.
However, the interviews conducted pointed to a number of government actions that could bring
improvements. These include:
•
Intensification of training activities of investors and entrepreneurs; the popularisation of various
forms of financial investments (including passive investment), increasing the number of offers of
investment in private equity;
•
Organisation and simplification the legal aspects of setting up a business, ranging from tax issues
through legal regulations related to the conduct of companies (licensing / authorization) and ending
on the legislative stability;
•
Creation of a favourable environment for establishing a real collaboration, bringing together
Business Angels institution with centres of innovation, research institutes and universities to recruit
from these sources of high quality, innovative projects;
•
Establishment of a system of direct tax incentives for individual investors, drawing on experience
from Western Europe;
•
Support of educational campaigns to prepare the effective cooperation and exchange of investment
and investor readiness;
•
Creation of new, or modification of existing, legal forms designed for BA investment activity;
•
Tidying up the market by the encouragement of joint investment by the BANs and venture capital
funds both within the country and internationally, and by associating them with the appropriate
institutions to facilitate the acquisition of valuable partners.
140
P. Tamowicz, „Business angels. Pomocna d?oo kapita?u”, Polska Agencja Rozwoju Przedsi?biorczo?ci, Gdansk
2007
101
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
This annex contains a summary of data obtained in respect of the activities of Business Angels in
Spain.
1 - Introduction : Overview of Spanish angel market
The notion of the ‘professionalised’ Business Angel is relatively new in Spain, especially when compared
with other EU countries, or particularly with the U.S.
The first BAN appeared in 2002 in Catalonia, the Business Angels Network Catalunya (BANC). Although
other economic development companies or European Innovation Business Centres were founded
earlier, Business Angel activities in the sector came after this date. From that time, Business Angel
networks began to spread throughout Spain, the first networks with their own legal entity being located
in the regions of Catalonia, Madrid, Canary Islands and Galicia. As the chart below shows, from 2005 the
number of networks increased considerably, more than 75% of the networks identified in Spain having
been created since then and extending to almost the entire Spanish territory.
Chart 1: Evolution of the number of Business Angels’ Networks in Spain
60
50
50
46
41
40
33
30
20
20
21
11
10
1
1
2
3
2000
2001
2002
2003
0
2004
2005
2006
2007
2008
2009
2010
Source: ESBAN
In Spain, there are three types of BANs:
•
•
First, national Business Angels such as the Spanish Network of Business Angels (ESBAN) formed
in 2004 and the Spanish Association of Business Angels (AEBAN), both representing the interests
of the networks in Spain and aimed at promoting the business angel concept, the growth and
development of the sector, the competitiveness of the SMEs and collaboration with the
authorities to develop a legal framework for this kind of investment;
Second, regional and local Business Angels, providing services in their area of influence; and
sectorial or thematic specialisation in a particular sector;
102
•
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
Virtual networks that provide services through the Internet and ‘alumni’ angel networks that
were created by leading business schools in Spain, such as IESE and ESADE.
So far, neither Business Angels nor BANs are directly subject to any regulation so they are not, therefore,
registered or verified by any public or private entity. For this reason, most networks are part of other
organisations and do not have their own legal entity. These networks are promoted by European
Business Innovation Centres, public bodies like city councils or chambers of commerce, economic
development agencies, business schools and universities. Also, there are a small number of networks
that operate as trading companies, associations and foundations.
As mentioned above, in Spain the notion of the ‘professional’ Business Angel is relatively new and the
need for institutional support in these early stages, both financially and structurally, is quite important.
This could explain why most networks are legally part of other organisations or entities.
In Spain, most BANs do not specialise in any specific sector, although there are a few specialised
networks in ICT/software/multimedia and biotechnology. They are typically based in industrial zones,
business incubators, science and technology parks and universities and which, in many cases (e.g.
universities, science and technology parks), by nature promote specialised projects in a specific sector.
Likewise, in line with the European trend, Spanish Business Angels tend to have a local or regional focus
of their investment as they are usually involved directly in the management of the business projects
invested.
With regard to the profile of the Spanish Business Angels, most of the available data on the sector is
from the Project GEM Spain. According to the Project GEM Spain, the investor who puts money into
another's business in Spain is, more often than not, a male (61.2% of cases), about 40-41 years old, well
educated (59.4% cases) and has a professional training (44.2% of cases). 5.9% of these investors had
been entrepreneurs in the past and, in 3.8% of cases, directed a successful business activity. A total of
90.3% of these investors are of Spanish origin.– Data on Business Angels Market
This section summarises key market data on the visible and non-visible market for investment by
Business Angels.
2.1 Visible market
Nationally, the most recent study that has attempted to measure the volume of the visible Business
Angel market in Spain was conducted by the Directorate General of SME Policy of the Ministry of
Industry and ESBAN, Spanish Network of Business Angels, and provides data for 2008. According to the
report:
•
•
In 2008, there were 40 BANs and 1,465 investors, representing the 0.4% of the total of angel
investors. The number of angel investors recruited during 2008 was 83, 5 of whom were
women;
The COTEC report 2011141, based on data provided by the ESBAN, raised the number of BANs at
the end of 2009 to 46 with 1,623 associated investors;
141
COTEC, Foundation for Technological Innovation. It publishes annually the Cotec Report on Technology and
Innovation in Spain since 1996 with the main aim of providing a collection of indication on the state of innovation
and technology in Spain and the positioning with respect to the countries of its environment.
http://www.cotec.es/index.php/pagina/publicaciones/novedades/show/id/945/titulo/informe-cotec-2011-tecnologia-e-innovacion-en-espana
103
•
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
The number of deals performed in 2009 by 66 investors was 41 with a total amount of €9
million, on average €220,000 per deal.
Although so far there are no published official data, according to one of the expert interviewees142, the
number of networks and number of Business Angels for 2010 reached 50 and 1,729 respectively.
EBAN statistics are based on data provided by surveyed BANs that are members of the European
network and are one of the best sources of information on visible Business Angels that operate through
BANs. In the case of Spain, data for 2010 is based on the responses provided by 13 BANs. These 13 BANs
had 807 investors of which 34.2% were active and around 6% female.
Table 1: Business Angels Networks in Spain (2010)
Parameter
Number of networks
Number of members (investors)
- Of which, number of active Business Angels
Average number of investors per network
Total number of women Business Angels (%)
Number of angel investors recruited during 2010
Number of women investors recruited during 2010
Number of angels who have left the networks
Average number of angels per investment round in 2010
EBAN data (13 BANs)
13
807
276
34
18 (2.23%)
10
1
2
1
ESBAN data
50
1,729
57 (0.4%) (2008)
83 (2008)
5 (2008)
55 (2008)
EBAN also provided information on the investment type and volume. In Spain, 594 business plans were
submitted to angels through the 13 BANs that responded to the survey in 2010. There were 58 deals
made through the networks and around 6% of those were financed with a total investment of around €8
million.
According to the 2011 COTEC report, up to 2007 there had been 122 deals in Spain for over €25 million,
with an average of around €205,000 per transaction. In 2008 there were 79 investors who made a total
of 46 operations by more than €13 million, with an average per transaction around €270,000. In 2009
the number of deals performed by 66 investors fell to 41 for an amount of €9 million, nearly €220,000
on average per transaction. These investments involved 209 deals throughout the period (2007-2009)
for a total of €47 million, generated 435 jobs (direct or indirect), and reflect an increasing tendency to
perform co-investment and syndication by Business Angel groups.
142
Mr Albert Colomer, Treasurer of ESBAN and Spanish representative in the Board of Directors of EBAN
104
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
Table 2: Business Angels investment Type and volume in Spain (2010)
Indicator
Number of business plans received
Number of business plans submitted to angels in 2010
Number of deals made through the network in 2010
Number of new companies financed
Number of follow-on rounds
Total amount invested by angels through BANs (€)
EBAN data (13 BANs)
1,189
594
58
38
2
8,162,000
Average amount of the deal (€)
Average amount per angel investor
182,197
137,033
Total (ESBAN data)
41 (2009)
9,000,000 (2009)
28,300,000* (2010)
220,000 (2009)
Source: ESBAN * Including co-investment.
The Ministry of Industry, Energy and Tourism also offers quantitative data on the BAs market based on
the information provided by BANs granted under the ‘Programme of Impulse to Business Angel
Networks’ of the Ministry described in detail in Section 4. Even though this information is not collected
or checked by the Ministry, it is a good approximation of the visible market. However, it has to be taken
into account that these figures correspond only to the BANs that had received grants under this
Programme. According to the information provided by 44 networks that applied for grants in 2010 and
2011, the total amount provided by their own sources was €3.2 million. The number of projects received
in 2009 was 1,755 and increased to 2,704 in 2010. A total of 529 of business plans were submitted to
angels in 2009 and 670 in 2010, representing around the 25% of the projects received. This led to 55
deals being made through these granted networks with a total investment of around €14 million in
2009, and increased to 91 deals and around €21 million in 2010.
Although the 2011 data are provisional, it is clear that there was a considerable increase to both the
number of projects received and those that were submitted to investors. The number of deals is over
250 and the total amount invested by angels is more than double over the previous year.
Table 3: Data on Business Angels networks that received grants under Spanish government Impulse
programme
Indicator
2009
2010
2011*
1,755
2,704
4,694
Number of business plans submitted to angels
529
670
1,421
Number of deals
55
91
253
13.929.588
21.008.885
44,932,358
Number of business plans received
Total amount invested by angels (€)
Source: Ministry of Industry, Energy and Tourism ; * Provisional data
Breakdown of Business Angel investment by sector
According to the study, ‘Nature of Business Angels networks in Spain and main characteristics of market
players’ 143 (2008 data), economic sectors with relatively high levels of investment by the Spanish BANs
143
Naturaleza de las redes de Business Angels existentes en España y principales características de los agentes del
mercado. (in Spanish).
105
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
are: ICT/software/multimedia, biotechnology and renewable energy. One reason for concentration in
these sectors may be that in order to attract business projects, the Spanish networks are typically based
in industrial zones, business incubators, science and technology parks and universities. Also, many
Spanish networks have a strong dependence on host organisations which, in many cases, are
universities, science and technology parks, which by nature offer specialised projects in a specific sector.
This also emerges from the data provided by EBAN of the 13 Spanish networks that provided
information for 2010. As shown in the table below, the highest percentage of deals was concluded in
the ICT sector, 33% of the total for 2010. This is followed by Creative industries and Manufacturing
sectors with 14% and 13% respectively. Both Biotech and Life Science and Environment and Clean-tech
sectors represented around 10% each.
Table 4: Percentage breakdown of Business Angel investment by sector (2010) – Data from 13 BANs
Sector
ICT
Creative Industries
Manufacturing
Biotech and Life sciences
Environment and Clean-tech
Other*
Health Care and Medical technologies
Energy
Retail and Distribution
Logistics and transportation
Mobile - including software and service
applications
Social and Sustainable Investments impact investing
Finance and Business Services
% in total number of deals
33.3
13.9
13.2
10.3
9.6
4.2
2.8
2.8
2.9
2.8
2.1
% in total amount invested
35.7
8.9
14.8
8.5
10
5.3
4.7
0.4
1.3
1.8
7.7
1.4
0.1
0.8
0.9
Source: EBAN Survey. (*Automotive, Intelligence).
Percentage breakdown of association members’ investment by geographical region
Concerning the location of investment, Spanish Business Angels tend to have a regional focus, in line
with the general European trend. According to the above-mentioned Spanish study, 2008 data indicate
that most of the Business Angels networks identified (52%) invested in their own region while 25%
invested in the same country but in a different region. Only the 8% of the networks had an international
scope. EBAN data of the 13 BANs, confirm that the vast majority of Business Angel Investment in Spain
takes place in the same region where the network is located. Only around 4% of the investment was
made in the same country, but not in the same region where it is located and less than 1% of the
investment was made outside Europe.
Table 5: Business Angel Investment by location of the recipient firm
Location of recipient firm
In the region where the Network is located
% of deals
94.7
http://www.ipyme.org/es-ES/Financiacion/BusinessAngels/Documents/AGENTES%20DEL%20MERCADO.pdf
106
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
In the same country, but not in the same region
4.5
Cross-border in Europe
0
Outside of Europe
0.8
Source: EBAN
Life Cycle Stage of Investment at which Business Angel Funding Occurs
The EBAN data for the 13 Spanish BANs suggests that the vast majority of funding takes place at the
seed and early stage and start-up level. Around 3% of funding takes place at pre-seed level and less than
8% of the investment was for the expansion projects.
Table 6: Business Life Cycle Stage of Investment in Spain (2010)
Stage of investment
Share (% of deals)
Pre-seed
3.1
Seed
40.3
Early stage and start-up
48.9
Expansion
7.7
Pre-IPO
0
Buy-out and turnaround
0
Other
0
Source: EBAN
Co-investment between angels with other bodies
The table below illustrates the percentage of the total number of deals that co-invested in 2010. Around
30% of the 13 Business Angels monitored by EBAN co-invested with Business Angels inside the network
and around 5% with Business Angels outside the network. Just over 10% of the co-investments come
from venture capital funds, while co-investments from institutional investors contributed less than 2%.
Table 7: Level of Business Angel Co-investment in Spain (2010)
Co-investors
Share in total number of deals
Business Angels inside the network
29.2
Business Angels outside of the network
5.4
Early stage fund
Venture capital fund
Family office
Institutional investors
Other investors
0
10.4
0
1.9
0
Source: EBAN
107
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
The study "Spanish Network of Business Angels: research procedures and market volume"144 analyses the
preferences of Spanish BANs with regard to co-investment, based on a survey of the 40 BANs in 2008.
According to this study, most of the Spanish BANs that decide to co-invest prefer to invest along with
other Business Angels (over 40%), a trend similar to elsewhere in Europe. However, the study also shows
that in Spain over 20% of investors prefer to invest alone.
2.2 - Data on the Non-visible Business Angels market
Quantification of the invisible market is very difficult, mainly because of the desire of BAs to remain
anonymous and the undocumented nature of their investing activities. In Spain, no study has attempted
to measure the non-measured market.
The GEM Project145 provides some valuable information. Data for 2010 are based on a survey with a
sample of 26,388 interviews. According to this study:
•
•
3.24% of the adult population reported that they had invested in someone else’s business in 2010,
much higher informal investment (3.02% of the population aged 18-64 years) than investment
conducted by the Business Angels (0.22% of the population aged 18-64 years). In other words,
Business Angels represent less than the 7% of individual investors who invested in someone else’s
business (2010);
Given that for the same year, the adult population (people between 18 and 64) was 30,741,514
(INE, the National Institute of Statistics), the number of active Business Angels in Spain would stand
at around 67,700 people in 2010.
According to ESBAN data (Table 1) there are 1,729 Business Angels belonging to recognised networks.
This, combined with the above data, would suggest that the active Business Angels in the invisible
market should not exceed 66,000 (67,600 minus 1,729).
This number is most probably an overestimate of the size of the invisible Business Angel market. In that
respect, some interviewees questioned the appropriateness of using the GEM data because it is not until
2010 when the GEM project for Spain began to distinguish between the informal investor and Business
Angels, the latter not having any family relationship with the entrepreneur.
According to the Treasurer of ESBAN and the Spanish representative in the Board of Directors of EBAN,
the invisible part of the Business Angel market is most probably around 20 or 25 times greater than the
visible or formal Business Angel market, thus no more than 43,300 (1,729 x 25). Overall, and taking into
account both sources, the non-visible market could be between 34,600 and 67,700 individuals in 2010.
These estimates suggest that, compared with other countries, the invisible Business Angel market is
relatively large in Spain in relation to the measured/visible part. This is quite possible given the business
culture in Spain and the ‘informal’ nature of many activities.
Regarding the demand for finance, some conclusions can be obtained from the report, ‘Thermometer of
investments in start-ups in Spain 2011’146, developed by Ready4Ventures based on the information
extracted from a series of surveys and interviews of entrepreneurs with investment projects searching
144
Redes españolas de Business Angels: investigación de procedimientos y volumen de mercado (in Spanish).
http://www.ipyme.org/es-ES/Financiacion/BusinessAngels/Documents/VOLUMEN%20DE%20MERCADO.pdf
145
Informe GEM España 2010 (in Spanish). http://www.gemconsortium.org/docs/download/616
146
Termómetro de la inversion en Startups en España 2011(in Spanish). http://www.readyforventures.com/wpcontent/uploads/2011/05/Termometro-de-la-inverson-en-Startups-en-Espana-2011.pdf
108
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
for investors. The information is derived from 66 questionnaires answered by investors, mainly BAs and
private investors, and 109 questionnaires answered by entrepreneurs, mainly serial entrepreneurs:
•
•
•
72% of these entrepreneurs financed their projects by own savings and family support, 42% made
use of loans and financing from investors;
For 2011 and 2012, only 35% stated they will consider credit as an option, while 58% expected to
apply for funding from private investors;
Contrary to what is believed by some entrepreneurs and analysts, 42% of investors forecasted an
increase in the availability of funds for investment during 2011 and 2012. In addition, 55% expected
to grow the number of deals closed during that period.
2.3 - Exits and exit strategies
As in other countries, the Spanish Business Angels invest temporarily in the companies - on average
between 3 and 5 years. Disinvestment typically occurs through: sale of shares to other shareholders or
the company itself, sale to a third party or sale to a venture capital firm. However there are no studies
or relevant data providing more information concerning the exit strategies of the Business Angels in
Spain.
2.4 - Other market characteristics
As mentioned above, the notion of the professional Business Angel is relatively new in Spain, especially
compared with other European countries and the US, with the first BAN created in 2002.
Another characteristic of the market in Spain is the concentration of BANs in certain regions Catalunya, Valencia and Madrid.
Analysis of the different sources identified shows that the number of female angel investors and
entrepreneurs receiving angel investment in Spain is very limited.
According to the 2008 study ‘Spanish Business Networks: research procedures and market volume’, only
0.4% of the 1,465 investors identified were women. Even though the data provided by EBAN for 2010
shows an increase in the proportion of women angels in the sample of 13 networks, representing
approximately 6% of the investors, their representation remains low. Another example is the data
provided by ACC1Ó from the Generalitat de Catalunya that refers only to the Catalonian BANs. In 2010
there were 295 investors and only 1% was female. It is also noteworthy that for the same year no
female entrepreneurs received angel investment. Overall, the picture is that Business Angel activity is
Spain is still very much male dominated.
2.5 Quality of data sources
Unlike some other European countries, in Spain, there is currently no register of Business Angel
networks or of the activity of Business Angels. The new Law on Entrepreneurs that the Government is
about to approve will regulate Business Angels and will create an official registration by the Comisión
Nacional del Mercado de Valores (see section 4.1).
So far, most of the available information on the Business Angel market comes from the detailed studies
produced by ESBAN, the Spanish Network of Business Angels, and the Directorate General of SME Policy
of the Ministry of Industry between 2008 and 2009. These studies provide data on Business Angel
networks in Spain up to 2008. Since then, there have been no similar studies.
In recent years COTEC, Foundation for Technological Innovation, annually publishes a report, (‘COTEC
Report on Technology and Innovation in Spain’), which includes basic data on the size and volume of the
109
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
formal market of Business Angels, according to data provided by ESBAN, which monitors the activity of
the network in Spain.
2 - SME access to finance
This section assesses the contribution of Spanish Business Angels to the SMEs’ access to finance and the
effectiveness of Business Angel finance to bridge the equity gap in the seed and start-up phases of the
SME development.
3.1 Overview
In Spain, the design and management of programmes of financial support to start-ups and SMEs is the
responsibility of the Dirección General de Política de la PYME (DGYME) and the Instituto de Crédito
Oficial (ICO). The funding support of entrepreneurs provided by DGPYME is performed by ENISA, a
Spanish governmental agency which helps and invests in the technological innovation. In addition,
CERSA is a state corporation under the same Ministry through DGPYME aimed at the refinancing or
partial coverage of risk assumed by mutual guarantee companies to SMEs that require additional
guarantees to solve their financial problem, prioritising the financing of innovative projects and micro
firms and start-ups.
The ICO is the State’s Financial Agency, attached to the Ministry of Economy and Finance through the
Secretariat of State for the Economy. ICO offers different lines of financing to promote all phases of the
companies/projects: ICO entrepreneurs, ICO SME and ICO business growth (unified in 2010 in ICO
investment) and ICO Internationalisation.
Finally, the NEOTEC initiative of the CDTI which aims to support the creation and consolidation of
technology-based companies in Spain, has a number of tools to support technology entrepreneurs from
the moment of the conception of the business idea until turning it into a viable company. The initiative
is implemented primarily through grants, ayudas NEOTEC, and venture capital contributions through
two companies: a fund of funds (NEOTEC Venture Capital Fund Company, SA, SCR) and a co-investment
fund (Joint Venture NEOTEC, SA, SCR).
According to the findings of the White Paper on Entrepreneurship in Spain, promoted by the Fundación
Príncipe de Girona (FpdGi)147 and written by ESADE Business School experts, in comparison to other
European countries there are not many sources of funding for new entrepreneurs. In addition to their
own personal savings, entrepreneurs obtain funding mainly from banks. The proportion of companies
that obtain funding by venture capital or private investors is much lower and is mainly linked with highly
innovative companies.
According to the expert opinion presented in the same study, funding is one of the problems that
inhibits development of entrepreneurship in Spain, although there are some who claim that ‘good
entrepreneurs will always find capital’. Thus, although 43% of experts believe that in Spain there are
sufficient funding sources for new initiatives, 72% believe that lack of funding is a major constraint for
the entrepreneurs that want to start up their ideas.
Chart 2: Expert’s opinion on the financing of the entrepreneurial activity in Spain
147
LIbro Blanco de la Iniciativa Emprendedora en España. (in Spanish).
http://itemsweb.esade.es/wi/research/eei/Investigacion/LBIEE_DocumentoFinal%20_27-072011_%20Rev%20Oct11.pdf
110
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
There are funding sources for
new initiatives
The that lack of funding is a
major constraint for the
entrepreneurs that want to start
up their ideas
21%
7%
0%
Not at all
36%
21%
20%
To some extend
43%
36%
40%
36%
60%
To a large extend
80%
100%
Completely
Source: White Paper on Entrepreneurship in Spain.
Since early 2009, the Spanish Chamber of Commerce regularly carries out a survey of SMEs (from 1 to
249 workers) that have tried to access external funding in the last three months. Results of the survey
for the last quarter of 2011148 (based on a representative sample of 400 SMEs) are in line with the
findings of the previous study. The survey indicates that most of the SMEs (65.5%) had problems in
obtaining funds from financial institutions while 3.25% of SMEs rejected available support because of
the onerous conditions. A total of 15.75% of the SMEs were rejected and the remaining 5% were still in
the process of applying for funding. Besides higher interest rates, the Spanish SMEs had to face higher
transactional costs. A small percentage of businesses used alternative instruments to get external
financing – mostly venture capital (1.3% of SMEs). On average, companies that used these alternative
instruments satisfied 24.4% of their funding needs.
Table 8: Share of companies that have used alternative instruments to obtain external financing
Average 2010-2011
Fourth Quarter 2011
Venture capital
3.2
1.3
Business Angels
0.5
0.0
Seed capital
0.3
0.0
Participative loans
1.6
0.0
Funds from the EU
0.2
0.5
Source: “Encuesta Cámaras sobre el acceso de las pymes a la financiación ajena” (December 2011).
148
“Encuesta Cámaras sobre el acceso de las pymes a la financiación ajena” (December 2011).
http://www.camaras.org/publicado/shop/prod_42282/estudios/pdf/encuesta_finan/financiacion_pymes_4__trim
estre_2011.pdf
111
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
According to the Small Business Act Fact Sheet for Spain 2010-2011149, almost 50% of SMEs have faced
deterioration in access to credit since 2009 - considerably greater in Spain than the EU average. Almost
50% of the SME owners indicated that access to public financial support including guarantees has
experienced a deterioration compared with the previous year (8 percentage points higher than the EU
average). Similarly, indicators measuring credit lending are also below the EU average. More than half
of the SME owners (57%) had noticed that banks were less willing to provide loans and actually refused
credit to almost one third of their customers. The cost of credit to small businesses (for loans under €1
million) is more than 40% higher than for larger enterprises. Likewise, in Spain the venture capital
investments in the early stages of a company are much lower than the EU average.
Table 9 : Access to finance for SMEs – Comparison of key indicators for Spain and EU
Indicator
EU average
Spain
Share of bank loan applications by SMEs that were not successful, 2009
23%
31%
Access to public financial support including guarantees
22%
47%
Willingness of banks to provide a loan (%share that indicated a deterioration)
30%
57%
Relative difference in interest rate levels between loans above 1 million EUR
and loans below EUR 1 million, 2010
24%
40.48%
0.01%
0.004%
(% that indicated a deterioration)
Venture capital investments - early stage (% of GDP), 2009
Source: SBA Fact sheet Spain.
The same pattern is reflected in the results on the survey conducted by IESE in 2009150 of entrepreneurs
that participated in the Investors’ Forum of IESE Network of Private Investors between 2006 and 2008.
The survey asked entrepreneurs to rate the relative importance of five external factors to ensure the
development of their project/company (easier access to sources of financing, the availability of a more
qualified workforce in the market, the existence of support services and resources for the development
of the project or company). The results reveal that ‘Access to finance remains’ a key concern of
entrepreneurs, even by those who have obtained funding from other sources but need additional
resources to continue growing (58% of respondents considered it the key factor in ensuring the future
development of their companies). Entrepreneurs also rated their overall perception of the public or
private support regarding the search for funding during the analysis period (2006-2008). Only 27%
indicated feeling satisfied about the support (public or private) received for raising funds. Nevertheless,
there is evidence of a comprehensive effort to improve access to credit when this is not available
through the private sector.
149
EU (2011), SBA Fact Sheet- Spain 2010/2011, http://ec.europa.eu/enterprise/policies/sme/facts-figuresanalysis/performance-review/files/countries-sheets/2010-2011/spain_en.pdf
150
La Financiación externa de empresas innovadoras en fases iniciales de desarrollo. Restricciones financieras,
fallos de mercado y papel de los inversores privados. IESE Business School-Universidad de Navarra (in Spanish).
http://88.84.77.137/madridemprende/sites/default/userfiles/Informe%20IESE%20Business%20Angels.pdf
112
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
2.2 - Role of Business Angels
All existing studies on the Business Angel market stress the potential role they have for the financing of
SMEs in their early stages, mainly for high technology-based companies, and especially in recent years
when access to credit has suffered a significant deterioration.
Business Angels can help fill the equity gap that occurs between the stage of personal or family funding
and the eventual entry of venture capital funds. According to the above-mentioned study by IESE, in
Spain in the absence of reliable data on the activity of the informal venture capital market, some
analysts estimate this gap to lie in the range from €600,000 (although others lower this limit) to up to
€2-3 million, i.e. investments of a size that would be suitable for venture capital funds. According to the
report Venture Capital & Private Equity in Spain published by ASCRI (Spanish Association for Venture
Capital and Private Equity)151, 80% of venture capital operations closed in 2010 were below €1 million.
As in other countries, in addition to the provision of financing, especially in the early stages of the
company, Business Angels also have a crucial role in attracting additional funding in subsequent phases
of the development of the company and provide added value with their knowledge and experience. The
survey of entrepreneurs included in the IESE study measured the reputational impact of the entry of
private investors in the business project. All entrepreneurs indicated that the entry of a private investor
is a key factor to attract additional funding in later stages (62% indicated it helps a lot and 38% quite a
lot). Likewise, the survey asked if the Business Angels also provided knowledge and experience to their
projects and more than half of the entrepreneurs (52%) completely agreed with this statement and 27%
to a large extent.
In addition, according to the IESE survey, 58% of the surveyed entrepreneurs “completely agreed” with
the statement ‘without the entry of external capital, the project could not continue forward’ while 21%
agreed “to a large extent”.
151
Informe Capital Riesgo & Private Equity en España (page 9). ASCRI. 2011.
http://www.ascri.org/upload/documentos/20110718_122112_563886714.pdf
113
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
4 – Public support for the Business Angels market
In this section we examine the existing support schemes for Business Angel financing in Spain and, on
the basis of available information, provide an assessment of their performance.
4.1 Tax breaks
Since 2006, there have been various initiatives to promote Business Angels. However, the Spanish legal
system does not recognise the status of Business Angels and there is no favourable tax treatment for
their activity. Some Autonomous Communities (Madrid, Catalonia, Galicia and Navarre) have introduced
fiscal support measures but they are of limited scope due to the conditions and restrictions on the
maximum amount to be tax deductable (€4,000 in Catalonia recently increased to €6,000). At a national
level, in July 2011, the Government introduced a favourable tax treatment for tax on capital gains from
investment in newly created companies. In particular, the capital gains generated by the transfer of
shares or units in such initiatives are exempted from tax when the investment is in new or recently
created companies (there is exemption from tax on capital gains from the sale of shares whose value
does not exceed €25,000 per year).
In 2008, the Law 4/2008 of 23rd December, stated that the Government will consider the formulas that
exist in comparative law to encourage the creation of SMEs and to support entrepreneurs and Business
Angels in order to study its feasibility in Spain and, where appropriate, a legal and fiscal regime that will
result from its application. This was reflected in two reports152 published by the then Ministry of
Industry, Tourism and Trade and conducted in collaboration with ESBAN.
In the second report, it was proposed to apply to Business Angels a similar legal and fiscal regime to
that which applies to venture capital. In summary, the measures proposed include:
•
•
•
Establishing a regulatory framework defining the operational scheme of investments by BAs;
Identification of a supervisory body for the operation of this funding market that could be the
Comisión Nacional del Mercado de Valores (CNMV), the Spanish government agency
responsible for regulating the financial securities markets in Spain; and
Establishing fiscal measures that encourage development of this sector.
One year later, in 2009, the Congress of Deputies approved a motion (‘proposición no de ley’) urging the
Government to promote a legal framework that recognises and promotes the figure of the Business
Angel or informal investor, so that all subsequent policies to encourage employment and economic
activity could refer to it. It also urged initiation of collaborative processes between the government and
BANs to define the future legal and fiscal system for these investors in order to establish further
mechanisms of information, promotion, monitoring and validation of projects, allowing assessment of
their impact on the economy.
In this motion, it was also agreed to prepare a Proposition of law (‘proposición de ley’) to articulate the
relevant financial and fiscal incentives for funding by Business Angels, similar to venture capital and
applicable to both individuals and corporations. However, so far, none of the existing proposals have
152
‘Análisis de tributación comparada de la figura de los Business Angels en Europa’ and ‘Propuesta de medidas
fiscales de fomento de la figura de los Business Angels en España’ (in Spanish).
http://www.ipyme.org/SiteCollectionDocuments/IPYME/EmprendedoresCreacionEmpresas/Finanziacion/BUSINES
S%20ANGELS_%20AnalisisTributacionComparada.pdf
114
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
been implemented and Business Angels do not have a specific tax system, in contrast to some other
countries, and therefore are taxed like any other securities investment.
To summarise, the current regulation and taxation framework concerning Business Angel investments is
as follows:
Lack of tax benefit for the investment made;
Dividends received by a business angel from the company in which he/she has invested (target
companies) are taxed at the rate of 18%, like any other income from savings;
Interests received on loans to target companies are subject to the overall scale;
Income of Business Angels that comes from advisory services is also taxed on the overall scale;
Property gains are taxed at 18%, like income from saving. Losses are also taxed at 18% and can only
be offset against positive income from savings;
There is not a special regulation for Corporate Tax, taxing to 32.5% for 2007 and 30% for 2008 and
subsequent years, except for entities with less than 6 million euros turnover, in which case they are
taxed at reduced rates (25%). The general rules for dividends and capital gains are applied;
Similarly, neither Property Transfer and Stamp Duty nor Inheritance Tax has fiscal benefits.
•
•
•
•
•
•
•
However, the current framework is expected to develop further soon. On June 29, 2011 the governing
party submitted the first proposal to regulate Business Angels included within the Proposition of law to
support entrepreneurs to the Congress. So far, this has not materialised but, although the current
economic situation in Spain has caused a significant reduction in the general state budget, according to
some experts interviewed, the proposals relating to Business Angels will be launched, so it is more than
likely that it will retain the main measures. The following summarises the chapters of this Proposition of
Law which refer to the Business Angels:
It includes the definition of informal private investors or Business Angel. However, it seems that it is
not contemplated that the Business Angel, as an individual, can operate as a legal person except in
the case of joint investment. Among the conditions to be met by these legal entities, is to be part of
a registered BAN;
It establishes investment limitations - the maximum investment, including both capital and bonus
payouts, as the participation loans, of a business angel or informal investor in one company may is
€200,000. It restricts the volume of investment and measures are not contemplated when the startup grows or when it requires further rounds of investment;
It also includes the definition of BAN and indicates that it will be determined by regulations which
are the requirements that a BAN must meet in order to be officially recognised. Also, an official
register of BANs in Spain supervised by the Comisión Nacional del Mercado de Valores, is to be
established.
Tax incentives for Business Angels are to be established.
•
•
•
•
Proposed tax incentives for Business Angels
•
Personal Income Tax: (i) Deduction of payable tax. (a)The initial investment of a business
angel, maintained for at least three years, will result in a deduction of 25% of the investment
with a ceiling on the deduction base of €100,000. (b) The taxable basis of the deductions may
not exceed for each of them the 10% of the taxable income of the taxpayer. The investment
volume will be certified by the network registered in the Official Register of Business Angels in
which the investor participates. (c) The deduction generated and not applied as a result of a
115
•
•
•
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
quota or insufficient taxable income, may be initiated within 5 years following accreditation.
(d) If the Business Angel breaches the minimum period of three years of the investment the
Business Angel must return the deduction, plus interest for late payment. (ii) Disinvestment.
(a) Capital gains by disinvestment will be taxed at the standard tax rate as savings income. (b)
Those capital gains that are reinvested in the twelve months following its acquisition shall be
exempt from tax. (c) When a capital loss or participation loan loss ensues, this loss is offset
against the savings tax base without any limitation. In the case that compensation gives a
negative balance, this may be offset by the general basis with a limit of 25%. If the resulting
balance continues to be negative it can be offset over the next five years. Also, there is a 99%
exemption from Corporate Tax on the income generated by investment via capital gains or
interest on equity loans.
Capital Gains Tax: To establish an exemption from Capital gains tax on investments by Business
Angels.
Inheritance Tax: 95% reduction in the transfer ‘mortis causa’ of the investments made by the
Business Angel , but only if the heir maintains the investment for at least three years.
Property Transfer and Stamp Duty: Corporate operations of incorporation and capital increase
shall be exempt when the company operates as Business Angel. Also, it will be exempt from
this tax if the capital increases as a result of a Business Angel investment. In any case, the
exemption shall be conditional on the certification issued by a BAN registered in the official
record maintained by the CNMV.
4.2 Direct support measures
Even though the Spanish legal system does not recognise the status of Business Angels and there is no
favourable tax treatment for their activity at this point, in recent years there have been initiatives
recognising the importance of Business Angels and the need for supporting them. Besides the
Proposition of law to support entrepreneurs outlined above, these include the Programme of Impulse to
Business Angel Networks launched by the Ministry of Industry, Tourism and Trade, and several coinvestment fund schemes.
Programme : Impulse to Business Angel Networks
In 2010, the then Ministry of Industry, Tourism and Trade (now Ministry of Industry, Energy and
Tourism) launched an initiative to encourage BANs ‘Programa de impulso a las Redes de Business
Angels’153 (Programme of Impulse to Business Angel Networks). The aim of this programme is to
strengthen and professionalise organisations that perform brokerage services between enterprising
companies and potential investors (or Business Angels) so that the services are provided in a more
professional manner. This should improve the opportunities for SMEs to access Business Angel funding.
The programme is open to both public and private entities that have their own legal personality, fulfil
certain conditions to attract investors, are able to assess and promote investment in innovative projects
carried out by enterprising SMEs with the support of agents related to the creation of companies and
innovation (development agencies, technological parks and centres, etc.). In the first year the
programme granted €440,000 to 24 BANs and this increased to €708,604 (30 BANs) in 2011.
153
Programme of Impulse to Business Angel Networks
http://www.ipyme.org/enus/SubvencionesAyudas/RedesBusinessAngels/Paginas/ImpulsoRedesBusinessAngels.aspx
116
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
As to the regional distribution of grants between 2010 and 2011, there is a concentration in certain
regions, in line with the concentration of BAN. The Community of Catalonia received most grants (18,
worth €434,892), followed by Madrid (5 grants worth €120,000) and Valencia (4 grants worth €100,000).
So far no official results and impacts of the initiative have been published. Similarly, it is not known yet if
a new call will be launched for 2012.
Co-investment fund schemes
ENISA, a Spanish governmental agency under the Ministry of Industry, Energy and Tourism, through the
Directorate General of Industry of the SME has a cooperation agreement with AEBAN and IESE which
helps and invests in technological innovation. ENISA provides participative loans from €100,000 to
€1,500,000 to innovative companies that meet certain criteria and are proposed by BANs that have
signed the partnership agreement.
From 2009 to March 2012, ENISA financed 23 projects to the value of €5,545,000. 4 other projects for a
total investment of €1,050,000 are under study and one has been already approved for €100,000. Since
the launch of this line of co-financing 67 projects have been abandoned or rejected, mainly for not
complying with the requirements or providing the necessary information.
17 of the 23 projects approved and disbursed in the period are located in Barcelona and 5 in Madrid.
Most participative loans are for between €100,000 and €200,000, about 26% between €220,000 and
€300,000 and just over 17% from €450,000 to €600,000. Analysis of the activities of the beneficiaries
shows that the vast majority are from the field of ICT and Creative Industries; although in all cases the
activities have an innovative component, an essential requirement for the granting of such funding.
At a regional level there are also other co-investment initiatives with Business Angels, as launched by
the Generalitat de Catalunya. The IFEM, a subsidiary of the Catalan Institute of Finances (ICF), has a
collaboration agreement with, to date, 11 BANs to co-invest in start-ups. The last call was launched in
late 2011 and will fund a total of 80 start-ups until 2015 for a total amount of 10 million euros. These
companies will receive between €50,000 and €200,000 with the condition that the Business Angels have
to provide the same amount as the IFEM.
The IESE study mentioned above also indicates the perception of entrepreneurs about options for coinvestment with public and private funds. The survey assessed whether entrepreneurs perceive the
possible entry of external capital together with public funds as an attractive element and, at the same
time complementary (e.g. covering the requirements of funding) for a private investor deciding to
invest. The results show that more than half of the entrepreneurs who responded to this question are
rather cautious regarding the possibilities of cooperation schemes as described, probably due to lack of
further information (41% think it can help “a lot”, 18% that it could help “somewhat” and 18% that it
could help “very little”).
4.3
Evaluations of public support measures for Business Angels
So far, there have been no formal assessments of the results and impacts of any of the above described
public initiatives supporting Business Angels.
Even though these initiatives represent evidence of the increasing importance that Business Angels
assume in Spain, everyone agreed that there is still a need for a uniform BA policy from the government,
a regulation of the definition of the status of the informal investor and establishment of a favourable tax
treatment for their activity. In this respect, the representative of AEBAN and Director of Madrid
117
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
Business Angel network, was of the view that the application of a mechanism for regulating the market
and provision of tax incentives allowing the application of reduced rates on capital gains or losses
deductions would enhance the development of the sector and encourage such investments. The Head of
Finance of the DGPYME from the Ministry of Industry, Tourism & Trade, added that the Spanish Business
Angel market is new but is growing and has great potential. She added that the creation of new
networks of private investors, thanks to initiatives like the Programme of Impulse to Business Angel
Networks, is helping to reveal the opportunities of the Business Angel market.
In relation to the co-investment schemes, the feedback from the interviews indicates that the response
of investors and entrepreneurs has been very positive so far. They are considered as contributing to
filling the equity gap in the early stages, leading to higher volume of investment and sharing the
investments risk.
According to those interviewed the key added value of BANs comes through its role of raising awareness
of the market, making it visible, by spreading this kind of investment, encouraging supply and demand
to grow, and creating the mechanisms to bring willing buyers and sellers together. The current trend
suggests that most Business Angels with investing capacity do not find investment opportunities suitable
to their expectations. At the same time, entrepreneurs have difficulty identifying potential Business
Angels, since a good number of these Business Angels value anonymity excessively. In addition,
according to the Spanish BANs, in most cases investors prefer to co-invest with another Business Angel.
In this sense, the role of BANs is crucial, creating a circle of trust between investors and promoting a
number of Business Angels to join for investment operations.
118
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
This annex contains a summary of data obtained in respect of the activities of Business Angels in
Sweden.
1 - Introduction: Overview of Swedish Business Angels market
On the basis of the data available, the Business Angels market in Sweden includes around 3,000-5,000
potential investors – although depending on the definition adopted they may be up to 27,500 - and a
total volume of investments in the range of €200-400 million. It is organised around a formal segment
that is based on 22 BANs distributed around the country with 600-1000 investors representing between
5-15% of the total. An upper level estimate of the total annual number of Business Angel investments in
the period 2004-2007 was around 30,000 in a total of 7,500 firms.
As regards the overall role of the Business Angel market in access to finance, in comparison to the EU
average, access to bank loans remains easy and banks are the key source of finance. Still, there has been
significant growth of the equity markets in the last years – especially in relation to firms in high-tech
sectors – putting Sweden among the top countries in Europe in terms of access to early stage equity
capital.
In terms of public sector support to BAs, government policy has been mainly indirect. The main focus
has been on promotion of BANs. This included an initial financial support towards the formation of a
network of BANs across Swedish regions and the development of a national association to promote
networking and activities to increase investment readiness. Indirectly, the existing initiatives for the
provision of equity finance to high technology start-ups - ALMI Invest and Innovation Bridge - also
contribute to the development of the Business Angel market by requiring additional private sector
investment but also by offering a certain guarantee through their selection process. On the other hand,
there are no dedicated tax breaks or other tax schemes to promote Business Angel investments
although the government is considering one.
2 - Data on the Swedish Business Angels Market
This section summarises key market data on the visible and non-visible market for investment by
Business Angels in Sweden.
2.1 Data on the Visible market
According to Swedish Venture Capital Association, that has been responsible for the organisation of the
promotion and coordination of BANs in Sweden since 2005, there were 22 BANs operating in Sweden in
2010 with around 1,000 registered members, of which some 400-600 were active154. 13 of those BANs
were registered in the SVCA database with a total of 681 angels155.
The annual EBAN survey provides the most comprehensive source of information available on the size
and characteristics of the Business Angels in Sweden. Still, the 2010 data are based on the responses of
4 BANs with 135 angel investors in operation, 57 of which were active. These 57 angels represented 1014% of the 400-600 Business Angels in the 22 networks identified in 2010. Thus, the estimates provided
concerning the total formal Business Angel’ market are based on an extrapolation from the EBAN data.
154
155
Sofia Avdeitchikova interview
www.svca.se
119
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
Table 1: Business Angels Networks in Sweden (2010) – Data from 4 Business Angels networks and
estimate for total
Parameter
Number of networks
Number of members (investors)
-
Of which, number of active Business Angels
Average number of investors per network
EBAN survey numbers
Estimate for total
4
22 (2010)
135
750-1000
57
400-600
34
Source: EBAN and CSES elaboration
EBAN data also provide information on the investment activity. According to the data from the 4 BANs, a
total of 98 business plans were submitted and 18% of those were eventually financed with a total
investment of around 3 million Euros. On the basis of this, the total value of the deals through BANs is
estimated at around €21-30 million. Another SVCA study on the basis of 166 angels from 14 BANs
reported investment activity in 2010 of approximately €12 million. Extrapolated to the total number of
BANS it suggests a total value of around €30 million.
Table 2: Formal Business Angels’ investment type and volume in Sweden (2010) – Data from 4 BANs
and total estimates
Indicator
EBAN data (4 BANs)
Total (estimate)
Number of business plans received in 2010
435
Number of business plans submitted to angels in 2010
98
700-1000
Number of deals made through the network in 2010
25
175-250
Number of new companies financed
17
120-170
Number of follow-on rounds
5
Total amount invested by angels through BANs (€)
3,020,000
Average amount of the deal (€)
91,850
Average amount per angel investor (€)
65,500
21 -30 million
Source: EBAN and CSES elaboration
In terms of sectoral focus, the 2010 EBAN survey indicates a strong focus on the high-tech sectors
including Healthcare and ICT. They represented 57% of the total number of deals and 55% of the total
amount invested. Mobile phone applications, biotech and environmental technologies also received a
little more than 10% of the total, respectively.
Table 3: Percentage breakdown of formal Business Angels investment by sector (2010)
Sector
Health Care and Medical technologies
ICT
Mobile - including software and service applications
Biotech and Life sciences
% in total number of
deals
31
26
13
13
% in total amount
invested
25
30
13
21
120
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
Environment and Clean-tech
Energy
Creative Industries
Social and Sustainable Investments - impact investing
Retail and Distribution
Finance and Business Services
Logistics and transportation
Manufacturing
11
4
2
0
0
0
0
0
7
8
2
1
0
0
0
0
0
Source: EBAN
The EBAN survey data also indicate that the Swedish BANs have a clear regional orientation. The 13
BANs in the database are present in all different regions of the country even though there is, as
expected, a concentration in the south part of the country where the main economic centres and most
of the population is concentrated156. The interviews with experts – including the representative of one
Network157 – confirmed that the regional orientation is particularly strong.
Table 4: Formal Business Angels’ Investment by Region
Location of recipient firm
In the region where the Network is located
In the same country, but not in the same region
Cross-border in Europe
Outside of Europe
% of deals
100
0
0
0
Source: EBAN
AS regards the stage of investment, the data from EBAN survey point to a focus on early stage/start-up
(73.75% of the total), and less so on the expansion (17.5%) or seed stages (8.75%). This makes them
rather similar to the UK Business Angels and less so with the German, Italian or Spanish Business Angels
which, according to the EBAN data, focus more on the seed stage. However, the information on the 13
BANs provided in the SVCA website158 indicates a focus of the BANs on the seed stage (9/13), with only 3
referring to start-up stage and one on expansion. In the absence of additional information the main
conclusion is that seed and early stage phases are dominant.
Table 5: Business Life Cycle Stage of Investment among formal Business Angels
Stage of investment
Pre-seed
Seed
Early stage and start-up
Expansion
Pre-IPO
Buy-out and turnaround
Share
0
8.75
73.75
17.5
0
0
Source: EBAN
Finally, according to the EBAN survey data, formal Business Angels in Sweden do not seem to have
strong preferences in terms of their co-investors. They co-invest both with other Business Angels inside
156
10/13 in or around the main centres of Stockholm, Gothenburg and Malmo.
Interviews with Sofia Avdeitchikova of University of Lund and Jeannette Anderson from Connect Skane
158
SVCA, http://www.svca.se/membersearchen?type=BusinessAngelNetwork
157
121
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
their own networks – although less than in most other countries – but also with Business Angels outside
the specific networks as well as institutional investors or even venture capital funds.
Table 6: Level of Co-investment among formal Business Angels
Co-investors
Business Angels inside the network
BAS outside of the network
Early stage fund
Venture capital fund
Family office
Institutional investors
Share in total
13.33
23.33
10
13.33
0
26.67
Source: EBAN
2.2 Non-visible market
The data on the non-visible segment of the Business Angel market are not extensive and are relatively
old, referring to the period 2004-2007 and therefore not reflecting any impact of the financial crisis. Still,
available studies allow for estimates that could be considered relatively reliable. Overall, the sources
identified suggest that the total Business Angel market (visible and invisible) is in the range of €200-400
million. Thus, on the basis of the earlier data on the formal part (€21-30 million) the invisible part
represents 85-95% of the total. In terms of the number of investors, the estimates range greatly from
less than 1,000 to up to 7,500 depending on the approach followed.
The data collected from the Global Entrepreneurship Monitor159 (GEM) suggest that the proportion
of informal investors in the adult population160 in Sweden is significantly higher than most other EU
countries following a significant increase during the last 5 years. While it was similar to the EU average –
around 2% - it has developed, especially after 2005, reaching a total of 6.5%, 2-2.5% higher than the EU
average. However, a large share of those investments is directed to friends and family and do not fit
with definition of Business Angels used in this report. While there are no specific data available for
Sweden, the GEM provides information for a number of EU countries on the percentage of such
investments directed to “strangers with a good business idea”. On the basis of the average value for the
EU countries available161 - around 7% - we estimate that there are some 27,500 informal investors162 around 3,000 per million of the population. One needs to treat such a number with some scepticism,
given that the relevant number in the USA is 850 per million of the population, the country where the
Business Angels market is, according to all sources, the most developed. As a result, this number of
27,500 investors should be considered as an upper limit.
Besides the estimates derived from GEM data, there have been two main academic studies attempted
to directly measure the number of Business Angels. The first major study of Business Angels in Sweden
was carried out in 2004 at Lund University163. It developed a database of Business Angels including
members of BANs, investors in companies registered in the Swedish Patent and Registration Office and
159
GEM (2011), Entrepreneurship in Sweden, National Report 2011 (in Swedish)
Percentage of population aged 18-64 who personally provided funds for a new company, started by someone
else, over the past three years.
161
GEM website, http://www.gemconsortium.org/docs/cat/4/national-reports
162
On the basis of the 18-64 cohort representing around 60% of the total population of 9.3 million.
163
see Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of Sweden,
Venture Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
160
122
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
through information in articles and journals. It concluded with a total of 894 Business Angels. This
number represents the lowest estimate since some individual investors should be expected to have
been missed by this approach. It should also be expected to be biased towards members of BANs as this
was the first and easier source of information.
A different approach was followed in a study by Avdeitchikova164 to identify the share of informal
venture capital investors among the Swedish population on the basis of a survey of a random sample of
the population. From a total of 24,166 responses, around 861 individuals claimed to have made informal
venture capital investments165 in the last 5 years. The analysis of a smaller number of them (401) led to a
total of 298 (69.3%) identified as actual informal investors. About half of them had an entrepreneurial
background, some of them with multiple start-up experience (‘serial entrepreneurs’). Extrapolating the
results from the sample - using weights based on the size of the initial sample in relation to the adult
population in Sweden and adjusted with respect to background variables to eliminate the non-response
bias – it was estimated that the number of informal investments in Sweden was between 27,800 and
32,600 annually. It also estimated then that the number of businesses financed by informal venture
capital investors should be around 7,500 per year (on the basis of around 4 investors per business). The
study does not provide for a direct calculation of the number of Business Angels. However, the author
suggested that the data available indicated that the number of Business Angels was approximately 5,000
and that this may have slightly increased since. The Swedish Venture Capital Associations also referred
to a total of 3,000 to 5,000 angels in Sweden166.
As regards the total investment value, according to the Swedish Agency for Economic and Regional
Growth, a rough estimate of the volume of the Business Angel market is at least 3 billion SEK per year
(€340 million)167. SVCA also referred to a total – formal and informal - market size in 2004 of 2 billion
SEK (€225 million), around half of the VC investment. The Lund study estimated the total annual
investment at around 3 billion SEK (€335 million) and Avdeitchikova reached a value of €385-450 million.
The Avdeitchikova survey also suggested that the majority (59%) of individuals are fairly low activity
investors who have made only one investment, and the average number of investments per individual is
2.33. The investments completed were generally rather small, on average just over €6,000 and only 4%
of investments are larger than €100,000.
Concerning the investment stage, the Lund study indicated that seed and start-up stage represented
48% of the total investments while a quite high 33% concerned expansion stage. According to
Avdeitchikova, about 59% of investments were in the early stages of a company’s development (seed,
start-up and early growth). Both studies indicate a relative focus on the expansion stage when
compared against data from other countries.
164
Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital: An International Journal of Entrepreneurial Finance, 10:1, 55-85
165
The definition used was : individuals that had, within the previous five years, made non-collateral investments
in unquoted companies to which they did not have any family connections,
166
SVCA, Business angels – a complement to formal private equity, http://www.svca.se/en/Our-members/Angelsventure-and-buyout---who-is-who/Business-Angels/;
167
Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of Sweden, Venture
Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
123
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
Table 7: Summary table of estimates of total Business Angel market and key characteristics
Business angels
% of female in total
Total market size (€ million/year)
Number of investments/year
Share of seed/start-up finance
Investments per individual
Amount invested per individual in last 5
years
Total amount invested/individual
Average investment size
Investors survey
(Mansson & Landstrom, 2004)
894 (identified)
4%
335
48%
5.6
€50% in the €0.05-€0.5 million
range
Population survey
(Avdeitchikova, 2004)
3,000-5,000 (estimate)
19%
385-450
7,500
59%
2.3
92% less than €100,000
€6,000
The studies presented do not offer extensive information concerning the membership (or not) of
investors in BANs. However, on the basis of the information provided earlier, we can estimate that the
Business Angels in networks represent 10-20% of the total number of informal investors (depending on
the number of Business Angel members adopted) and the total amount of €21-30,000 invested around
5-15% of the total size of the market.
2.3 Exits and exit strategies
Exit from investment is a key issue for Business Angels. Our discussions with Business Angel
representatives and Tillvaxverket suggest that this is still problematic. According to the representative of
Connect Skana, Business Angels often end up in participating in second and third rounds of investment
in the absence of alternative exit route options.
The existing studies do not provide information on the exit strategy of Business Angels. According to the
Mansson and Landstrom database of Business Angels, the average investor in 2004 had seen the
companies in which he or she invested go bankrupt 1.1 times and made 1.5 exits during the previous
five-year period. Data for 2003 and 2006 provided by SVCA168 indicate that trade sales represent the
most common exit route while bankruptcy/liquidation is also a very common outcome. In 2003, out of
the 109 exits reported in the survey, 54% ended up in bankruptcy/liquidation while around 40%
included sales to financial or industrial buyers169. 2006 data provide a more positive picture with around
65% of exits reported based on trade sales and only 18% ending to bankruptcy. The SVCA data show that
the IPO route accounts for less than 10% of exits in 2006 and close to 5% in 2003. Still, according to a
Connect representative, the specialised Swedish equities market targeting growth oriented SMEs Aktietorget170 171 - is well placed to provide an effective exit route172.
168
Nils Månsson (2007), Swedish Business Angels, Presentation in the German Business Angel Day, www.businessangels.de/DWD/_111327/upload/media_5609.ppt
169
The high bankruptcy rates may be due to the fact that this period coincided with the dot-com crash.
170
Aktietorget, http://www.aktietorget.se/AboutGeneral.aspx
171
There are currently 125 firms listed in Aktietorget with market capitalisation ranging from €1-100 million.
172
No additional information was found to help assess the number of IPO for firms supported by Business Angels
and to help assess the effectiveness of Aktietorget as an exit route option.
124
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
Chart 1: Common exit routes for Business Angels
46%
Industrial buyer
20%
18%
Bankruptcy/liquidation
54%
17%
Financial buyer
13%
9%
Initial Public Offering
5%
7%
The entrepreneur
4%
2006
2003
3%
4%
Multiple types of buyer
0%
10%
20%
30%
40%
50%
60%
Source: SVCA
2.4 Other market characteristics
Business Angels characteristics
The two studies cited above provided additional information on the characteristics of Swedish Business
Angels. In general, Business Angels have a fairly high income by Swedish standards: 49% have an annual
household income of over €111,000 while 10% have a household income in excess of €444,000 per
annum. Their average wealth is €16.1 million while the median wealth around €2.2 million.
Swedish Business Angels are generally experienced investors with a history of 11 years of informal
investments. They had, on average, made 5.6 investments each within the past 5 years and the majority
of them (66%) have invested less than €0.5 million in total in the last 5 years. The great majority (91%) of
investments are in syndicates. Swedish Business Angels are also highly entrepreneurial, as over 90%
have started a minimum of one company. Of those who have started companies, the median number of
start-ups is three while the average number is 4.4.
Another finding (Avdeitchikova, 2008)173 is that Business Angels may have different forms of
contribution to the firms supported. The study differentiated between:
- Micro-Investors that provide low investment and low skills;
- Fund managers offering large investment but limited skills support;
- Mentors: low investment, high skill;
- Business Angels: large investments and high skills.
173
Avdeitchikova (2008), On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital, Vol. 10, No. 1, January 2008, 55–85
125
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
Female Business Angels
The existing studies on the Business Angels market provide only limited information on the share of
female Business Angels. The population-based survey of Avdeitchikova indicated a total share of female
informal investors of around 19%, imply a total number close to a total of 1,000. However, the data from
Mansonn and Landstrom study indicated a much lower share, around 4% of the total. The data from the
EBAN survey indicated a female share of 7.4% while SCVA suggested a total of 5-10%174. No additional
information on the activities of female Business Angels, such as sector focus, average investment size
was available.
Regional distribution
As regards the regional distribution of Business Angels in Sweden, Mansonn and Landstrom (2006)175
found that over half of the investments (53%) of Business Angels were in companies located within
geographical proximity – less than 100 km – from the investor. A second study of Avdeitchikova
(2007)176 corroborates this conclusion indicating a concentration of informal investment in the
metropolitan regions of Stockholm, Gothenburg and Malmo (70-80%) – in line with the concentration of
population and economic activity - followed by some university cities (20%).
2.5 Quality of data sources
While allowing for a number of general estimates concerning the size of the Business Angel market, the
available data for Sweden are more than 5 years old. Furthermore, the data available has been collected
mainly through one-off exercises rather than systematically repeated exercises that would allow for a
monitoring of the development of the Business Angel market over time. The activities of Business Angels
in networks are more frequently monitored via SVCA but, again, there is no systematic monitoring of
activities beyond the data sources provided by a small number of BANs through the EBAN study.
It would clearly be useful to update and extend the database of 894 Business Angels created as part of
the study of Mansson and Landstrom. This could be used to provide a panel basis for monitoring trends
over time and providing a reliable source data. Population surveys conducted by Avdeitchikova may also
be informative – as they allow for an extrapolation to the general population – but are time consuming
and expensive and can only be conducted in long intervals.
3 - SME access to finance
This section reviews the available information on the access of Swedish SMEs to finance and the role of
Business Angels.
174
Nils Månsson (2007), Swedish Business Angels, Presentation in the German Business Angel Day, www.businessangels.de/DWD/_111327/upload/media_5609.ppt
175
Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of Sweden, Venture
Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
176
Sofia Avdeitchikova (2009): False expectations: Reconsidering the role of informal venture capital in closing the
regional equity gap , Entrepreneurship & Regional Development: An International Journal, 21:2, 99-130
126
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
3.1 Overview
According to the recent Small Business Act Fact Sheet for Sweden177, the level of access to finance for
SMEs seems to be better than the EU average on most aspects considered. The share of unsuccessful
bank loan applications by SMEs is lower in Sweden than in other EU countries. Moreover, banks in
Sweden – which traditionally represent the most common and important source of finance for SMEs
(Cressy and Olofsson, 1997; Klagge and Martin, 2005) – appear to fulfil their role of providing loans.
There is a lower share of unsuccessful loan applications and a smaller share of firms indicating a
deterioration in the willingness of banks to provide them with a loan. Having said that, Swedish SMEs
wishing to take up loans of less than €1 million have to pay more interest than on bigger loans compared
to similar firms in other EU countries (a 38% difference in Sweden compared to 24% in the EU as a
whole). Furthermore, access to bank loans has been made more difficult by the new collateral rules of
2005, which worsens the position of banks in case of bankruptcy. In terms of access to equity, the Fact
Sheet also suggests that in Sweden venture capital is more readily available than in the EU. However,
there are important differences at the regional level178 as VC firms are concentrated in the metropolitan
regions of Stockholm and Gothenburg.
Table 8: Access to finance for SMEs – Comparison of key indicators for Sweden and EU
Indicator
EU average Sweden
Share of bank loan applications by SMEs that were not successful, 2009
23%
14%
Access to public financial support including guarantees
22%
5%
30%
15%
(% that indicated a deterioration)
Willingness of banks to provide a loan (%share that indicated a deterioration)
Relative difference in interest rate levels between loans above 1 million EUR
and loans below EUR 1 million, 2010
24%
37.60%
Venture capital investments - early stage (% of GDP), 2009
0.04%
0.01%
Source: SBA Fact Sheet
The above positive picture is replicated in a recent study by the Swedish Agency for Economic and
Regional Growth (Tillvaxtverket)179 which found that access to loans and credit does not appear to be a
major obstacle to the growth of SMEs. Furthermore, according to the Nordic Entrepreneurship
Monitor (2010), "[regarding] the access to early-stage venture capital Sweden is second to none". The
data indicate that, in relative terms, Sweden is among the top countries in terms of access to venture
capital – especially in relation to early stage capital. The data from the Global Entrepreneurship
Monitor180 also indicate that the informal venture capital market has developed rapidly since
177
EU (2011), SBA Fact Sheet- Sweden 2010/2011, http://ec.europa.eu/enterprise/policies/sme/facts-figuresanalysis/performance-review/files/countries-sheets/2010-2011/sweden_en.pdf
178
Bjorn Berggren and Lars Silver (2010), Financing entrepreneurship in different regions -The failure to
decentralise financing to regional centres in Sweden, Journal of Small Business and Enterprise Development Vol. 17
No. 2, pp. 230-246
179
Tillvaxtverket (2012): Opportunities and Obstacles to Growth in Swedish SMEs, summary
180
GEM (2011), Entrepreneurship in Sweden, National Report 2011 (in Swedish)
127
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
2000. While at the start of the period the proportion of informal investors in the adult population181 was
similar to the EU average – around 2% - it has increased, especially after 2005, reaching a total of 6.5% in
2009, 2-2.5% higher than the EU average. However, the GEM data suggest that the increased availability
of informal investment has not coincided with an increase in entrepreneurship activity in the respective
period as expressed by the Total Entrepreneurship Activity182 indicator or the share of the population
starting a business.
Chart 2: Evolution of entrepreneurship activity and share of informal investors in Sweden and EU
7.0%
6.6%
6.0%
6.0%
2000
4.9%
5.0%
4.0%
5.0%
2010
5.1%
4.9%
3.8%
3.7%
3.5%
3.4%
3.0%
3.0%
2.8%
2.6%
2.6%
2.5%
2.3%
2.0%
1.9%
2.0%
1.0%
0.0%
Sweden
Small EU
countries
Large EU
countries
% of informal investors in the adult
population
Sweden
Small EU
countries
Large EU
countries
Total Entrepreneurship activity
Sweden
Small EU
countries
Large EU
countries
% of population aged 18-64 who is
currently starting a business,
Source: GEM
In contrast to the above statements, according to a 2009 report from the Nordic innovation Centre183
there has been a substantial decrease of the number of venture capital investments since 2007,
particularly in relation to initial stages with much greater focus on later stage follow-on investments.
Business Angels were recognised as an alternative source but, as suggested in the report, the financial
crisis had had a negative impact and the amount of capital invested has decreased due to the
recession184.
181
Percentage of population aged 18-64 who personally provided funds for a new company,started by someone
else, over the past three years.
182
Percentage of population aged 18-64 who is either an entrepreneur in the making or own and manage a new
business.
183
Nordic Innovation Centre (2009), Challenges and Initiatives for the Nordic Seed Stage - Promoting a common
Nordic seed capital market, http://innovationsbron.se/wpcontent/uploads/2012/04/Challenges_and_initiatives_for_the_nordic_seed_stage_final_report1.pdf
184
No specific data are provided in the study
128
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
Considering the role of Business Angels’ finance for SMEs, Berggren and Silver’s (2010)185 survey of
Swedish SMEs in the manufacturing and professional services sector provides information on the
importance of different sources of finance in Sweden. For the majority of respondents, bank loans
remain the main source of finance (64% of firms indicating as the most important source of finance),
followed by industrial partners (11.7%). Business Angels and VC are less important and considered as
the main source for 4.2% and 3.5% respectively. However, among SMEs in metropolitan regions - that
were also typically younger and more growth-oriented - Business Angels have had a greater role as a
source of finance (6.5%). Furthermore, while around 8% of the total respondents indicated that they
approached a venture capital firm and 6.5% a Business Angel over the last three years, only 2.2% ended
up using VC funding in comparison to 5% that used Business Angels’ support. Among firms in
metropolitan regions of Stockholm and Gothenburg, a higher percentage (9.6%) had approached
Business Angels and 7.6% actually ended up using their support. The results indicate that Business
Angels are an important source of finance for a sizeable number of SMEs, particularly among the
growth-oriented and dynamic firms. We should note that the survey sample is comprised of firms that
are well established with an average age of 14 years. Thus, the responses may under-represent the total
demand for Business Angel finance which is more fitting to newly created firms in the seed or start-up
stage.
3 - Public support for Business Angels
In this section we examine the existing support schemes for Business Angel financing in Sweden and, on
the basis of available information, provide an assessment of their performance.
4.1 Direct support measures
The Swedish government has had a direct role in the development of the domestic venture capital
industry. The first venture capital fund was established in 1973 as a collaboration between the
government and the private sector. By the mid-1980s, the number of private and public venture capital
funds were 20 and 30, respectively. For example, Företagskapital was created in 1973 by the
government together with merchant banks. Regional development funds and corporations were also
launched during this period.
In comparison, in the case of Business Angels the role of the Swedish government has been less direct.
According to Silver (2008) while certain legislative proposals and programmes had a bearing on Business
Angels, they have not been a priority objective of the Swedish government and the relevant government
agency (Tillvaxtverket- former Nutek) has not assumed the promotion of Business Angels as an explicit
objective. Our own discussions with Tillvaxverket support this view although, as suggested, there is
currently a renewed focus through a number of support programmes in the pipeline.
There are currently no targeted tax breaks or other relevant tax schemes supporting investments by
Business Angels. The basic capital gains tax rate in Sweden is 30% for individuals – with two more rates
at 50% and 55% - and 26.3% for corporations. Under certain circumstances, dividends received by
185
Bjorn Berggren and Lars Silver (2010), Financing entrepreneurship in different regions - The failure to decentralise financing to regional centres in Sweden, Journal of Small Business and Enterprise Development Vol. 17
No. 2, pp. 230-246
129
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
individuals from private equities can benefit from a tax deduction186, although there are no similar
provisions for venture funds or corporations. The Swedish government had in the past considered
proposals to exempt companies investing venture capital in other companies from capital gains tax on
any subsequent profits made in order to increase financial resources for re-investment. Tax deductions
were proposed for private investors who channelled equity to small businesses, with a minimum holding
period of five years. However, the proposals failed to stimulate sufficient interest in venture
investments in small firms and the scheme was cancelled shortly after187. According to the information
provided by the SVCA, no such tax break is available at this stage. Our discussions indicated that the
government is currently considering the possibility of re-introducing a tax scheme.
The focus of policy has been on the promotion of BANs. Only a few networks existed in 2000, notably
the Connect network that was established in 1999, transferring the experience of the CONNECT network
in San Diego, USA. CONNECT currently has a number of regional branches across the country. NUTEK
also supported the creation of the Swedish Business Angel Network (SwedBan) in 2001. This was a
private entity organised in the form of an economic for-profit association. SwedBan was intended to
create a number of local and regional platforms or forums for matching entrepreneurs and Business
Angels and to provide angels with deal flows, opportunities to co-invest with other angels, and an exit to
the formal venture capital market. Swedban ceased operating in 2005 and, since then, the Swedish
Venture Capital Association was awarded a contract to support the operation of BANs networks. SVCA
activities included the organisation of meetings within local networks, provision of support material to
increase investment readiness and promotion of Business Angels' activity in the media. Following the
expiration of the contract with SVCA, Tillvaxverket is currently considering revitalising the formation of a
national association, this time through the incubator association.
In the past, NUTEK had supported the operation of Business Angels through initiatives like the Cap Tec
project, where young companies in the early technological development phase presented themselves to
potential investors, whether venture capital companies, Business Angels or corporate investors (OECD,
Braygan,2003)188. There is, however, no information available on the effectiveness of this initiative.
Currently, Tillvaxverket is preparing the implementation of 7 projects focusing on education and
improving investment readiness and improving matching.
In terms of the direct financial support, there is no scheme such as a fund of funds directly investing in
BAs. The most relevant forms of support is through regional venture capital funds created with the
support of the EU Structural funds. The first venture capital funds were set up in 2005 with three pilots
in three regions (West Sweden, Gotland and Mid-North Sweden). The regional companies of ALMI
Företagspartner189, a non-profit limited company fully owned by the Swedish state, set up subsidiaries
(ALMI INVEST) that managed the partnership funds. The pilots were structured to promote a change
from being a passive partner to an active private co-investor and were completed in 2008 with a total of
186
According to EBAN database of existing tax schemes, investments made through a limited liability company,
capital gains and dividends from investments in unquoted shares, or quoted shares if the holding represents at
least 10 % of the total votes, are tax free.
187
OECD report
188
Baygan, G. (2003), “Venture Capital Policies in Sweden”, OECD Science, Technology and Industry Working
Papers, 2003/11, OECD Publishing, http://dx.doi.org/10.1787/784213407652
189
ALMI Företagspartner, a non-profit limited company fully owned by the Swedish state. ALMI Företagspartner
has 19 regional offices (subsidiaries) in Sweden. These are 51% owned by the Swedish state and 49% by regional
public authorities. The main focus of ALMI Företagspartner is the provision of finance -mainly in the form of loansto SMEs. At the same time it provides business advice services.
130
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
71 investments totalling SEK 112 million (€13 million) in 62 companies. The investments were made in
conjunction with 49 partners.
In 2006, the European Investment Fund (EIF) carried out an analysis of the opportunities to enhance
SMEs’ access to capital through the JEREMIE initiative on the basis of a requirement of both national
public co-financing and private co-financing. Eventually, the Structural Fund partnerships of the eight
programme areas and the Swedish Agency for Economic and Regional Growth invited financing actors to
apply for ERDF funds for regional venture capital funds aims to create revolving financing tools for
equity. Twelve regional venture capital funds were created covering 8 regions of the country. ALMI
Invest regional subsidiaries manage 8 of the 12 funds and the remaining are managed by other regional
public-private partnership organisations. The total investment – public and private – for all 12 funds has
reached SEK 2.2 billion190 (€256 million).
Finally, Innovation Bridge (Innovationbron191) is a state-owned limited company with seven regional
offices that provides equity capital and business support to newly created firms in the form of equity
capital. The Innovation Bridge is mainly oriented towards young firms (or even firms not yet
established). The main aim of the support is the commercialisation of research and innovation through
the provision of venture capital via their investment subsidiaries (Teknoseed AB, Uppsala Seed Capital
and Innovationsbron Rendera Såddkapital AB) and through advice and help with research-based firm
formation and development. The Innovation Bridge has a clear focus on innovation and follows a highrisk strategy through an explicit focus on new, previously non-existent technologies. Investments are
typically around €250,000 and may, but need not, be matched by other investors. Innovation bridge
does not focus on co-investments with Business Angels but, as in the case of ALMI Invest, it can often
operate as a guarantee and help spread the risk of individual investments.
4.2
Evaluation of public support for Business Angels
There has been no formal assessment made of the above support schemes. One relevant source is the
2008 review by Lars Silver192 that assessed the work of NUTEK (currently Tillvaxtverket). As a general
observation on Swedish policy towards Business Angels, Silver concluded that there had been no
uniform policy from the government and that the work of NUTEK has been largely experimental in
nature. The study also notes that while a number of legislative proposals on industrial policy have had a
bearing on Business Angels, they were not explicitly addressed in any of them.
The overall assessment of the approach followed by NUTEK was that the relatively limited resources
dedicated have been effectively utilised. The support provided for the development of BANs is
considered by Silver - and our own interviewees - as rather positive, and critical for the development
and the survival of some of them. BANs are generally considered as effective even if they cover only a
small part of the total number of Business Angels (no more than 15%). According to the representative
of CONNECT Skane, the main contribution of the BANs is to filter the deal flows and support Business
190
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt,
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/evaluations/sweden/files/1111_swede
n_venture_eval_en.pdf
191
http://innovationsbron.se/investering-kapital/
192
Silver, L., (2008), Utvärdering av Nuteks insatser och stöd för utveckling av regionala affärsängelsnätverk samt
nationell intresseorganisation för affärsänglar och affärsängelnätverk [Evaluation of Nutek's efforts and support for
development of regional business angel networks and national association for Business Angels network], (in
Swedish), http://www.tillvaxtverket.se/download/18.21099e4211fdba8c87b800030531/Utv+Affnglar+slutrapport+27+juni.pdf
131
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
Angels’ syndication that helps spread the risk of investments and represents more than 90% of total
investments in BANs. In addition, Avdeitschikova193 observed that, through their various activities and
support services to entrepreneurs, BANs promote learning about Business Angels and contribute
towards increased investment readiness, a necessary first step in strengthening the Business Angels’
market. On the other hand, Silver concluded that not all networks created had the necessary size to
build up solid and sustainable structures. Some of them were not successful on leveraging private sector
funding and were fully invested after a brief period. Their viability depended on additional public
funding. Outside the main metropolitan areas and the university centres, the demand for Business
Angels’ finance is limited and the viability of some BANs has proven problematic. Still, the support
provided did help broaden the coverage across the country, a relevant aspect, given the importance of
proximity for business angel investment.
As regards the venture capital funds created with the support of ERDF funding the main finding so far is
that they have successfully attracted Business Angel investment, primarily as a result of the sharing of
the risk and the professional screening process. The evaluation of the initial pilot initiatives of the period
2005-2008194 suggested that venture capital funds largely achieved the objectives set. It was assessed
that the venture capital funds stimulated the supply of capital to the regions. However, the distribution
of investments was not even and some parts of the regions did not take part in any investment. The
evaluation also concluded that the availability of business and financial expertise in the regions
increased with the establishment of venture capital funds. The model for co-investments also worked
well and responded to an existing need and was appreciated by fund managers, co-investors and
companies. The function of co-investors seemed, in most cases, to provide companies with both
expertise and networking while the recruitment of partners/co-financiers took place through networks
which led to attraction of Business Angels in a large number of cases. It was also clear that regional and
local knowledge was also an important success factor in the pilot funds’ work. The fact that the venture
capital funds had a regional basis and that they cooperated with investors from their own region meant
that the parties could obtain good knowledge and insight into the invested company and in the
entrepreneur as a person.
The currently running funds (period 2009-2014) are experiencing a great deal of interest from
companies in the region and the inflow of new objects is considered as rather good even though not all
proposals meet the requirement for high growth and potential for exit with 4-7 years. Up to the end of
2011 the venture capital funds had received 1,467 investment proposals and made investment decisions
in 124 companies with a total investment of SEK 786 million (€93 million), SEK 458 million (€54 million)
being private co-finance. The majority of the funds have so far invested in accordance with, or close to,
the investment plan but 4 of them require additional efforts to achieve the targets set. In terms of the
firms support, start-up and early stage represent the majority of firms invested (around 60%) with ICT
representing around 40%, industrial 23%, trade and life sciences 13% each.
The key point from the Business Angels market perspective is the fact that more than 55% of coinvestors were Business Angels while 36% were VC investors. The main contribution of the VC funds –
and the main attracting element – is the sharing of the risk, the expertise and professionalism brought
to the investments, the thorough due diligence conducted and the simplification and standardisation of
193
Input from interview
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt,
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/evaluations/sweden/files/1111_swede
n_venture_eval_en.pdf
194
132
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
contractual procedures. Furthermore, the evaluation indicated that the cooperation with the venture
capital funds increased their knowledge, skills and ability to implement investments (71% of
respondents), extend their network (66%) and their knowledge about investment opportunities in the
region (around 52%). In terms of the additionality of the venture capital funds investment, 45% of coinvestors said they would probably not have implemented the investment and 10% that they probably
would have implemented a smaller investment. On the other hand, 42% considered that they would
have invested about the same amount, but in the latter case without the venture capital fund's coinvestment. Thus, the initiative has so far led to an increased volume of investment for about half of
respondents.
According to the representative of Connect, the key added value for Business Angels comes through the
screening of the business proposals, the quality assurance that is provides to any potential Business
Angel and the capacity to spread the investment risk. Indeed the data for 2010 indicate that more than
half of the co-investors - in a total of over 90 deals - were Business Angels, either as individuals or in the
form of syndicates195.
Finally, concerning the effort to create a national association of BANs, Silver refers to problems of
operational efficiency that led to its closure. Silver also points to scepticism by some Business Angels of
the potential added value of the presence of a national association since most Business Angels prefer to
remain anonymous or develop their own networks at the regional level. On the other hand, it is
recognised that a dedicated organisation can promote the specific interests and needs of Business
Angels in the policy making process. In that respect, the appropriateness of transferring the
responsibility for the operation of the national network to SVCA - the national Venture Capital
Association - is questioned. Silver, as well as the representative of Connect and Tillvaxverket, questioned
the appropriateness of subordinating angels under the Venture Capital association due to the different
focus and interests of the two types of activities - different size of investment, different stages in the
firms’ life cycle. From the SVCA side, the involvement of SVCA provided the opportunity for greater
cooperation and the development of a bridge between Business Angels and VCs activity. However,
Silver’s (2008) review suggests that this bridge is more theoretical than practical and no specific data of
such cooperation or other information was made available to indicate that this bridge is indeed working.
The following table summarises the main features of the direct and indirect support policy support
measures related to Business Angels as well as the conclusions in relation to their contribution to the
development of the Business Angels’ market on the basis of the available feedback.
195
http://www.slideshare.net/googlehumano/first-results-of-the-survey-on-european-early-stage-venture-capital
133
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
Table 9: Main public policy measures for the promotion of Business Angels in Sweden
Type of support
Main features
Support of Business
Angels networks
Financial support for the creation of
Business Angels networks in different
regions
Creation of a national
association of
Business Angels
Creation of a national BANs association
to represent the interests of Business
Angels and organise meeting and other
promotion activities (through the
national Venture Capital Association)
Venture capital funds scheme providing
equity to early stage firms and requiring
matching from private investors – not
direct support to Business Angels
Public sector
supported equity
finance schemes
Main conclusions on the basis of existing
information
Contribute to extending supply of Business
Angels capital beyond capital areas
Some contribution to awareness raising and
support investment readiness
Positive role in syndication
Limited/problematic viability
Added value rather marginal
Different views on the need of such an
organisation and the appropriateness of
involvement of VC association
Significant number of investments so far with
high level of leverage (additionality) and no
evidence of crowding out.
High level of Business Angel attractions (main
co-financers)
Positive role as quality assurance and risk
spread for Business Angels.
Viability of some funds in less developed
regions is questionable
134
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
This annex contains a summary of data obtained in respect of the activities of Business Angels in the
UK.
1 - Introduction : Overview of the UK business angels’ market
The visible sector of the Business Angel market in the UK differs throughout the country. There are two
main Angel Federations.
The British Business Angel Association covers the whole of the UK, but in practice operates principally
in England and Wales. Its members include networks of Angels (17 networks are listed as members196).
More recently it has become involved in the organisation of syndicates of Angels, including the
operation of a Co-investment fund. Overall its membership includes almost 100 organisations, including
over 20 early stage venture capital funds, as well as professional service providers and advisers,
including accountancy and law firms, corporate finance, banks, regional development agencies,
universities and public policy-makers.
The position in Scotland is different where there is a much greater emphasis on syndicates. LINC
Scotland is the main federation and they see their role as to: “Support and improve the working of the
business angel environment in Scotland. At individual deal level, we focus on improving the efficiency of
the 'process' by making targeted introductions to well matched business angels among our members.
These include most of the well known syndicates and hundreds of individual investors who prefer less
public visibility” 197
LINC has been established since 1993 and the Scottish Business Angel marketplace is now amongst the
most developed in Europe. LINC supports the emergence and formation of structured Business Angel
syndicates. There are 13 funding groups who are members of LINC, mainly large syndicates. Archangel
Informal Investment198 (formed 1992) and Braveheart Investment Group199 (formed 1997) are amongst
the longest established Business Angel syndicates in Europe.
Most studies suggest that a large amount of the market does not go through either the syndicate or
network model, and is composed of direct investments by individuals. The most comprehensive recent
studies of the UK market are the annual reports on the Business Angel Market in the UK by Mason and
Harrison200. The latest report covers the period to March 2010 and was published in 2011. It appears
that the series will not continue.
2 – Business Angels market data
2.1 Visible market
Data on the visible market in the UK must be considered in the context of the differing systems in
Scotland and the rest of the UK. Scottish investors are generally organised in syndicates rather than
networks, so data for the UK on the number of networks is not comparable with other countries. Some
data is available from returns made to EBAN for 2010 (UK information is generally provided for the year
196
http://www.bbaa.org.uk/member/directory?type=1
http://www.lincscot.co.uk/about-us
198
http://www.archangelsonline.com/
199
http://www.braveheart-ventures.co.uk/
200
Accessible at http://www.bis.gov.uk/assets/biscore/enterprise/docs/a/11-p116-annual-report-business-angelmarket-uk-2009-10
197
135
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: UK
8
to 31st March when the national fiscal year ends). The most comprehensive source of UK data is the
annual report on the Business Angels Market201 by Mason and Harrison. The last available report is for
the year to 31st March 2010. The reports provide some information for the whole of the UK market, as
well as detailed breakdowns by constituent country within the UK.
The first table provides data largely based on information from the BBBA, i.e. excluding Scotland where
Angels are largely organised in syndicates.
Table 1: Business Angels Networks in the UK– Data from EBAN 2010 surveys and for the total of
Business Angels’ Networks
Parameter
EBAN survey numbers
Number of networks
22
Number of members (investors)
537
-
Of which, number of active business angels
177
Average number of investors per network
24
Total number of women Business Angels (% of total)
30
Number of angel investors recruited by BANs in 2010
57
Number of women investors recruited during 2010
8
Number of angels who have left the networks
67
Average number of angels per investment round in 2010
3
Source: EBAN and CSES elaboration, Mason and Harrison
EBAN data provide also information on the investment activity. The table below is based on the same
sources, but also provides some estimates for the UK as a whole based on research by Mason &
Harrison.
Table 2: Business Angels’ investment in networks: Type and volume in UK in 2010
Indicator
EBAN data
Total
(estimate)202
Number of business plans received
Number of business plans submitted to angels
115
Number of deals made through the network
127
Number of new companies financed
40
316
Number of investors that made investment in companies
presented through the network
Number of follow-on rounds
201
202
4
Annual Report on the Business Angels Market in the United Kingdoms, Mason & Harrison
Estimates are based on the ratio of total BANs to BANs in the survey.
136
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: UK
Total amount invested by angels through BANs (€)
€18 million
Average amount of the deal (€)
142500
Average amount per angel investor
25000
Total amount invested – including co-investors
8
€73 million
57170000
Source: EBAN and CSES elaboration
A breakdown of investment by sector is shown below. As in other countries, there is substantial
investment in technological sectors.
Table 3: Percentage breakdown of Business Angel investment by sector (2010)
Sector
ICT
Mobile - including software and service applications
Biotech and Life sciences
Health Care and Medical technologies
Energy/ Environment and Clean-tech
Creative Industries
Retail and Distribution
Finance and Business Services
Manufacturing
Other
% in total number of
deals
26.34
% in total amount
invested
43.67
0.56
23.53
11.44
9.37
5.83
0.91
0
18.65
3.37
1.73
19.86
11.23
7.58
4.45
1.58
0
8.17
1.73
Source: EBAN survey (2010)
The EBAN survey also supports the generally held view that Business Angels tend to invest in firms in
their proximity with the majority (around 73%) of deals in 2010 concerning firms in the region where the
respective BAN was located.
Table 4: Geographical concentration of Business Angels’ Investment – share of deals by location of
recipient firm
Location of recipient firm
% of deals
In the region where the Network is located
72.87
In the same country, but not in the same region
22.47
Cross-border in Europe
2.60
Outside of Europe
1.40
Not known
0
Source: EBAN survey
The EBAN data suggest that Business Angels in BANs tend to focus on early stages (pre-seed, seed, early
stage and start-up) of the firms life cycle, representing 79% of the deals in 2010. However, a significant
19% is also invested in the second round expansion stages.
137
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: UK
8
Table 5: Business Life Cycle Stage of Investment
Stage of investment
Share in total (%)
Pre-seed
0
Seed
7
Early stage and start-up
72
Expansion
19
Pre-IPO
2
Buy-out and turnaround
0
Other
0
Source: EBAN Survey 2010
Finally, according to the EBAN survey Business Angels tend to co-invest with other Business Angels
inside or outside their own network but also with other early stage or VC funds.
Table 6: Level of Business Angel Co-investment
Co-investors
Share in total (%)
Business Angels inside the network
95.24
Business Angels outside of the network
6.02
Early stage fund
3.90
Venture capital fund
0.90
Family office
17.78
Institutional investors
0.59
Other investors
57
Source: EBAN
2.2
Data on non-visible business angels’ market
Data on the non-visible market in the UK, as in other countries, is difficult to estimate. However, there
has been a series of annual reports on the business angels market in the UK by Mason and Harrison
which provide some overall market estimates, shown in the table.
138
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
Table 7: Summary table of estimates of total Business Angel market and key characteristics
Number of Business angels (estimate)
% of female in total
Total market size (€ million/year)
2.3
Estimate on the basis of the various
sources
25000
£317m (€381m)
Quality of data sources on business angels in the UK
Whilst the UK market for Business Angels is relatively well researched, data on the activities of Angels
and in particular those who do not participate in the visible market is hard to come by. There are a large
number of reports on small business financing and it would not be possible to list more than the key
sources.
There have been two annual reports on the Business Angels market in the UK by Mason and Harrison,
which draw together data from other sources and in addition provide some survey data. The main
national federations in the UK (BBBA and LINC) provide data on the visible market, although the data
provided to EBAN by BBBA for 2010 was much less complete than in previous years.
As far as small business financing as a whole is concerned, quantitative data comes from the small
business financing surveys carried out by the Department for Business Innovation and Skills (BIS), the
relevant UK government department. There are also important studies carried out for Scottish
Enterprise, bearing in mind the different nature of the Angel market in Scotland.
3 - SMEs’ access to finance in the UK
This section assesses the contribution of UK Business Angels to SMEs’ access to finance and the
effectiveness of Business Angel finance in bridging the equity gap in the seed and start-up phases of the
SME development.
3.1
Overview
There has been continuing research in the UK into the provision of risk and growth capital for SMEs, and
into potential market failures in the provision of such capital. Almost all studies find that there is a lack
of such capital provision.
One of the most recent government sponsored studies was the Rowlands report into The Provision of
Growth Capital to UK Small and Medium Sized Enterprises203. The report found that there was a gap in
the provision of equity capital in the range between £2 million (€2.5 million) and £10 million (€12.5
million). As far as business angels are concerned, this is likely to be at the top end of the range of
funding they could contribute to. As the report says :
203
Accessed at www.bis.gov.uk/files/file53698.pdf
139
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: UK
8
“Drawing on two separate data sources, we estimate that there are 25,000 - 32,000 UK businesses that
are growing and/ or restructuring and with characteristics that may make them suitable for growth
capital. Our analysis suggests that up to 5,000 of these firms per annum will be viable SMEs which are
likely to experience significant problems in accessing capital as the economy emerges from recession. It is
likely that those SMEs which are seeking to access growth capital in amounts above 2million – the
current upper limit of public/private provision – and below 10million – the minimum level at which
private equity providers will fund – will face particular difficulties”
?
3.2
?
Role of business angels
The UK government also carries out a periodic survey of small company financing204. The 2011 survey
found that the majority of SMEs either used their own funding or obtained external funding. Of those
seeking external funding, 74% were successful. But there were market failures and in particular an
“equity gap affecting SMEs seeking between £250,000 to £5m of equity finance. There are also
cyclical issues relating to the supply and demand of finance”. It was felt that very few venture
capitalists invest below £5 million. Below the level of £250,000 friends and family, grants and
business angels are the key sources.
According to Mason and Harrison205, below the level of £2 million (€2.5 million), there is more likelihood
that business angels will make a significant contribution. Their view is that “Business angels have
become by far the main source of risk capital for new and early stage businesses seeking amounts of
under £2m. The paucity of venture capital finance means that business angels are also increasingly
required to make follow-on investments in their portfolio companies. The public sector in various forms is
also a significant source of funding in this space, both as a direct investor and also through coinvestment funds which invest alongside business angel groups”
Overall, in the UK it seems clear that business angels play an important role in providing finance at an
early stage. The existence of syndicates of Angels enables such syndicates to continue to provide finance
in larger amounts
4 - Public support for business angels
In this section we examine the existing support schemes for Business Angel financing in the UK and, on
the basis of available information, provide an assessment of their performance.
4.1
Direct support measures
This section discusses the main areas of support provided to Business Angels in the UK. The topics
covered by the section include the following aspects of support:
-
Tax allowances aimed at improving the supply of early stage risk capital;
Direct support for Angel syndicates or networks;
Other initiatives, in particular co-investment funds.
Tax allowances
The principal tax allowance schemes to support early stage risk capital are the Enterprise Investment
Scheme (EIS) and Venture Capital Trusts (VCT). In addition, since April 2012 there has been a new
204
205
Accessed at http://www.bis.gov.uk/assets/biscore/enterprise/docs/s/12-539-sme-access-external-finance
Mason and Harrison, Annual Report on the Business Angel market in the UK, 2010
140
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
scheme, the Seed Enterprise Investment Scheme (SEIS), aimed at the smallest companies. In all cases
there are detailed rules and restrictions and investments can only be made in certain trades. Brief
details of the schemes are shown below.
Enterprise Investment Scheme - EIS provides tax relief to individuals who invest in the shares of
qualifying unquoted companies. Brief details of the scheme are shown below based on the scheme
details206 issued by HM Revenue & Customs, the UK tax collection department. The scheme provides the
following reliefs to individuals:
•
•
•
Income tax relief at 30 per cent of the cost of the shares. Relief can be claimed up to a maximum of
£500,000 invested in such shares, giving a maximum tax reduction in any one year of £150,000;
Any gain is free from Capital Gains Tax provided the shares are held for 3 years or more, and
deferral relief in certain circumstances;
If the shares are disposed of at a loss, the loss, less any Income Tax relief given, can be set against
income instead of being set off against any capital gains.
Companies which can use EIS:
•
•
•
•
Must not be quoted on a recognised stock exchange at the time the shares are issued (alternative
markets such as AIM are not recognised exchanges);
Must not be controlled by another company;
Must be a small company;
Must have fewer than 50 full-time employees.
Companies are not allowed to raise more than £2 million in any 12 month period from the venture
capital schemes, and there are restrictions on the type of trade that qualifies.
Venture Capital Trusts - A VCT is a company, broadly similar to an investment trust, which has been
approved by HMRC and which invests in small unquoted companies. The VCT Scheme is designed to
encourage investment in small unquoted companies. Individuals invest by holding shares in a VCT. The
VCT invests in a spread of small unquoted companies, enabling investors to spread their risk, just as they
do by holding shares in an ordinary investment trust company.
An approved VCT has a number of tax advantages207:
•
•
•
•
the VCT is itself exempt from CT on chargeable gains (and losses for chargeable gains purposes are
not allowable losses);
individual investors can claim income tax relief on subscriptions;
individual investors are exempt from income tax on dividends;
individual investors are exempt from Capital Gains Tax.
Seed Enterprise Investment Scheme - The UK government has planned an additional new relief, the
Seed Enterprise Investment Scheme (SEIS)208. The new relief comes into effect for investments made on
or after 6 April 2012. This relief is specifically targeted at Business Angels investing in very small startups.
206
The HMRC guidance was accessed at http://www.hmrc.gov.uk/eis/guidance.pdf
The HMRC guidance was accessed at http://www.hmrc.gov.uk/manuals/vcmmanual/VCM60020.htm
208
The HMRC guidance was accessed at http://www.hmrc.gov.uk/seedeis/index.htm
207
141
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
The relief offers income tax relief at 50% on the amount subscribed for ordinary shares (although there
are provisions to permit certain preferential dividend rights) up to a limit of £100,000. As with EIS, gains
on the Seed EIS shares will be exempt, providing certain conditions are met. Additionally capital gains
made in 2012/13 that are reinvested into seed EIS shares will themselves become exempt.
The target company can raise no more than £150,000 in total under Seed EIS. It must be a small
company; one with less than 25 employees and assets less than £200,000 immediately before the share
issue. Additionally it must have been incorporated in the two years before the share issue and be
carrying on a new trade.
The UK government issued a consultation paper before finalising SEIS and published the responses209.
The main reasons for introducing an additional scheme are that:
•
•
•
the gap between the risk of the business proposal and the risk the investor is willing to take is larger
at this stage;
that investments were moving away from seed stage companies; and,
although EIS works well to encourage seed investment now, the planned changes to the amount
companies can raise per year (to £10 million, subject to State aid approval) could make it more
difficult for seed companies in future.
Evaluation of EIS and VCT
An evaluation of the EIS and VCT schemes was carried out in 2007210 by the Institute of Employment
Studies. This focused on the performance of companies, rather than on the supply of capital. The study
showed that, as far as companies were concerned, the conclusions were that “Overall, these results
indicate that EIS and VCT investments have a positive effect on capacity building in recipient companies.
However, in material terms, these effects remain at present very small. There is some additional limited
evidence of a profit enhancing effect. However, we also note that both schemes appear to be associated
with differentials in performance depending on the size, age and sector of the recipient company.”
Around 10,000 individuals invested through EIS in 2008-09, the last year for which figures are available
and around 6,300 through VCTs.
Direct support for networks or syndicates
In Scotland, the main association LINC Scotland receives a small amount of funding from Scottish
Enterprise to help set up new Business Angel syndicates. This represents seed funding and after a short
while syndicates have to pay their own costs. The establishment of new syndicates is a specific objective
put on LINC. In other parts of the UK, a small amount of support was received from Regional
Development Agencies although these bodies have now been abolished
Co-Investment funds
There has been increasing use of co-investment funds as a means of improving the supply of early stage
risk capital.
In the UK, the earliest use of co-investment funds were in Scotland. The Scottish Government and
predecessor investment agencies had made use of ERDF funding for publicly supported venture capital
funds such as the Edinburgh Technology Fund (ETF in 1999 and an evaluation published in July 2001
209
210
Accessed at http://www.hm-treasury.gov.uk/consult_tax_advantaged_venture_capital_schemes.htm
Accessed at http://www.hmrc.gov.uk/research/report44.pdf
142
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
found that they “had facilitated better business propositions and ensured larger turnovers than would
otherwise have been achieved”.
The Scottish Co-investment Fund was established to provide capital to companies with high growth
potential. The fund invests pari passu with private sector investors. SCF initially appointed, (after a
tendering process), approximately 24 investment partners who bring deals to SCF. Partners were
appointed after an advertisement to meet public procurement rules, and include both Scottish partners
and others from the rest of the UK. One of the objectives of the fund was to attract investors to Scotland
and this has been achieved. Two evaluations of SCF have been published. An evaluation by CSES of
SCF211 in the context of EU funding showed that the funds helped the local financial community and that
the survey evidence suggests high additionality from SCF – lenders would not otherwise have accessed
the funds. An evaluation for Scottish Enterprise212 showed that the fund “was attaining its objectives
and was held in high regard by all parties: partners, investees, non-partner intermediaries and nonpartner investors.”
The SCF has since been developed to include three co-investment funds aimed at different sizes of
investments. They are:
•
•
•
Scottish Seed Fund - Funding from £20,000 to £250,000 for start-up and young businesses
launching new products, entering new markets and increasing employment;
SCF - Funding from £100,000 to £1 million for deals of up to £2 million between Scottish
businesses and our private sector partners; and,
Scottish Venture Fund - Funding from £500,000 to £2 million for deals between £2 million and
£10 million between Scottish businesses and our private sector partners.
In 2010-11 the programme invested £23 million in 109 companies and leveraged £53.7 million of private
sector investment. In the year there were seven exits producing £10.8 million of returns
In other parts of the UK there has been a recent extensive development of co-investment funds. An
overview of funds has been published by Capital for Growth213, a UK government agency. From the point
of view of Business Angels, The Business Angel Co Investment Fund214 (Angel CoFund) has £50m
available to invest alongside BANs or syndicates into eligible SMEs. The Fund operates by investing
alongside and on the same terms as syndicates.
The Fund was created by a consortium of private and public bodies with expertise in Business Angel
investment. It is a quasi-private sector body with clear objectives to boost the quality and quantity of
Business Angel investing in England, and to support long-term, high quality jobs in high growth
companies. Capital for Enterprise staff work with the fund to encourage strong proposals for investment
to come forward from both established and emerging business angel syndicates around the country. The
fund was launched in November 2011 and by May 2012 had committed some £7.2m in five investments.
There is also an extensive network of venture capital funds supported by UK public funding.
211
Evaluation of the Scottish Co-Investment Fund and ERDF funding by CSES, accessed at
http://www.scotland.gov.uk/Resource/Doc/209231/0055411.pdf
212
http://www.evaluationsonline.org.uk/evaluations/Browse.do?ui=browse&action=show&id=32&taxonomy=INV
213
http://www.capitalforenterprise.gov.uk/portfolio
214
http://www.angelcofund.co.uk/
143
Evaluation of EU Member State Business Angel Markets and Policies
Annex
Grossing up factors
9
The sample of eight countries used in this study represents 69% of 2010 EU 27 GDP and 63.6% of the
2010 EU 27 population. In estimating data for EU 27 countries as a whole, we have grossed up the
sample data using grossing up factors based on these percentages. The 2010 population and GDP data
has been obtained from Eurostat as shown below.
Table 1: EU 27 GDP and population, 2010
Gross domestic product at
market prices
Population number
Millions of euro
EU27
Sample
EU27
Sample
Belgium
354,688
10,839,905
Bulgaria
36,052
7,563,710
Czech Republic
149,313
10,506,813
Denmark
235,609
5,534,738
Germany
2,476,800
Estonia
14,305
1,340,127
Ireland
155,992
4,467,854
Greece
227,318
11,305,118
Spain
1,051,342
1,051,342
45,989,016
45,989,016
France
1,937,261
1,937,261
64,694,497
64,694,497
Italy
1,553,166
60,340,328
Cyprus
17,334
803,147
Latvia
17,975
2,248,374
Lithuania
27,535
3,329,039
Luxembourg
40,267
502,066
Hungary
97,095
10,014,324
Malta
6,123
414,372
Netherlands
588,414
Austria
286,197
Poland
354,582
Portugal
172,670
10,637,713
Romania
124,059
21,462,186
Slovenia
35,416
2,046,976
2,476,800
588,414
81,802,257
16,574,989
81,802,257
16,574,989
8,375,290
354,582
38,167,329
38,167,329
144
Evaluation of EU Member State Business Angel Markets and Policies
Grossing up factors
Annex
9
Slovakia
65,744
5,424,925
Finland
179,721
5,351,427
Sweden
349,216
349,216
9,340,682
9,340,682
United Kingdom
1,706,302
1,706,302
62026962
62,026,962
Total
12,260,495
8,463,917
501,104,164
318,595,732
Sample as % of total
69.0
63.6
Grossing up factor
1.45
1.57
Source : Eurostat
145
Evaluation of EU Member State Business Angel Markets and Policies
Interview programme
Member State (if
applicable)
Organisation
EBAN, CEO
EBAN, President
EBAN, Board Member
EBAN, Researcher
EBAN, Former President
EBAN, Former CEO
EIF
Programme Manager, HBAN
France
France
– Service de la compétitivité et du développement des
PME - Ministère de l’Economie, des Finances et de
l’Industrie
Centre d'Analyse Stratégique - Département
Economie- Finance
France Angels
Germany
Federal Ministry of Economics and Technology
Germany
Federal Ministry of Economics and Technology
Italy
SDA Bocconi School of Management,/ Italian Business
Angel Network
Italy
Ministero dello Sviluppo Economico
Italy
Associazione Bancaria Italiana
Italy
Banca d’Italia
Italy
Italian Business Angel Network
Netherlands
Business Angels Netwerk Nederland
Netherlands
Agentschap NL
Poland
Association of Business Angels’ NetworkS - ABAN
Poland
Ministry of Economy
France
Annex
10
Type of stakeholder
Business angels network
representative
Business angels network
representative
Business angels network
representative
Business angels network
representative
Business angels network
representative
Business angels network
representative
Government
authority/agency
Business angels network
representative
Government
authority/agency
Governmental Research
organisation
Business angels network
representative
Government
authority/agency
Government
authority/agency
Business angels network
representative
Government
authority/agency
Government
authority/agency
Government
authority/agency
Business angels network
representative
Business angels network
representative
Government
authority/agency
Business angels network
representative
Government
146
Evaluation of EU Member State Business Angel Markets and Policies
Interview programme
Poland
AMBER Business Angel Network; Polish Entrepreneurs
Foundation
Poland
Sweden
Sweden
Lewiatan Business Angels and Vice President of
European Business Angels Network (EBAN)
Head of Finance of DGPYME - Ministry of Industry,
Tourism & Trade
Coordinator of the Annual Investment Forum and
Project Manager at ACC1Ó, Generalitat de Catalunya
AEBAN and Director of Madrid+d Business Angel
network.
ESBAN - Spanish representative in the Board of
Directors of EBAN.
CIRCLE, Lund University
Swedish Venture Capital Association
Sweden
Ministry of Enterprise, Energy and Communications
Sweden
Sweden
Tillvaxverket (Swedish Agency for Economic and
Regional Growth)
CONNECT Skane – Business Angels Network
UK
UK
LINC Scotland
Angel syndicate
UK
Investment Director, Scottish Enterprise
UK
Senior Investment Manager
Scottish Investment Bank
Spain
Spain
Spain
Spain
Annex
10
authority/agency
Business angels network
representative
Business angels network
representative
Government
authority/agency
Government
authority/agency
Business angels network
representative
Business angels network
representative
Expert
Expert
Government
authority/agency
Government
authority/agency
Business angels network
representative
Expert
Expert
Government
authority/agency
Government
authority/agency
147
Evaluation of EU Member State Business Angel Markets and Policies
Bibliography
Annex
11
References (Germany)
-
-
European Investment Fund (2011), Business Angels in Germany - EIF’s initiative to support the
non-institutional financing market – Working paper, Helmut Kraemer-EIS, Markus Schillo
ZEW (2007), Hightech-Gründungen und Business Angels (High-tech companies and business
angels), Helmut Fryges, Sandra Gottschalk, Georg Licht · Kathrin Müller
Venture Capital Magazin (2011), Business angels in Europa : Ein genauer Vergleich lohnt
KfW (2011), BUSINESS ANGELS AUS DER SICHT VON VENTURE CAPITALGESELLSCHAFTEN, Nr. 49,
August 2011
KfW (2008), Der informelle Beteiligungskapitalmarkt in Deutschland (The informal venture
capital market in Germany), KfW Research Witschaftsobserver online, Nr. 41, November 2008.
EU (2011), SBA Fact Sheet- Germany 2010/2011,
http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performancereview/files/countries-sheets/2010-2011/germany_en.pdf
Business Angels Test panel quarterly results, http://www.businessangels.de/DWD/_111327/upload/media_6795.pdf
References (France)
France Angels, Activite: Les chiffres clés, 2010
Ernst & Young BAS (2007), Étude sur le financement des jeunes entreprises technologiques par les
business angels en France, rapport final remis au ministère de l’Enseignement supérieur et de la
Recherche
Banque de France DGAFP – Entreprise cotés sur les marchés à faible capitalisation créées en 2005,
March 2010
Aubier, Maud and Cherbonnier, Frédéric, Les banques et le financement des PME en France, in Le
financement des PME, La Documentation française, Paris, 2009
-
CAE (2006), Jean-Paul Betbèze & Christian Saint-Étienne – Conseil de Analyse Economique - Une
stratégie PME pour la France, 2006, http://www.cae.gouv.fr/IMG/pdf/061.pdf
References (Italy)
Capizzi, V. and Giovannini, R. (2010) : Business Angels e Informal Venture Capital in Italia, Bancaria
Editrice, Roma
Capizzi, V. (2011): What drives the Returns of Business Angels’ Investments? An Empirical Analysis of the
Italian Informal Venture Capital Market, International Journal on GSTF Business Review, Vol. 1, No 2,
October 2011
IBAN (2011): Il mercato Italiano del capitale del rischio informale – Sintesi Survey, Milan.
IBAN (2011); Il mercato Italiano del capitale del rischio informale
References (The Netherlands)
-
Bureau Bartels NV (2011), Nulmeting Informal Investment, for Agentschap NL
EBAN Survey, 2009, 2010
Emerging Technology Research Europe (2012); Informal Investment in Nederland, Tornado Insider,
for Agentschap NL
Emerging Technology Research Europe (2012); Tornado Insider, Nederlands investeringsklimaat
voor Technostarters 6-meting, April 2010, for Agentschap NL
Hartog, C., Hessels, J., van Stel, A., and Wennekers, S. (2011): Global Entrepreneurship Monitor
2010 The Netherlands The emergence of an entrepreneurial society, EIM, Zoetermeer
148
Evaluation of EU Member State Business Angel Markets and Policies
Bibliography
-
Annex
11
KMO financiering (2007); Vermogen om te ondernemen. De Nederlandse finance gap, Den Haag
Koenraads, E., (2012); Handboek Informal Investment. De kunst van het investeren, BAN Nederland.
Napier, G. and van den Heuwel, J. (2007); The Dutch Risk Capital Market and the Role of
Government Policies, ICE Working Paper
Parastuty, Z (2006); Exploring the informal capital market in the Netherllands: characteristics,
mismatches and causes, SCALES/ EIM
Press release: “Nieuwe koepelorganisatie Business Angels bevordert inovatiekracht in Nederland”,
29 September, 2010.
References (Poland)
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.
pdf
http://cdn.pi.gov.pl/PARP/HTTPFiles/media/_multimedia/656714E145EC457F89D99E61FB7449BE/2010
1214_115814%20business%20angels.pdf
http://www.gemconsortium.org/visualizations
http://polban.pl/inwestycje-private-equityventure-capital-polsce-2/
European Business Angels Network, “EBAN Tool Kit. Introduction to business angels and business angels
network activities in Europe”; Brussels 2009.
http://www.aban.org.pl/
Narodowego Planu Rozwoju 2007-2013
Kierunki zwi?kszania innowacyjno?ci gospodarki na lata 2007-2013
EBAN: Tax incentives available to private informal investors or business angels in europe; june 2006
P. Tamowicz, „Business angels. Pomocna d?oo kapita?u”, Polska Agencja Rozwoju Przedsi?biorczo?ci,
Gdansk, 2007
References (Spain)
-
-
-
-
Presentation of the study conducted by the Directorate-General of SME Policy: ‘Business Angels
in Spain, a new way of financing SMEs’, Mr. Albert Colomer, member of the Managing Board of
EBAN. (Presentación del estudio realizado por la DG de Política de la PYME: los “Business Angels
en España, una nueva vía de financiación para las PYME”, D. Albert Colomer, miembro de la
Junta Directiva de la EBAN).
Business Angels, innovation in business financing. (Los Business Angels, innovando en la cultura
de la financiación de las empresas).
An analysis of compared taxation in the case of Business Angels in Europe. (Análisis de
tributación comparada de la figura de los Business Angels en Europa).
Proposal for tax measures to promote the figure of Business Angels in Spain. (Propuesta de
medidas fiscales de fomento de la figura de los Business Angels en España).
Nature of business angels networks in Spain and main characteristics of market players.
(Naturaleza de las redes de Business Angels existentes en España y principales características de
los agentes del mercado).
Spanish Network of Business Angels: research procedures and market volume. (Redes españolas
de Business Angels: investigación de procedimientos y volumen de mercado).
GEM España 2010.
(http://www.gemconsortium.org/download/1323732833449/INFORME_GEM%20ESPANA%202
010.pdf).
Proposition of law to support entrepreneurs (Proposición de Ley de apoyo a los emprendedores).
Programme of Impulse to Business Angel Networks (Programa de impulso a las Redes Business
Angels).
149
Evaluation of EU Member State Business Angel Markets and Policies
Bibliography
-
-
-
Annex
11
Small Business Act Fact Sheet for Spain 2010-2011.
LIbro Blanco de la Iniciativa Emprendedora en España. White Paper on Entrepreneurship in
Spain, promoted by the Fundación Príncipe de Girona (FpdGi) and written by ESADE Business
School experts.
Cotec Report 2011.
Informe ICO-Camaras financiacion pymes (cuarto trimestre 2011).
La Financiación externa de empresas innovadoras en fases iniciales de desarrollo. Restricciones
financieras, fallos de mercado y papel de los inversores privados. IESE Business SchoolUniversidad de Navarra.
Termómetro de la inversion en Startups en España 2011.
La financiación externa de las empresas innovadoras en fases iniciales de desarrollo.
Informe Capital Riesgo & Private Equity en España
References (Sweden)
1. Silver, L., (2008), Utvärdering av Nuteks insatser och stöd för utveckling av regionala
affärsängelsnätverk samt nationell intresseorganisation för affärsänglar och affärsängelnätverk
[Evaluation of Nutek's efforts and support for development of regional business angel networks and
national
association
for
Business
Angels
network],
(in
Swedish),
http://www.tillvaxtverket.se/download/18.21099e4211fdba8c87b800030531/Utv+Affnglar+slutrapport+27+juni.pdf
2. GEM (2011), Entrepreneurship in Sweden, National Report 2011 (in Swedish)
3. Sofia Avdeitchikova (2009): False expectations: Reconsidering the role of informal venture capital in
closing the regional equity gap, Entrepreneurship & Regional Development: An International
Journal, 21:2, 99-130
4. Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden:
developing investment roles, Venture Capital: An International Journal of Entrepreneurial Finance,
10:1, 55-85
5. Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of
Sweden, Venture Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
6. SVCA (n.d.), Presentation on Business Angels - Swedish Venture Capital Association, www.businessangels.de/DWD/_111327/upload/media_5609.ppt
7. Bjorn Berggren and Lars Silver (2010), Financing entrepreneurship in different regions - The failure
to decentralise financing to regional centres in Sweden, Journal of Small Business and Enterprise
Development Vol. 17 No. 2, pp. 230-246
8. Baygan, G. (2003), “Venture Capital Policies in Sweden”, OECD Science, Technology and Industry
Working Papers, 2003/11, OECD Publishing, http://dx.doi.org/10.1787/784213407652
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt,
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/evaluations/sweden/files/1111_swede
n_venture_eval_en.pdf
References (United Kingdom)
Evaluation of the Scottish Co-Investment Fund and ERDF funding by CSES, accessed at
http://www.scotland.gov.uk/Resource/Doc/209231/0055411.pdf
Department for Business Innovation and Skills (2009), The Provision of Growth Capital to UK Small and
Medium Sized Enterprises, www.bis.gov.uk/files/file53698.pdf
UK Business Angels Association Member Directory, http://www.bbaa.org.uk/member/directory?type=1
LINC Scotland, http://www.lincscot.co.uk/about-us
150
Evaluation of EU Member State Business Angel Markets and Policies
Bibliography
Annex
11
Archangels Angel Syndicate, http://www.archangelsonline.com/
Braveheart Investment Group, http://www.braveheart-ventures.co.uk/
HMRC guidance documents
- http://www.hmrc.gov.uk/manuals/vcmmanual/VCM60020.htm
- http://www.hmrc.gov.uk/seedeis/index.htm
- http://www.hmrc.gov.uk/research/report44.pdf
- http://www.hm-treasury.gov.uk/consult_tax_advantaged_venture_capital_schemes.htm
Mason, C. and Harisson,R., 2011, ANNUAL REPORT ON THE BUSINESS ANGEL MARKET IN THE UNITED
KINGDOM: 2009/10, http://www.bis.gov.uk/assets/biscore/enterprise/docs/a/11-p116-annual-reportbusiness-angel-market-uk-2009-
151
doc_250235197.pdf
Business Angels play an important role in the economy, and in many countries constitute the largest source of external funding, after family and friends, in newly established ventures.
Framework Service Contract for the Procurement of Studies and other
Supporting Services on Commission Impact Assessments and Evaluations
Interim, final and ex-post evaluations of policies, programmes and other
activities
Evaluation of EU
Member States’
Business Angel Markets
and Policies
Final report
October 2012
P O Box 159
Sevenoaks
Kent TN14 5WT
United Kingdom
www.cses.co.uk
Evaluation of EU Member State Business Angel Markets and Policies
Contents
SECTION
PAGE
1.
Introduction
1
2.
Measuring the Business Angels market
4
3.
Numbers of Business Angels
11
4.
Investment by Business Angels
19
5.
Public support for Angel investment
29
6.
Business angels and SME financing
38
7.
Conclusions and Recommendations
43
ANNEXES
PAGE
1
National report: France
52
2
National report: Germany
61
3
National report: Italy
74
4
National report: The Netherlands
86
5
National report: Poland
94
6
National report: Spain
102
7
National report: Sweden
119
8
National report: The United Kingdom
135
9
Grossing up factors
144
10
Interviews
146
11
Bibliography
148
0
Evaluation of EU Member State Business Angel Markets and Policies
Introduction
Section
1
This is the final report in respect of the Evaluation EU Member States’ Business Angel Markets and
Policies.
1.1 - Summary of Assignment Aims
Business Angels play an important role in the economy, and in many countries constitute the largest
source of external funding, after family and friends, in newly established ventures. Business Angels
provide both financing and managerial experience, which increase the likelihood of the survival of startup enterprises. But the fundamental nature of the Business Angel market is informal. Many Angels have
a desire for anonymity, and are unwilling to reveal information about their investment activities. The
resulting absence of reliable statistical data makes evidence-based policy making in this area difficult.
Given the importance of informal investors for the creation and maintenance of an entrepreneurial
economy, more data is needed from the angel investment market in order to make rational and wellgrounded policy decisions.
The objective of this evaluation is to improve policy-making regarding SMEs’ access to seed and early
stage capital by increasing the knowledge of the characteristics of the Business Angels market and
sharing EU Member States’ best practices of policies and programmes supporting Business Angel
financing.
The study considers both members and non-members of Business Angel networks (BANs). The terms of
reference placed emphasis on including non-members of BANs – the “non-measured” market because
relatively little is known about this market segment and yet it is probably very significant as a source of
risk capital funding. However, it is recognised that this part of the market is difficult to access but most
likely accounts for the majority of Business Angel activity.
The evaluation involves a review of Business Angels in eight Member States (Germany, France,
Netherlands, Sweden, Italy, Spain, Poland, and UK). Data is extrapolated to provide estimates for the EU
as a whole.
The research focuses on:
•
•
Collection and consolidation of secondary data for 2010 from different appropriate sources
(including national and international Business Angel organisations and networks, government
organisation, etc.), estimation of the non-measurable market at EU level for 2010 and indication
of possible changes;
A brief overview of the key characteristics and results of programmes or polices aimed at
increasing and supporting Business Angel investment in the selected Member States. The
assessment of the Member State polices will include an assessment of the efficiency and
effectiveness of policies having assessed their possible impact and their gaps and shortcomings based on the information provided in the interviews and data collected for a specific country, to
the extent that data is available.
1.2 - Evaluation questions
Detailed evaluation questions were set out in the terms of reference and are dealt with in the report as
far as data permits. However, in some cases data is not available - for example, data on investment
outcomes is not available for the non-measured market and is only available to a limited extent for the
measured market. The evaluation questions are as follows:
1
Evaluation of EU Member State Business Angel Markets and Policies
Section
Introduction
1
Relevance
1.
What are the available data sources for the Business Angel market in EU Member States or
regions?
2.
What is the identified need for public action (e.g. financing gap, market failure) to support
Business Angel financing and how have the programmes or policies of EU Member States been
designed to meet this need?
Effectiveness
3.
How effective are different data-collection procedures? Do they allow for consolidation of data
on cross-regional and cross-country level?
4.
What are the main (examples listed below) characteristics of Business Angel financing in selected
markets? Secondary data collection will depend on availability of sources. If possible, amounts
should present industry (by country of investors) and market (by country of the companies
receiving investments) figures:
•
•
•
•
•
•
•
•
Total investments (amount)
Number of deals (investments)
Number of companies receiving investment
Number of active investors (Business Angels)
Deal acceptance rates
Co-investments (number/%, amount, type – with financial institutions/syndicated
investment deals)
Exits – type (trade sale, IPO, written off) (number, amounts)
Exits – rate of returns
All above mentioned data, whenever possible and meaningful, should be broken down by:
•
•
•
5.
Sectors (for example: IT/Software/Telecom, Healthcare/Biotech, Energy/Environment,
Industry/Manufacturing, Retail, Media/Entertainment, Other) Stage of company
development (seed, start-up, early expansion, growth/late expansion)
New/ follow-up investment
Geography (investment in home region, home country, EU country, outside EU) (number/%,
amount)
What are the additional characteristics of the Business Angel market (if data are available)?
•
•
Women entrepreneurs receiving Business Angel financing (number/%, amount, acceptance
rate)
Women Business Angel investors (number/%, amount, acceptance rate)
6.
What is the estimated volume of the total market (total investments) at EU Member State level
for remaining EU countries (if data are available)?
7.
To what extent has the Business Angel market contributed to the SMEs’ access to finance?
8.
How effective is Business Angel financing to bridge the equity gap in the seed and start-up
phases of the SME development. What, if anything, could be done to render Business Angel
financing more effective as a means to achieve these objectives?
2
Evaluation of EU Member State Business Angel Markets and Policies
Introduction
Section
1
Efficiency
9.
How can data sources and data-collection methodologies be improved to allow for comparability
across regions and countries?
10.
Which existing EU Member State support programmes or policies to facilitate the access to
Business Angel finance for SMEs are the most efficient or inefficient? Are there significant
differences between on line and physical programmes or those that operate on a cross border
basis as opposed to a Single Member state?
11.
What are the actual costs of operating the programmes and administrative burden to the SMEs
or Business Angel (for reporting, etc.)?
12.
How can the efficiency of the Business Angel programmes be improved? What are the best
practices that could be applied in other EU countries?
Sustainability
13.
Are the identified data sources, data-collection and consolidation procedures suitable for
observation of long-term trends in the Business Angel market?
14.
Will the effects achieved by the support programmes last in the medium or long term?
1.3 - Structure of this report
The final report is structured as follows:
•
Section 2: Methodological issues in measuring the Business Angels market
•
Section 3: Numbers of Business Angels
•
Section 4: Investment by Business Angels
•
Section 5: Public support for Angel Investment
•
Section 6: Business Angels and SME Financing
•
Section 7: Conclusions and Recommendations
Research on each of the eight member states covered in the study is set out in Annexes 1 to 8. In
addition, we show the detailed data used for grossing up results to the whole of the EU27.
3
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
This section of the report considers the methodological issues involved in the measurement of the
Business Angels market.
2.1 - What is a Business Angel?
There is no single settled definition of a Business Angel. DG Enterprise defines a Business Angel1 as
follows:
“A knowledgeable private individual, usually with business experience, who directly invests part of his or
her personal assets in new and growing unquoted businesses. Besides capital, Business Angels provide
business management experience for the entrepreneur.”
The definition used by EBAN, (the European Trade Association for Business Angels, Seed Funds and
other early Stage market Players), is very much in line with the DG Enterprise definition but elaborates
further on key characteristics of Business Angels.
WHAT IS A BUSINESS ANGEL?
• An individual investor (qualified as defined by some national regulations).
• Invests directly (or through his/her personal holding) his/her own money.
• Is financially independent, i.e. a possible total loss of his/her Business Angel investments will
not significantly change the economic situation of his/her assets.
• Invests predominantly in seed or start-up companies with no family relationships.
• Makes his/her own (final) investment decisions.
• Invests with a medium to long term set time-frame.
• Ready to provide, on top of his/her individual investment, follow-up strategic support to
entrepreneurs from investment to exit.
• Respecting a code of ethics including rules for confidentiality and fairness of treatment (vis-àvis entrepreneurs and other Business Angels), and compliance to anti-laundering.
Source: EBAN2
While the EBAN definition is more prescriptive, an important element is the explicit exclusion of friends
and family from the definition.
There are good reasons for differentiating between friends and family and Business Angels. The main
argument is that family-related investors are driven by fundamentally different motives, such as kinship,
social obligation, and reciprocity, rather than just commercial factors. As a result, they exhibit different
behavioural patterns. According to Avdeitchikova3 “...To include family-related investments as a part of
the business angels market would add to the breadth of the scope of what is already a heterogeneous
concept.” A commonly cited definition is that proposed by Mason and Harrison who describe BAs as “a
high net worth individual, acting alone or in a formal or informal syndicate, who invests his or her own
money directly in an unquoted business in which there is no family connection and who, after making the
investment, generally takes an active involvement in the business, for example, as an advisor or member
1
According to the list of definitions used by DG Enterprise accessed at
http://ec.europa.eu/enterprise/policies/finance/glossary/index_en.htm#b
2
Based on the EBAN glossary accessed at http://www.eban.org/resource-center/glossary
3
Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital: An International Journal of Entrepreneurial Finance, 10:1, 55-85
4
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
of the board of directors.”. 4 As will be seen later in this report, investment by friends and families in new
businesses is much larger than investments by Business Angels – but that does not detract from the
importance of the Business Angel asset class. The terms of reference for this study emphasised this
point and said that “Business Angels constitute the largest source of external funding, after family and
friends, in newly established ventures.”
There are, of course, problems of identification in deciding whether an individual falls into the definition
of a Business Angel. Should the number of Business Angels include those who wish to invest, but have
yet to find a suitable proposition? And should it include those who have previously invested, but not for
a few years? And there may not be a clear distinction between friends and family and Business Angels.
As the Italian Business Angel Network (IBAN) put it, there is a “question about whether ‘a friend of a
friend’ is a friend or a stranger”.
In practice, as will be seen later in this report, most Business Angels act individually and are not
members of syndicates or networks, and therefore their activities can only be seen when they make an
investment. More data is available on the part of the Angel market that is organised, and for that part of
the market it is possible to differentiate between Angels who have made investments and those who
have not yet done so. To the extent that data availability permits, we have excluded investments by
friends and family from our results In line with the EBAN and Mason definitions, and excluded from our
estimates investors who do not provide strategic support or advice in addition to their investment.
2.2 - How Business Angels operate
According to research by EBAN, the typical profile of a Business Angel5 is a male (some 3-5% in the
measured market are females) aged between 35 and 65 with successful prior experience as an
entrepreneur or a manager investing between €25,000 – €250,000 or the equivalent of 15% of their own
funds in a single venture – typically a start-up firm – and supporting it with management advice and
networking in business and company finance circles. Research in The Netherlands suggests that there is
a generational difference between Business Angels6. Older and more experienced Business Angels find
that the younger ones are still too inexperienced and need guidance; while the younger ones tend to be
more involved in the management of firms they invest in – and think the older Business Angels get too
involved in the businesses.
Generally speaking, angel investors make their investment decisions based on their experience in a
particular sector and most often focus on companies within their local area. Having said that, in some
Member States (e.g. Italy), the national Business Angel network is increasingly supportive of cross
border ventures. Where Business Angel work in syndicates, risk can be spread further, thus increasing
the ability to make cross border ventures.
Still, it should be appreciated that Business Angels are a heterogeneous group. For example, in relation
to motives for investment financial gain and wealth creation tend to be the main motivations but there
is also often the interest and satisfaction from creating successful new ventures or supporting local
economic development. Similarly, there is variation in terms of the typical investment sector or the
4
5
Mason and Harrison, 2008
EBAN (2009), EBAN Tool Kit - Introduction to business angels and business angels network activities in Europe
6
Emerging Technology Research Europe (2012); Tornado Insider: Informal investment in Nederland, Agentschap
NL, p.5
5
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
location of investment. More detailed information on the basis of data from the EBAN survey is provided
in section 4.4 below.
Traditionally Business Angels have tended to prefer to invest alone, rather than as part of a network or a
group7. However, participation in groups, syndicates and networks is also important. Angels can invest
both individually and jointly with other angels or institutional investors in various forms (e.g. coinvestment with seed funds) – as set out in section 2.3 below.
Many Angels invest in several companies in order to diversify risk and expecting that one or two will
bring high returns and cover loses of the firms that do not survive. According to a survey of 158 UKbased angel investors in 2008, while 56% of investments failed to return capital, 9% generate more than
10 times the capital invested.
The typical Business Angel investment cycle includes the following stages:
1. The Business Angel becomes aware of the opportunity from his own sources or sometimes
through formal channels (e.g. Business Angels Networks or entrepreneurship events)
2. The Business Angel conducts an initial screening to assess initial interest in the investment and
whether it fits to his/her investment portfolio and area of knowledge/experience area
(syndicates will carry out screening on a collective basis)
3. There is a meeting with entrepreneur, detailed evaluation of the business plan, review of
references and market research.
4. Negotiate over valuation and level of participation with entrepreneur
5. Following investment, hands-on support in the form of management advice/mentoring and
networking
6. The final stage includes the exit from the business by selling the shares, typically in the form of a
trade sale and less often through an initial public offering. Most available studies suggest that
Business Angels tend to hold their investments for a period of about 3 to 7 years. However, exit
is still a problematic area for Business Angels and is also influenced by the prevailing economic
conditions.
2.3 - How are Business Angels organised
The most common form of Business Angel is the individual who invests directly in a company through his
or her own contacts. They act privately and generally prefer to maintain anonymity. As a result detailed
statistical data on that invisible part of the Business Angel market is not readily available.
There are, however, other more visible ways of organisation through which Angels get in touch with
companies. One such form is the Business Angels networks (BANs). According to the EBAN a BAN is “...
an organisation whose aim is to facilitate the matching of entrepreneurs (looking for venture capital)
with business angels” 8.
Typically a BAN might act as a recipient of requests for investment funds. Such proposals would then be
vetted for quality first, or directly circulated to the BAN members. Introductions between entrepreneurs
and investors may take place at network meetings, or directly. Normally, Business Angels will invest on
their own account into the company concerned. Both investors and entrepreneurs may pay towards the
cost of the network. BANs tend to concentrate on particular sectors or regions. They generally refrain
7
8
OECD (2011), Financing High-Growth Firms - THE ROLE OF ANGEL INVESTORS
www.eban.org
6
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
from formally evaluating business plans or angels. Angels make their own individual investment
decisions, and the BAN does not decide which investors will invest in a deal. BANs also often provide a
number of added value services to both angels and entrepreneurs, such as preparing for
investor/investment readiness, training and syndication opportunities.
Syndicates of Business Angels represent another form of organisation of Business Angels. According to
EBAN syndicates are the result of “...the gathering of several business angels into an informal
consortium for the purpose of creating a critical mass of funds above what each business angel could —
or would be prepared to — invest. This term also applies to the pooling of competencies in order to
offer more managerial skills than any individual business angel could display”.
Syndicates claim that one of their strengths is the ability to spread risks and fund further rounds of
investment since investments are carried out by a number of Angels9. Usually the investor pays for the
syndicate, and the syndicate will assess the potential investment for the Angel to make the final
decision.
In many EU Member States there are also National Federations, or National Networks that represent a
number of networks. At the European level, the European Trade Association for Business Angels, Seed
Funds and other early Stage Market Players (EBAN) represents the interests of Business Angel and
Business Angel Networks, seed funds and other entities involved in bridging the equity gap in Europe.
EBAN was established with the collaboration of the European Commission in 1999 by a group of pioneer
BANs in Europe and EURADA (European Association of Development Agencies). EBAN now has wide
affiliation by national federations, networks, seed funds and individual angels in EU Member states as
well as international connections. The World Business Angels Association (WBAA) provides a platform
for the exchange of information about the development of the Business Angel market around the world,
including Business Angel organisations in the USA, UK, China, India, Spain, Australia, Chile, Italy, UAE and
France.
Another form of organisation is an online angel and entrepreneur matching service. The service may
be provided by a network or syndicate, or a separate company. The potential investor will receive online
details of companies looking for investments and will then contact the company, and will carry out his
own due diligence. Typically, most sites that offer these services charge the entrepreneur a fee to
register their investment proposals and are free for the angel investors.
A further source of Business Angel finance is provided by on line matching services reaching a large
number of potential investors, including crowdfunding. There are an increasing number of websites
offering such services. Crowdfunding faces significant legal issues in offering securities to the public
generally. Little data is available on either amounts raised or outcomes, and we have not been able to
include useful data in this report.
2.4 - Methodological issues in measuring the Business Angels Market
Given the different definitions of what constitutes a Business Angel and the types of Business Angel, as
well as the differing forms of organisations and the desire of many Angels for anonymity, there are
significant methodological challenges in measuring the Business Angels market. A recent OECD paper10
9
See, for example http://www.archangelsonline.com/
‘Financing High Growth Firms: The Role of Angel Investors’, OECD, 2011. The report was produced by the HighGrowth Financing Project of the OECD Science, Technology and Industry Directorate’s Committee for Industry,
10
7
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
concluded that, given the local nature of Business Angel investing, there is no homogeneous national
angel market. Different definitions, ways of collecting data, etc., mean that aggregation at the national
level is difficult. Nevertheless, as the OECD study argues: ‘While methods of estimating the full angel
market size vary, it has been documented through many studies over the past decade that total angel
investment is much greater than overall VC investment in the United States and as well as in some
countries in Europe’. We have also referred above to boundary problems in defining what a Business
Angel is.
For the visible part of the market, the main data is that collected by Angel associations from Angel
groups and networks organised in BANs or syndicates. These data only represent a fraction of the
market termed the “visible” market (Harrison and Mason, 2010)11. According to the OECD study, in
countries such as the United Kingdom, other “visible” market data can be collected through other
methods such as angels participating in government tax incentives and/or co-investment schemes.
However, the majority of angel investment is individual and that information is private and therefore
extremely difficult to measure. This comprises the “invisible” portion of the market. As the OECD study
indicates, the current methods for measuring the level of the invisible Business Angel activity are
currently “more art than science”.
Broadly speaking, approaches taken to measuring unmeasured Business Angel populations and
investment can be broken down into three categories:
•
•
•
Supply-side approaches: studies which seek to estimate unmeasured Business Angel activity
through information on the behaviour of visible Angels, such as through Business Angel association
membership lists, surveys of known Angels, surveys of likely Business Angels such as company
directors, venture capital network members and senior commercial bankers, and ‘capturerecapture’ sampling. (Wetzel, Fiet, Mason and Harrison)
Demand-side approaches: studies that have sought to identify unmeasured Business Angel activity
through companies in which they have invested. Methods include large scale business surveys,
analysing company listings and equity issuance at national registers such as Companies House (UK),
and adapting data from the Global Entrepreneurship Monitor. (Harr et. al., Mason and Harrison,
Brettel, Farrell)
Third party/institutional indicators: most notably they use data relating to the usage of taxincentive and government-sponsored entrepreneurship funds and grants to estimate the size of
Business Angel populations and level of investment, but also private loan arbitrators such as
Zopa.com. (Robinson and Cottrell, Harrison and Don)
Supply-side approaches allow for initial estimates of the total market size and in particular informed
estimates of the market by those familiar with local conditions. Demand-side approaches may well
provide more accurate estimates of the total market size in the long run. However, demand-side
approaches require large samples of companies and are much more demanding in terms of time and
resources.
In Europe, the most detailed source of data is the EBAN annual survey which focuses on certain parts of
the visible fraction of the market. The main issues are:
Innovation and Entrepreneurship (CIIE). The project was supported by the Australian government with input
provided by the member countries of the OECD represented in the CIIE.
11
Harrison, R.T. & C.M. Mason (2010), “Annual Report on the Business Angel Market in the United Kingdom,
2008/09”,
8
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
•
•
•
EBAN statistics currently provide the most comprehensive record of visible Business Angel activity
available in Europe, and a series of metrics highly relevant to this study.
However, because of the variation between Business Angels’ activities in different countries, an EUlevel analysis of the European Business Angels’ market is not possible without more in-depth
research in individual countries.
Because of the data limitations, it is still necessary to use data from other sources to generate
estimates of the activity of the total population of Business Angels in each country. Whilst the EBAN
statistics contain detailed records of the activity of the Angels that they monitor, there is currently
no indication of the broader economic ecosystem in which they are located.
2.5 - Methodological approach used in this study
This study has used a combination of desk research, data analysis and interviews with representatives of
national network associations, a few individual Business Angels, national authorities/agencies
responsible for designing or implementing policy in the area of SME finance and some academic experts.
Most of the interviews took place in the context of the case studies (see below). The total interview
programme covers the main stakeholders directly involved in the Business Angel market. The
snowballing method of identifying experts on the basis of recommendations from initial interviewees
was also followed in our attempt to expand the list of interviews.
However, it should be recognised that there is a certain bias towards the visible part of the Business
Angels market – namely the part covered by BANs. Business Angels in the non-visible segment are
particularly difficult to identify and there was neither time nor resources available for a comprehensive
survey. The input in relation to that part of the market is based on the input from experts, the Business
Angels Network Associations and other secondary sources.
The initial desk research aimed to review the relevant literature and to identify available sources of
information related to Business Angels’ activities. The initial review of the literature was also important
in identifying issues related to the definition of the Business Angels market and determining the
approach to be followed for the measurement of the market presented in section 2.3 above.
The second part of the study included in-depth research in eight larger EU Member States (Germany,
France, Italy, the Netherlands, Italy, Poland, Spain, Sweden, UK).
The research in each of the Member States investigated focused on two main areas:
•
•
Estimation of the size of the Business Angels’ market – We conducted a detailed analysis of data
from existing information sources including reports from the national Business Angels’ associations,
and academic studies – when available - and also analysis of the data provided in the 2009 and 2010
EBAN survey. The available data were in some cases complemented by estimates provided by
representatives of the national Business Angels associations, government officials and other experts
interviewed during the course of the study.
Analysis of the Policy Framework – We conducted a review of the situation of start-ups and SMEs in
terms of access to Business Angels’ finance and the policy tools that, either directly or indirectly,
have an impact on the Business Angels. This work was based on available reports and any interviews
conducted. The objective was to go beyond a description of the tools and assess the efficiency,
effectiveness and the main lessons learned. However, with very few exceptions, relevant
information was not available. Most of the policy tools were introduced only very recently and there
are no monitoring data available. When possible, the interviews with experts supported an
9
Evaluation of EU Member State Business Angel Markets and Policies
Section
Measuring the Business Angels Market 2
assessment of the relevance of the specific tools and some preliminary assessment of the success in
terms of supporting the development of the Business Angels’ market.
A detailed list of interviews is provided in Annex 10. A total of 37 interviews were carried out. In
addition there were shorter discussions with other individuals. We also discussed the emerging findings
of the study at the EBAN summer conference in May 2012, attended by several hundred delegates, and
received suggestions which have been incorporated in this report. We also attended a conference of the
German Business Angels Network.
Grossing up data from the sample to all EU27 countries
In order to provide estimates for the total size of the EU27 Business Angels’ market we relied on any
available data but, most often, used the estimates provided in the eight cases studies and extrapolated
on the basis of the share in the EU GDP or population. The eight countries in the sample represent 69%
of EU27 GDP and 64% of the EU27 population. To gross up the estimates from the sample to the EU as a
whole, we have used factors based on the ratios of the sample to the data for the EU as a whole. The
more detailed country data used for these calculations are provided in Appendix 9.
Table 2.1: Population and GDP, 2010
GDP at market prices (million €)
Population
EU27
12,260,495
501,104,164
Sample countries
8,463,917
318,595,732
Sample as % of total
69.0
63.6
Grossing up factor
1.45
1.57
Source : Eurostat
10
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
This section summarises data on the numbers of Business Angels.
3.1 - Introduction
In this section we estimate the number of Business Angels in the eight sample countries examined and
for the EU 27 as a whole.
As indicated in the previous section, there is no single accurate method of measuring the number of
Business Angels. Accordingly, in this section, we present four approaches which are:
•
•
•
•
An estimate of the number of Business Angels in the visible market based on data collected by EBAN
for the calendar year 2010 (some EBAN data for other countries is also shown);
A wider estimate of the number of Business Angels in the visible market based on data collected at
national level during our study;
Estimates of the non-visible market as a proportion of the visible market;
An estimate of the number of potential angels in the visible and non-visible markets based on survey
data from the GEM project. Because of data limitations, this approach is likely to overestimate the
number of active Business Angels.
3.2 - EBAN data on the visible market
A first important source of information in relation to the visible part of the Business Angels’ market is
the annual survey by EBAN.
This survey collects data on a wide range of indicators related to the activity of BANs across Europe. The
responses are collected by the national associations that are members of EBAN and reported back to the
EBAN12. However, the survey has a number of limitations including the fact that not all responses are
complete and that there are differences from year to year in terms of the number of responses per
country. Also, the level of participation varies greatly among countries (e.g. close to 100% in France to
less than 30% in Germany or Spain) but also not all BANs are members of the national associations. This
share varies again from country to country. Thus, the data from EBAN survey represent a low end
estimate of the number of Business Angels in Europe.
On the basis of the data available for 2009 and 2010 the average network has a total of 70-75 angels
registered although only around 50% are active, namely they have made at least one investment during
the year of the survey13. For 2010, just over half (51.3%) the number of Angels made investments. In
terms of the female participation, the survey data indicate that female Business Angels represent
around 5% of the total number of Business Angels in the networks.
12
CSES was given access to the aggregate results for each country as submitted by the national associations. In
some cases the responses were also available at an individual BAN level.
13
This definition of active Business Angel could be considered as rather strict. In other studies reviewed, active
angels were considered to be those that had invested during the last three or five years.
11
Evaluation of EU Member State Business Angel Markets and Policies
Section
Numbers of Business Angels
3
Table 3.1: Number of Business Angels in Europe based on data reported to EBAN
2009
196
14,785
6,111
620
Number of Business Angels Networks reporting
Number of Business Angels
Number of Active Business Angels
Number of Female Business Angel investors
2010
174
12,299
6,302
686
Source : 2010 EBAN statistics compendium
Table 3.2 provides a more detailed analysis of the networks in different countries. Besides the apparent
differences in responses received, there are also differences in the average size of BANs (ranging from
the extreme case of 215 members in the Netherlands to only 22 in the UK) and the share of active
members (from 75% in France to 33% in the UK). Female participation is more consistent, as in all
countries the share of female Business Angels in BANs in 2010 was less than 10%. Given the limitations
of the data indicated earlier, it is clear that there is significant variation among Member States.
Table 3.2: Characteristics of the Business Angels in BANs – National data in the basis EBAN survey
201014
% of
female
investors
Number of
Business
Angels
investing in
companies
through the
network
Average
number of
Business
Angels per
investment
round in
2010
375
9.3%
2,400
5
66%
7
2.3%
126
3
218
54%
20
4.9%
60
1.9
215.9
1070
45%
30
1.3%
109
3
134
44.7
83
62%
12
9.0%
2
n/a
13
807
62.1
276
34%
18
2.2%
82
1
5
135
27.0
57
42%
10
7.4%
26
1
24.4
177
33%
30
5.6%
43
3
Number of
BANs
responding
Total
number
of
Business
Angels in
network
Number
of
Business
Angels
per
network
Number
of active
Business
Angels
France
66
4,030
61.1
Italy
10
301
13
% of
active
Business
Angels
Number
of
women
Business
Angels
3,015
75%
30.1
200
407
31.3
11
2375
Poland
3
Spain
Sweden
14
Germany
14
Netherlands
UK
22
537
Source : EBAN surveys 2009 and 2010
3.3 - Other estimates of the visible market
Going beyond the data of the EBAN survey the research in each of the 8 Member States reviewed data
from other studies, when available, and estimates provided by experts with experience of the market.
These experts included representatives of the national BANs associations, academic or government
officials working in the sector. In addition to that, we also made extrapolations from the data from the
EBAN survey based on information on the total number of BANs operating. These estimates are
summarised in Table 3.3 and are explained in greater detail in each of the national reports in the
annexes.
14
Data for Germany and the Netherlands are for 2009
12
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
Table 3.3: Overall estimate of the number of visible Business Angels, 2010
France
Italy
Germany
Netherlands
EBAN data
Estimated total
4,030
4,50015
313
450-620
40716
2,375
16
1,000-1,400
4,470*
Poland
134
200
Spain
807
1,729
Sweden
135
750-1,000
UK
537
4,555**
Total
Gross up factor
EU 27 estimate
Comment
Data from national
association
Data from national
association
Extrapolation from EBAN
data
Data from national
federation
Extrapolation from EBAN
data
Data from national
federation
Extrapolation from EBAN
data
Data from national
federation
18,000 to 19,000
1.57
28,500 to 30,000
Sources : CSES research in each country, see annexes
* – based on 2009 information provided by the Netherlands’ national federation. 2010 data, not included in the
EBAN analysis, showed much lower estimates, but probably incomplete
** – figure excluding Scotland, based on BBAA data
In total, the number of Business Angels in the visible market in the eight countries examined is likely to
be just 18,000-19,000. As described in section 2, the sample countries represent 63.6% of the EU27
population, so the total number of Business Angels in the visible market in the EU27 may be a little
below 30,000. However, given that the eight countries examined are mostly countries where the
Business Angels market is relatively developed, the total estimate should probably be lower, possibly
closer to 25,000.
3.4 - Non visible market
Going beyond the visible market, our estimate of the non-visible Business Angels – those that are not
members of BANs- has been based on two approaches:
•
•
15
16
Estimations on the basis of the visible market in combination with data from other studies
identified at national level and the opinion of experts;
Estimations on the basis of data available from the annual Global Entrepreneurship Monitor
survey.
Includes data on the non measured market
Data for 2009
13
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
3.4.1 - Estimates based on data from the visible market
The country teams attempted to estimate the size of the non-measured market as compared to the
visible market. These estimates were based on available reports and other studies at the national level
as well as estimates provided by experts with experience in the national Business Angels market.
A summary of the findings for each market is provided in the table below.
Text box 3.1: Comments on the size of the non-measured market
France - On the supply side of the market, France Angels estimates the number of Angels not part of
networks to be between 2,000 and 4,000, however, this is only a rough guess on the part of France
Angels. The Conseil d’analyse stratégique estimates that there are potentially 350,000 individuals in
France with sufficient financial resources to invest €100,000 in a company’s equity without exposing
themselves to that risk by over 5%.
Germany - The most often cited study of ZEW in 2007, based on information on first round investments
received only by high-tech start-ups in the period 2001-2005, indicates a total number of around 2,7003,400 active Business Angels in Germany. Another estimation based on data from financed exits
indicated a total of around 5,200-5,40017. The BANs association (BAND) suggested that the total number
of Business Angel investors is in the range of 5,000-10,000.
Italy - According to IBAN, the total number of Business Angels in Italy is in the region of 500. On the
basis of the data for the visible part (450) provided earlier, suggests that invisible market is very small.
This number, if accurate, deviates greatly from the numbers from most other European countries where
the invisible share of the Business Angel market usually represents more than 50%, and very often up to
90% of the total.
Netherlands – There is no formal research conducted. The interviews conducted suggested that the
invisible market may be 7 times the visible market, namely close to 30,000.
Poland - Research with regards to non-visible market in Poland has not been yet conducted in Poland. It
is therefore difficult to estimate what share of the market is non-visible. However, as it was pointed out
in interviews from the total amount of investments made in Poland, around 5-10% goes through
Business Angels networks and it is possible that slightly lower percentage of Business Angels could be
operating outside the networks (in the non-visible market). However, the investors working outside
Polish networks are usually more experienced and they use their own contacts to receive interesting
projects offers. Despite a smaller number of those investors, they still make more investments that
those in the networks.
Spain - According to the Spanish representative in the Board of Directors of EBAN, the invisible part of
the Business Angel market is most probably around 20 or 25 times greater than the visible or formal
Business Angel market, thus up to 43,300 (1,729 x 25). Overall, and taking into account both sources, the
non-visible market could be between 34,600 and 67,700 individuals in 2010. His estimates suggest that,
compared with other countries, the invisible Business Angel market is relatively large in Spain in relation
to the measured/visible part. This is quite possible, given the business culture in Spain.
Sweden - The first study of Business Angels in Sweden carried out in 2004 developed a database of
Business Angels including members of Business Angels Networks, investors in companies registered in
17
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
14
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
the Swedish Patent and Registration Office and through information in articles and journals. It
concluded with a total of 894 Business Angels. The above number represents the lowest estimate since
some individual investors should be expected to be missed by this approach. It should also be expected
to be biased towards members of BANs as this was the first and easier source of information.
A different approach was followed in the study conducted by Sofia Avdeitchikova18 in 2004 based on a
survey of a random sample of the population. From a total of 24,166 responses, around 861 individuals
claimed making informal venture capital investments19 in the last 5 years. Further analysis of a smaller
number of them (401) led to a total of 298 (69.3%) identified as actual informal investors. Extrapolating
the results from the sample the author estimated that the number of informal investments in Sweden
was between 27,800 and 32,600 annually and the number of businesses financed around 7,500 per year.
In our interview with the author it was suggested that the data available indicate that the number of
Business Angels in 2004 was 5,000 and that this number must have slightly increased since. Finally, the
Swedish Venture Capital Associations estimates that there are 3,000 to 5,000 angels in Sweden.
United Kingdom – The annual report on the Business Angel market in the UK20 reiterates a previous
estimate of the ratio of the visible to the non visible market. In the absence of any evidence-based
estimates of the ratio of the visible to the invisible angel market we applied last year the estimate of
20% used in the 1999 estimates of the scale of the market, indicating a total of 25000 Business Angels in
the UK. (Mason and Harrison, 2000).
The table below summarises the data obtained from each country. Grossing up the country data to the
total EU27, we estimate a total number of Business Angels - including both the visible and non-visible
segments, between 170,000 and 240,000.
Table 3.4: Estimate of the total number of Business Angels (visible and invisible market)
France
Italy
Germany
Netherlands
Poland
Spain
Sweden
UK
Total
Gross up factor
EU 27 estimate
Total number of
Business Angels
8,000
500
5,000 to 10,000
30,000
500
34,600 to 67,700
3,000 to 5,000
25,000
110,000 – 150,000
1.57
170,000 – 240,000
Share of visible
Business Angel in total
70%
100%
10 – 25%
14%
50%
4% - 5%
na
20%
Source : CSES research in countries, see annexes for details
18
Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital: An International Journal of Entrepreneurial Finance, 10:1, 55-85
19
The definition used was : individuals that had, within the previous five years, made non-collateral investments in
unquoted companies to which they did not have any family connections,
20
Annual Report on the Business Angel market in the UK: 2009/10, Mason & Harrison
15
Evaluation of EU Member State Business Angel Markets and Policies
Section
Numbers of Business Angels
3
3.4.2 - Estimates of the Business Angels market based on GEM survey data
The data of the annual Global Entrepreneurship Monitor21 survey provide the basis for an alternative
approach in estimating the number of Business Angels in the EU27.
One of the data sets collected by GEM teams is the informal investor rate, namely the percentage of
working age (18-64) population who have personally provided funds for a new business, started by
someone else, in the past three years. Not all of these informal investors will be Business Angels and
many are friends or family of the person starting the business. However, in some cases the national
GEM teams have also asked respondents to indicate whether the person starting the business is known
to the investor, so an estimate of investors in strangers businesses can be obtained. This provides for a
closer approximation to the Business Angels definition even if not all the criteria of the Business Angels’
definition are met. For example, the investors may not be involved in any form in the running of the
business as is required by the definition. Thus, an estimate based on GEM data provides a high-end
estimate of the total Business Angels numbers.
Estimates of the informal investor rates are available for most countries in the sample for some years.
These are shown in the table below, together with similar data for the United States for comparative
purposes.
As can be seen, in almost all years the informal investor rate in United States is higher than the
equivalent rate in the countries in the sample in Europe. Using the data for the years 2009 to 2011, the
average informal investor rate for the eight countries is 2.9%.
Table 3.5: Informal Investors Rate : Percentage of 18-64 population who have personally provided
funds for a new business, started by someone else, in the past three years
Country
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
France
1.8
1.2
0.7
4.9
3.6
4.7
5.6
3.8
3.8
3.2
4.6
Germany
3.2
3.4
2.7
2.7
1.8
1.7
-
1.8
1.5
3.6
-
Italy
1.4
1.4
1.5
3
2.3
1.6
3
2.1
1.8
3
-
Netherlands
1.5
1.8
1.3
1.3
2
1.1
2.3
1.7
1.8
3.4
3.7
Poland
2.4
0.6
-
3.9
-
-
-
-
-
-
3.1
Spain
3
3.1
3.5
2.5
2.5
2.8
3.2
2.8
3
3.3
3.6
Sweden
2.6
2.8
2.3
2.4
2.3
2.6
3.7
-
-
6.6
8.7
United Kingdom
2.6
1.7
1.6
1.4
1.7
1.6
1.4
1.7
1.1
3.2
2.5
United States of America
5.5
5
4.9
4.3
4
6
4.9
5.2
4.1
6
4.8
Source : GEM project
The survey also provides some data on the rate of informal investors who finance strangers businesses,
as opposed to friends and family. Data are available for only some countries. Where it is not available
we have used an estimate from the previous GEM surveys. The combination of these two indicators
21
http://www.gemconsortium.org/
16
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
leads to an estimate for potential Business Angels - individuals of working age that have invested in a
stranger’s business in the past three years - between 0.14% and 0.81%. On the basis of working
population data from Eurostat we estimate that there are 663,000 such investors in the sample
countries and about 1.04 million for the EU 27 as a whole.
The table that follows shows the underlying data.
Table 3.6: Estimate of the potential total number of business angels on the basis of GEM survey data
Country
France
Germany
Italy
Netherlands
Poland
Spain
Sweden
United Kingdom
Total
Gross up factor
EU27 estimate
Informal
investors
(% of
working
population)
3.9
2.3
2.3
2.7
3.1
3.2
7.7
2.1
% of informal
investors who
financed
strangers’
business
7.0
7.0
5.0
18.8
7.0
7.2
7.0
6.4
%
potential
angels
0.273
0.24
0.24
0.5
0.33
0.23
0.81
0.14
Working
population
(1000s)
41,922
53,908
39,644
11,122
27,213
31,365
6,099
41,000
252,272
Number of
Informal
investors
(1000s)
1,635
1,240
912
300
844
1,004
470
861
7,265
1.57
11,406
Number of
potential
business
angels
(1000s)
114
129
95
56
90
72
49
57
663
1.57
1,041
Source: Analysis of GEM data by CSES
It should be noted that these estimates provide a high estimate of the number of potential Business
Angels in Europe. For example, there is no certainty that all the potential Business Angels actually
provide advice to the companies they invest in.
A comparison with available estimates for the United States’ market suggests that this is, most probably,
an overestimate of the number of Business Angels in Europe. There are some 850 active Business Angels
per million population in the US while the data for EU27 presented above suggests a number of
potential Business Angels of around 1,749 per million population. Given that the informal investor rate
in Europe (2.9%) is, according to the GEM data, around 60% of the similar rate in the United States
(5.0%), the number of Business Angels in Europe should also, most likely, be less than in the US. Thus, if
we assume that the number of Business Angels per million in the EU is 60% of that US rate, we arrive at
a rate of 513 Business Angels per million population, corresponding to a total of 256,000 Business Angels
for the EU27. This result is of a similar order of magnitude to the result provided in the previous section.
17
Evaluation of EU Member State Business Angel Markets and Policies
Numbers of Business Angels
Section
3
3.5 - Summary
On the basis of data collected from a range of sources the size of the visible Business Angels market
should be around 28,000-30,000 Business Angels, of whom about half are active.
This estimate does not include Business Angels who are not members of networks (invisible market).
Estimates based on the data obtained in the eight countries where fieldwork was carried out for this
study suggest that the total number of Business Angels in the EU is of the order of 170,000 to 240,000.
In addition, the analysis of available data from the Global Entrepreneurship Monitor indicates a total of
up to 1.1 million people who invested in strangers companies in the EU in the last three years. However,
not all of the above provide advice to companies and will fall within the definition of Business Angels. If
we adjust the estimates on the basis of comparison with U.S. data, we arrive at an estimate of
approximately 250,000 Business Angels in the EU27.
We can conclude that the total Business Angel market is likely to be perhaps seven times the size of the
visible market.
18
Evaluation of EU Member State Business Angel Markets and Policies
Investment by Business Angels
Section
4
This section of our report includes an estimate of the investment carried out by Business Angels in
2010. We provide data for the visible part of the market, and where possible other data for the nonvisible part.
4.1 - Introduction
This section provides data and estimates on the size of the Business Angels market and the value of the
investments. It also considers the size of deals, the breakdown of investments by sector, stage of
investments in the firms’ development path and level of co-investment. The data are based primarily on
EBAN surveys of the visible market, supplemented, where available, by other sources and estimates.
4.2 - EBAN data on the visible market
The following two tables (4.1 and 4.2) provide an overall picture of visible Business Angel activity based
on the 2010 EBAN survey and, in the case of Germany and the Netherlands22, the 2009 survey. Data for
some other countries are shown in table 4.2 below but in the case of Austria, Belgium, Finland, Greece
and Slovenia they are based on responses from only one network.
There is a great variation in the total value of investments with France representing more than 25% of
the total of the visible market and Italy, Germany and UK between 8-13%. However, these numbers are
a reflection of the different response rate to the EBAN survey among different countries and are not
necessarily representative of the share of the different countries in the total EU Business Angels market.
The average size of the deal is in the range of €100,000 - 200,000 for most countries. The average
investment per Business Angel, tends to vary much more, starting from as low as €18,000 to over
€150,000. However, we should note here that the calculation of the average (mean) value on the basis
of the EBAN data is problematic as it can be easily affected by a small number of large-size deals.
According to our research the frequency distribution of investment size is skewed towards lower values.
In such cases, the median or the mode values (central or most frequent) are more appropriate when
referring to the typical Business Angel investment. However, the calculation of the median or the mode
require data on the value of individual deals completed and are not available. Table 4.3 below provides
the mean and the median value of the average values by BANs as reported in 2009 and 2010 and shows
that the median value for the average investment is around €50,000.
22
A small amount of Netherlands 2010 data was also received
19
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Table 4.1: Business Angel Investment value in sampled EU countries – Data from EBAN networks
Number of BAN
that responded
Average amount
per investor (€s)
Value of investments by
angels in BANs(€s)
Average amount
of the deal (€s)
66
62,500,000
177,000
18,000
10
20,005,000
191,000
111,400
13
33,300,000
145,000
45,500
11
25,320,000
365,000
140,000
Poland
3
na
na
na
Spain
13
8,162,000
182,197
137,000
Sweden
5
3,020,000
91,850
65,500
UK
22
18,090,556
142,500
25,000
France
23
Germany
Italy
Netherlands
23
Source : EBAN 2009 and 2010 survey data
Table 4.2: Business Angel Investment value in other EU countries – Data from EBAN networks
Number of BAN
that responded
Value of investments
by angels (€s)
Average amount
of the deal (€s)
Average amount
per investor (€s)
Austria
1
542,500
136,000
n/a
Belgium
1
3,101,000
107,000
75,000
Finland
1
2,922,000
139,000
50,000
Greece
1
n/a
n/a
n/a
Ireland
2
5,950,000
225,500
65,250
Portugal
14
2,060,000
121,000
43,000
Slovenia
1
n/a
n/a
n/a
Source : EBAN 2010 survey data
Table 4.3: Mean and median values of investment per deal and per Business Angels on the basis of
EBAN survey data
Average amount invested per deal
Mean
Median24
2010
€ 114,513
€ 121,176
2009
€ 160,078
€ 150,000
Average amount invested per angel
2010
€ 90,969
€ 50,000
2009
€ 64,976
€ 50,000
Source: EBAN survey 2009 and 2010
23
Data for Germany and the Netherlands come from the EBAN 2009 survey based on 13 and 11 responses. The
2010 survey is based only on 3 responses for Germany and at its initial stage no data for the Netherlands.
24
This median is the median of the returns made by individual syndicates or networks. Data is not available at deal
level
20
Evaluation of EU Member State Business Angel Markets and Policies
Investment by Business Angels
Section
4
Additional data from some of the countries examined indicate that the average size of investments per
Business Angel may be even smaller:
•
•
•
In Sweden in the case of the informal market, one study25 found that total investments are, in 92%
of the cases, less than €100k with average individual investments as low as €6k;
According to a recent EIF report26, in Germany the amounts invested per individual investee
company vary significantly but often amounts between €50k and €100k are mentioned as average.
However, during the financial crisis these amounts went down significantly;
In Scotland, where most Angel investment is carried out by syndicates rather than a network, one of
the largest syndicates suggested a minimum investment per Angel of £10,000 (€12,000). The general
policy followed is as follows: “If the total investment is less than £100,000, the core investor group
are likely to cover the investment themselves. If the total investment exceeds £100,000 then all
syndicate members will be offered the opportunity to invest on the same basis as the core investor
group. Minimum investment level for each non-core investor is likely to be £10,000”.
Data on changes in the average investment by Business Angels over time are also quite limited. One
source is the German Business Angels panel that covers the period 2002-2011. The data provided
concern the total level of investment per angel on a quarterly basis. Chart 4.1 presents the data
aggregated on an annual basis. It clearly shows a decline in the total amount invested over the last 3
years and the significant difference with the second dot-com bubble period around 2004. Similar data
are not available in other countries but information provided during the interviews in some countries
supported the view of declining trend. In relation to the average deal size, data from IBAN in Italy
suggested that the average investment has declined from €183,000 in 2007 to €145,000 in 2010. A
similar trends was not evident in Spain where, according to available data27, the average size of
investment remained above €200,000 in period 2005-2009.
25
Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital: An International Journal of Entrepreneurial Finance, 10:1, 55-85
26
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
27
Data from Cotec in Spain suggest that average size of a deal in 2005 was around €205,000, in 2008 €270,000 and
in 2009 220,000.
21
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Chart 4.1 – Evolution of the total annual investment per business angel over the period 2002-2011,
Germany
800,000
692,000
700,000
600,000
500,000
422,000
400,000
319,500
282,878
300,000
248,316
272,500
189,000
180,600
200,000
130,000
106000
100,000
-
2002
2003
2004
Source: VDI Business Angels panel
2005
2006
2007
2008
2009
2010
2011
28
Additional data collected by the research team on the visible market and extrapolation from the EBAN
survey for the total number of BANs provide for a more complete view of the total value of the market.
Table 4.4: Business Angel Investment value in 2010 (€s) - Visible market segment only
France
Germany
Based on EBAN data
(€s)
Based on all networks where available
(€s)
62,500,000
157,000,000
29
19,600,000
55,000,000
Italy
33,300,000
33,300,000
Netherlands
7,400,000
na
Poland
na
na
Spain
8,162,000
28,300,000
Sweden
3,020,000
21,000,000 - 30,000,000
UK
18,090,000
18,090,00030
Total
152,000,000
Gross up factor
1.45
EU 27 estimate
220,000,000
660,000,000
Source : based on EBAN data and CSES research
28
http://www.vdi-nachrichten.com/aktuell/technikfinanzen/redaktion_00000134/ba-panel/cache.aspx
based on 2009 data
30
based on a rate of €1.2 per £
29
22
Evaluation of EU Member State Business Angel Markets and Policies
Investment by Business Angels
Section
4
For countries where additional data was available, the size of the whole visible market appears to be
about three times the size of the market covered by those networks reporting to EBAN. On this basis,
the visible part of the business angels market in Europe in 2010 would appear to be of the order of €660
million.
In relation to the non-visible part of the market no relevant data were identified. The previous section of
our report suggested that the non-visible market is perhaps seven times greater than the visible market.
Assuming that size of investments in the invisible market are of the same size as in the non visible
segment, then total investment in the whole EU27 market might have been of the order of €4 to €5
billion in 2010.
It should still be appreciated that there are serious limitations in the quality of this data. Limitations
include:
•
•
•
A difficultly in ascertaining whether trends shown in data are reflective of the wider population;
Complications in evaluating what percentage of Business Angel association are members of
EBAN/national associations and, since the data is largely anonymous, which associations have
provided data;
Significant differences in the level of data provided for each country.
In comparison with the US, the data provided by the Center for Venture Research at the University of
New Hampshire31 suggest that the US business angel investor market in 2010 reached a total volume of
$20.1 billion (€16 bn), four times greater than our estimate for the market in the EU27. A total of 61,900
entrepreneurial ventures received angel funding in 2010, an increase of 8.2% over 2009. The number of
active investors in 2010 was 265,400 individuals, a small growth of 2.3% from 2009.
4.4 - Market analysis
Besides data on the number of business angels and the size of the market, the EBAN survey provides
additional information in relation to the operation of the BANs including the number of business deals
and firms supported, the breakdown of investments by sector, location and by the stage in the firms’ life
cycle. It also includes information on the level of co-investment. Similar data are, with few exceptions,
not available for the non-visible wider market32.
Quantity of Business Angel investment through EBAN affiliated networks in 2010
Table 4.5 presents statistics on the total activity of BAN members in 2010 including the number of
business plans received, number of deals and number of new businesses financed by Business Angels
through each network and the number of new and follow-on rounds of investment. The figures help
gauge the level of Business Angel activity in each country but there are wide discrepancies in the level of
reporting in (e.g. Germany vs. France) that make any interpretation of the figures or extrapolation to a
broader population problematic.
31
Jeffrey Sohl (2011), “The Angel Investor Market in 2010: A Market on the Rebound”, Center for Venture
Research
32
Given that for all other countries the responses to the EBAN survey came from 1 or 2 BANs only and have many
gaps and missing values we preferred to focus on the 8 countries examined in more detail
23
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Table 4.5: Business Angel Investments through BANs in 2010 – Key statistics on the basis of EBAN
survey for selected EU Member States 33
Number of
BAN that
responded
Number of business
plans submitted
(successfully
presented) to
Business Angels
Number of deals
made through the
network
Number of new
companies
financed
Number of
follow-on
rounds
France
66
339
331
220
2
Germany
10
212
14
9
3
Italy
13
1,346
222
154
7
Netherlands
11
442
109
6
3
Poland
3
61
2
2
0
Spain
13
594
58
38
2
Sweden
5
98
25
17
5
22
115
127
40
4
UK
Source: EBAN 2010 and 2009
BAN members’ Investment by sector
Table 4.6 below presents a sector breakdown of the total number of deals that took place through the
BANs. The tables clearly show that, while there are significant discrepancies between the amount
invested in different sectors between countries, the ICT, Biotech and Healthcare sectors constitute the
largest categories of investment, most often representing more than 50% of the total number of deals.
In the case of Italy, the finance and business services sector was quite important among IBANs members
(22% of deals) together with the creative industries and environment and clean technologies sectors. In
the Netherlands, social and sustainable investments and retail and distribution also had important
shares (over 10% of the deals in 2010).
Table 4.6: Share of Business Angels’ investment by sector - Data from EBAN survey on selected EU
Member States (% of deals)
ICT
Mobile (incl. software and
service applications)
Creative Industries
Biotech and Life sciences
Health Care/Medical
technology
Social and Sustainable
Investments
Energy
Environment and Clean
technologies
33
34
FR
DE34
IT
NL
PL
ES
SE
UK
40
38.3
13
17.5
100
33
26
26
7
11.1
5
10.3
0
2
13
1
2
14
7.5
5.7
10
7
0.9
2.1
0
0
14
10
2
13
6
24
8
5.5
10
16.2
0
3
31
11
4
n/a
0
12.3
0
1
0
0
0
4.5
0
3
4
3
9
0.0
0
10
11
6
8
9
11.3
Data for Germany and the Netherlands are from 2009
Data for Germany and the Netherlands are based on the 2009 survey
24
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
Retail and Distribution
Finance and Business
Services
Logistics and
transportation
Manufacturing
Other
Source: EBAN
4
0
4.6
8
12.3
0
3
0
1
0
1.9
22
5.3
0
1
0
0
0
n/a
0
n/a
0
3
0
0
0
9
6
7.7
7
8
n/a
n/a
0
0
13
4
0
0
19
3
Geographical distribution of BAN members investments
Table 4.7 provides an indication of the location of the ventures where network affiliated Business Angels
in each country choose to invest. The data show that, with the exception of German Business Angels,
the vast majority of investment takes place in the same country or region where the networks are
located. This is very much in line with the conclusions of a number of studies that have also found that
most business angels invest in firms within geographical proximity (Mansonn and Landstrom,200635 and
Avdeitchikova,200736 in Sweden, Wallisch,2009 in Germany).
Table 4.7: Business Angels’ investment by location of recipient firms - Data from EBAN survey on
selected EU Member States (% of deals)
In the region
where the Network
is located
In the same
country, but not in
the same region
Crossborder in
Europe
Outside of
Europe
Not known
France
84
15
0
2
2
Germany
50
13
38
0
0
Italy
70
5
11
4
4
Netherlands
35
54
-
11
Poland
0
100
0
0
0
Spain
95
5
0
1
1
Sweden
0
0
0
0
0
UK
73
23
3
1
Source: EBAN survey, 2010 (Data for Germany and the Netherlands are from the 2009 survey)
0
Stage in the business’ Life Cycle of Business Angels’ investment
The data from the EBAN survey presented in Table 4.8 reveal that in most countries Business Angels
focus on the Seed and Early Stage/Start-Up level. Having said that, the expansion stage appears to be
attractive for a sizeable number of Business Angels (15-20% of deals), at least in the case of Germany,
Italy, Sweden and the UK.
35
Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of Sweden, Venture
Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
36
Sofia Avdeitchikova (2009): False expectations: Reconsidering the role of informal venture capital in closing the
regional equity gap, Entrepreneurship & Regional Development: An International Journal, 21:2, 99-130
25
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Table 4.8: Business Life Cycle Stage of Investment in selected EU Member States - Data from EBAN
survey
Pre-seed
Seed
Early stage
and start-up
Expansion
Pre-IPO
Buy-out and
turnaround
Other
0.00
0.00
100.00
0.00
0.00
0.00
0.00
14.20
30.40
31.8
22.8
0.00
0.80
0.00
Italy
0.00
36.57
21.71
20.71
0.00
0.00
11.00
Netherlands
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Poland
40.00
30.00
30.00
0.00
0.00
0.00
0.00
Spain
3.08
40.31
48.92
7.69
0.00
0.00
0.00
Sweden
0.00
8.75
73.75
17.50
0.00
0.00
0.00
UK
0.00
7.13
71.58
19.35
1.94
0.00
0.00
France
Germany
37
Source: EBAN survey 2010 and 2009
Level of co-investment between business angels and other bodies
The EBAN survey also provides also some indications on the level of co-investment that takes place. The
total amount of additional investment in SMEs that were supported by the networks – including angel
finance but also co-investment with other funds, syndicated deals, VCs and other investors- is in many
countries more than double (up to 10 times greater in Sweden) the amount invested by the angels in the
networks.
Table 4.9: Co-investment in SMEs supported by BANs in selected EU Member States38
Number of complete
responses by BANs
Total value of
investments by angels in
BANs(€s)
Total value of investment on
SMEs supported by BANs
(including co-investment) (€s)
66
62,500,000
125,000,000
Germany
10
20,005,000
24,305,000
Italy
Netherlands23
11
34,720,000
18,020,000
122,300,000
24,450,000
Poland
na
na
Spain
3
11
5,700,000
7,200,000
Sweden
5
3,020,000
30,600,000
UK
22
18,090,556
57,170,000
France
39
11
Source: EBAN survey
37
Data for Germany are from 2009
The numbers in the second column – investment by angels in BANs – do not always coincide with that in tables
4.1 and 4.3 since some of them are based on a smaller number of responses. In a number of occasions BANs did
not provide data related to the third column – the total level of investments, including co-investment.
39
Data for Germany and the Netherlands come from the EBAN 2009 survey based on 13 and 11 responses. The
2010 survey is based only on 3 responses for Germany and at its initial stage no data for the Netherlands.
38
26
Evaluation of EU Member State Business Angel Markets and Policies
Section
Investment by Business Angels
4
Concerning the main types of co-investors, the survey data from EBAN are rather inconsistent but, from
what is available, we can conclude that in most cases it is either other angels - inside or outside the
specific network – and early stage funds that are the main co-investors. In the case of Sweden
institutional investors also appear to have a very important role, such as the government led ALMI
Invest scheme in Sweden that requires 50% co-investment and has attracted a significant number of
Business Angels. Other co-investors include, in The Netherlands the Technostarter Funds, in Scotland the
Scottish Seed Fund and the Scottish Co-Investment Fund and in Italy the Fondo Rotativo per le nuove
imprese innovative della Camera di Commercio di Pisa. Venture Capital funds are also indicated as coinvestors for a smaller, but still sizeable, number of deals (around 10%).
Table 4.10: Level of Business Angels Co-investment in selected EU Member States - (% of total number
of deals completed through BANs in 2010)
49.2
with
Business
Angel
outside of
the
network
24.6
26.3
16.3
31.3
13.8
3.8
8.8
0.00
Poland
50.00
33.00
0.00
0.00
0.00
0.00
17.00
41
Spain
29.23
5.38
0.00
10.38
0.00
1.92
0.00
Sweden
13.3
23.3
10.00
13.3
0.00
26.7
0.00
UK41
95.24
6.02
3.90
0.90
17.78
0.59
57.00
with
Business
Angel
inside the
network
France
Germany
40
with an
early stage
fund
with a
venture
capital
fund
with a
family
office
with
institutional
investors
with other
investors
26.1
0.00
0.00
0.00
0.00
41
Italy
Netherlands
Source : EBAN survey
4.5 - Summary
The main conclusions of this section are:
•
•
•
On the basis of the data from EBAN and other sources the total value of the visible segment of the
Business Angel market in Europe in 2010 would appear to be of the order of €660 million;
Data on the non-visible segment of the market – namely the part that takes place outside BANs –
are very limited. On the basis of various sources we can estimate that is probably around seven
times greater than the visible market, bringing the whole size of the Business Angel’ market in
Europe in 2010 to a total of €4-5 billion and no more than 25% of the size of the United States’
market;
Broadly speaking, Business Angel investments tend to concentrate on ventures in ICT (where there
are often lower capital requirements), Biotech and the Healthcare sectors;
40
Data for Germany and Poland are from the 2009 survey
Data for Italy, Spain and the UK did not add up to 100% either because of missing values or possibly because of
wrong interpretation of the survey question. They are presented here only for reasons of completeness.
41
27
Evaluation of EU Member State Business Angel Markets and Policies
Investment by Business Angels
•
•
•
Section
4
The majority of funding takes place at the Seed and Early Stage/Start-Up level although in a number
of countries Business Angels are also involved in expansion stage finance which is typically a stage
that attracts Venture Capital;
Business Angels tend to support ventures that are in relative geographical proximity with prime
focus on the regional level;
Business Angels are increasingly using syndicates to structure their investments.
Business Angel investments through BANs appears to attract additional investment, the amount of
which ranges greatly among BANs in different countries. Other Business Angels are the most common
co-investors but other early stage funds, institutional investors (including government schemes) and VC
are also co-investing with Business Angels.
28
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
In this section of the report we provide a brief review of characteristics of existing public policies in
relation to Business Angels and of the existing evidence concerning the effectiveness of public
support.
5.1 - Introduction
This section examines the available evidence about the outcome of public policy tools supporting
Business Angels. The development of policy tools to support the angels’ market is part of the broader
policy for supporting entrepreneurship and new firm creation, ultimately leading to economic
development and employment creation. In that respect, the development of a climate where investors
are willing to invest in start-up businesses is clearly an important objective.
Much of the available information was reviewed in a recent OECD review of Business Angel policies in
Europe42. In addition, a small number of academic papers and a few formal evaluations of public
programmes in some EU countries (Sweden, UK) have also been used in this report. One reason for the
rather limited evaluation work is that most policy interventions in the angel market have been rather
recent, starting in the early 1990’s in the United Kingdom and the late 1990s in the other parts of
Western Europe (Mason, 2009) and, more recently, other regions around the world.
The main policy tools examined in the evaluation studies identified include:
•
•
•
Support for the creation and operation of Business Angels networks;
Tax incentives or tax relief schemes;
Co-financing schemes.
The most common questions considered in these studies focus on scheme level outcomes, i.e. the
performance of the scheme as a whole in achieving new investment by Business Angels and in creating
employment, and the added-value for Business Angels and entrepreneurs. Firm level issues, i.e. the
performance of the firms supported, are also sometimes considered.
The following paragraphs summarise the key conclusions of the studies identified. These are also
summarised in table 5.1 at the end of this section. However, we first place public support for Business
Angels in the context of the effectiveness of business angel investing as a whole.
5.2 - Effectiveness of business angel investments
Before considering the effectiveness of the various policy tools a first important consideration is the
return of the Business Angel investment for the investor, the entrepreneurs and the governments that
support Business Angels.
There are mixed views on the outcome of business angel investment from the point of view of the
investor. While there are many well-publicised success stories from individual investments, data on the
outcome for investors of a portfolio of angel investments is not readily available. Given the lack of
market data and the long maturity period of investments, this is unsurprising. Studies such as those of
Scott Shane(2008)43 suggest that the returns to Angels’ investments are generally low. However,
working in groups tends to be more effective and some of the earlier Angel syndicates have returned
42
OECD (2011), Financing High-Growth Firms: The Role of Angel Investors, OECD Publishing.
http://dx.doi.org/10.1787/9789264118782-en
43
Scott Shane (2008), Fool's Gold? The Truth Behind Angel Investing in America, 2008 ISBN13: 9780195331080
29
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
significant amounts of capital to investors. It is not unusual for just a few highly successful investments
to emerge from many with low or negative returns.
From the point of view of the entrepreneur, besides the provisions of capital, the non-financial
assistance to the businesses in which Business Angels invest can be critical. The non-financial assistance
is particularly important in the earliest development stages where the management team is incomplete
or inexperienced. Business Angels may work on developing the firm’s business plan, offer advice and
contacts and improve the profile of the firms through their own reputation (EIF, 2011). In a recent
survey of Business Angel-supported firms by the KfW (2010)44, contacts and Business Angels’ know-how
were considered more important than the provision of finance.
From the government point of view there is some evidence on the effectiveness of the support to
Business Angels in terms of returns on public investment. Estimates by a syndicate in Scotland45 point
out that the increased flow of personal tax and social security contributions from a new small business
and the resulting reduced expenditure by government mean that tax relief on new investments is often
recovered in less than one year. In Ireland46, Angel investments of €12m in 2011 created 344 jobs,
equivalent to an annual investment of €35,000 per job. Tax relief on such an investment will be
recovered in a short period. A similar study in Portugal showed that, because of the delay in granting tax
relief, angel investing was always cash positive for the government. Essentially, the savings resulting
from the benefits of new jobs are much greater than the level of government support.
5.3 - Support to Angel Associations, Networks and Groups
Turning to the public policy tools available, a measure introduced in some countries has focused on the
promotion of BANs. Such networks support matching of ventures with Business Angels. They also can
provide consulting services to ventures to make them investment-ready. In some countries (e.g.
Germany, Spain, Sweden) government has also financially supported the formation of national angels’
associations or federations of networks, in order to contribute to the development of the angel market
in a given country by raising awareness about angel investment, collecting relevant data, providing
training and promoting the interests of Business Angels in the public policy sphere. In Spain there is an
initiative to provide certification for BANs in return for funding and good record keeping.
Some countries have sought to develop the Business Angel market by encouraging syndicates. Examples
include the Netherlands through the Technostarter Funds, and Scotland through LINC. According to the
OECD study cited earlier, the initial support from the EU and national governments actually led to a
dramatic increase in the number of BANs in Europe. However, the eventual success and the investment
activity of these BANs varies. The study of Collewaert et al. (2010)47 in Belgium showed that BANs have
contributed to the identification of 82% of the deals of visible angel investors and that they play an
important role in bringing together angels. However, it also found that sometimes the best investment
opportunities are channelled to the better known angel investors that do not necessarily need or want
44
KfW Bankengruppe (2010), Beteiligungsmark t nach der Krise : Optimistischer Ausblick Aber Angebotslücke beim
Wachstums capital wird grosser (in German)
45
Based on a discussion with the largest Scottish syndicate, Archangel
46
Halo Business Angel Network (HBAN), April 2012
30
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
to co-invest through a BAN. Similar conclusions were reached in a study by a well established BAN in
Germany.
The studies reviewed in the OECD report cited earlier also refer to the costs for the operation of these
networks. Government support for the BANs in the early years of operation is critical but in the long
term the BAN need to be self-sustainable. This relies on the capacity of the organisations to fill a real
need in the market and their performance to be measured against measurable targets. The studies of
Aernoudlt et al (2007) and Knyphausen-Aufsess and Westphal (2008) indicate that Business Angels are
often sceptical on the added-value provided by networks and raise doubts on their viability in the
absence of public support.
A further form of support is to encourage the development of syndicates of investors. LINC Scotland, for
example, has a remit to promote new Business Angel syndicates and receives some government
financing to support this objective
It should be appreciated that support focused on BANs refers only to the visible section of the market
which represents the minor part of the market. As a result, the promotion of BANs can only have a
limited direct effect on the Business Angels market. However, the activities of most BANs and national
associations focusing on investment readiness or the promotion of Business Angels interest, and interest
in Business Angels can also have positive indirect effects.
5.4 - Tax incentives
Another form of support for Business Angels adopted in a number of countries is the introduction of tax
incentive schemes, such as tax breaks or tax shields. In comparison to the focused support for BANs,
such form of support can have an impact on the whole of the Business Angels’ market, including the
unmeasured part of the market.
Among the eight countries examined in this study, seven of them have either introduced in the past or
are planning/considering some form of tax scheme aiming to support investment in small or new firms
directly aiming at Business Angels. Poland is the only exception.
Examples of tax incentives in the countries examined include the UK Enterprise Investment Scheme
(EIS), which has been in place since 1995 and is the most often cited example. The OECD study indicates
that the evaluation of the programme showed that 80% of investors surveyed by NESTA48 had used the
Enterprise Investment Scheme (EIS) at least once and another study (Wiltbank, 2009) found that that
24% of investments would not have been made without EIS. Other studies of the EIS also confirmed its
additionality in terms of the amount invested and a positive impact on the companies in which they
invested (Mason, 2009). There is currently a proposal to enhance the EIS referred to above with a
scheme specifically targeted at Business Angels, the Seed Enterprise Investment Scheme (SEIS)49.
In other countries – e.g. Sweden and Netherlands - the tax deduction schemes introduced were
terminated and were generally considered as not successful in attracting Business Angels interest while
the experience from the recently introduced schemes in Spain and Italy is insufficient to draw
conclusions from as yet. In Germany, a survey of Business Angels indicated that, while not irrelevant, tax
relief was not considered as important for more than half of respondents but there are diverging views
expressed on this issue by representatives of Business Angels in other countries examined (e.g. Spain).
48
49
National Endowment for Science and Technology
For details see http://www.hmrc.gov.uk/seedeis/index.htm
31
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
In the case of France, the Avantage Madelin provides a tax credit of 25% (up to a maximum of €40,000)
for any investment in a SME provided the equity is kept for more than five years. In 2007, the loi TEPA
(Loi en faveur du travail, de l’emploi et du pouvoir d’achat) was adopted concerning tax-payers
subjected to the Solidarity tax on wealth (ISF – Impot sur la fortune) providing a tax break of 75% of any
investment in SMEs up to a maximum of €50,000. This break was reduced to 50% in 2010. However, in
the case of the French tax scheme the feedback provided by the Business Angels is that the main issue
was the rather limited capacity to target Business Angels exclusively and that it has been used for all
types of financial investments, including limiting inheritance tax. The French schemes have also suffered
from the frequent changes that have made them complicated and less attractive.
In sum, the effectiveness and success of tax schemes aiming to support Business Angels seems to vary
greatly. They require careful design, monitoring, evaluation and targeted adjustments to ensure the
intended results are achieved.
5.5 - Co-investment funds
Co-investment schemes have been set up with the objective of encouraging the development of the
Business Angel market and the early stage venture capital market. They help fill a finance gap by
providing extra capacity at these stages. This type of direct financing of an entrepreneurial firm usually
takes the form of loans or equity, with the public sector’s contribution usually matching the financing
provided by the Business Angel pari passu. Some programmes focus exclusively on angel investors while
others include a broader range of investors such as venture capitalists.
As noted in the OECD study, a significant amount of time in planning (and, in many cases, securing all
the necessary approvals) is often necessary before such funds are launched. In terms of effectiveness,
the evaluation of the Scottish Co-Investment Fund (SCF) - the most commonly cited example - showed
that the SCF had a critical role in the raising of capital for over half of the investee companies. 78% of
them considered that the fund was vital to their survival (Harrison, 2009) and there were positive
economic impacts in terms of turnover, gross value added and employment.
The OECD report refers also to the Technostarters Seed Facility in the Netherlands. The evaluation
conducted concluded that the scheme functioned well and helped boost funding for early-stage
technology firms.
A similar scheme has also been developed in Sweden with funding from the Structural Funds (ERDF). A
number of regional venture capital funds were created across a number of regions and were mostly run
by local subsidiaries of a publicly controlled financial institution (ALMI). While they did not focus
exclusively on Business Angels, more than 50% of the co-investors have been Business Angels and the
input received during the fieldwork is that the presence of public support and the process of selection
had a positive role in attracting Business Angels50. A survey of entrepreneurs in Spain on similar coinvestment schemes also indicated a positive view of the role of such co-investment schemes (59% think
it can help “a lot” or “somewhat”).
According to the OECD report co-investment schemes can be an important driver in building, growing
and professionalising the angel market as they provide a more structured investment process and the
pre-existence of angel groups is considered a key success factor of the co-investment funds. However,
50
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt,
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/evaluations/sweden/files/1111_swede
n_venture_eval_en.pdf
32
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
an exception was the case of the co-investment fund established by the Danish Investment Fund in
2007, Vaekstfonden, where the OECD study points to the limited attention given to the Fund by the
Danish Venture Capital and Private Equity Association (DVCA) that was responsible for its promotion but
was also running a parallel scheme for VCs. While the VC scheme had a success in the venture capital
segment of the market the angel co-investment fund, Partner Capital, was not successful as there were
too few angels making too few investments.
Table 5.1: Summary of selected reviews of assessments of public support measures for Business
Angels
No Tool
examined
Study name
Information on the Main conclusions
tool
1
Business
angels
networks
Rudy
Aernoudt,
Amparo San
José & Juan
Roure
(2007)51
European Commission
three year horizon call
for proposal (in 1998)
offering support for
the creation of
business angel
networks, feasibility
studies on their
establishment and
dissemination actions.
2
Business
angels
networks
Dodo Zu
Northern Bavarian
Knyphausen- Business Angels
Aufseß &
Network in Germany.
Rouven
Westphal
(2008)
Strong doubts on the viability of BANs, no
real recognition of the value added of the
services provided and the demand from
Business Angels, potential distortion of
market toward young ventures that would
not be otherwise supported
3
Business
angels
networks
Veroniek
Collewaert,
Sophie
Manigart &
Rudy
Aernoudt
(2010)52
The companies contributed to economic
development and growth. The 55 BANbacked companies together added €73.2
million in value from the year of Business
Angel participation onwards. Each euro of
government subsidy on Flemish BANs
generated an estimated €85.39 in value
added.
The first Belgian BAN,
Vlerick BAN, was
subsidised by the
Flemish government in
1999. Three other
BANs were
subsequently founded
and subsidized.
Together, they were
the only BANs
- In 2006 there were 282 networks in
Europe, of which 101 (36%) were UKbased.
- The main benefit was the demonstration
of the potential of business angel
investment and raising awareness.
- Very few of the networks financed
became self-supporting. Most of the
subsidies granted, had to be extended
otherwise the network’s activity would
cease.
The BAN-backed companies in the sample
paid €547k in taxes in a five-year period
51
Rudy Aernoudt, Amparo San José & Juan Roure (2007): Executive forum: Public support for the business angel
market in Europe – a critical review, Venture Capital: An International Journal of Entrepreneurial Finance, 9:1, 7184
52
Veroniek Collewaert, Sophie Manigart & Rudy Aernoudt (2010): Assessment of Government Funding of Business
Angel Networks in Flanders, Regional Studies, 44:1, 119-130
33
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
No Tool
examined
Study name
Section
5
Information on the Main conclusions
tool
operating in Flanders
until 2004 (after which
they all merged) and
all operated in the
same way, through
investor forums.
starting from the year of the Business
Angel participation. Each euro of
government money spent on the BANs
generated a direct return of €1.03 in taxes.
Employee growth was significantly higher
in BAN-backed companies than in nonBusiness Angel-backed companies but
comparable with that in companies that
received Business Angel financing through
another channel.
Each BAN-backed company created 1.84
jobs on average over the observation
period
It is hard to assess whether the supported
companies create value in the long-term. In
the short-term, they seem to destroy value,
but there is an upward trend in value
adding and profitability in the last years of
the analysis.
BAN-backed companies create significantly
less value than similar non-backed firms
BANs reduce information and financing
problems of entrepreneurial companies.
Entrepreneurs and Business Angels stated
that they would not have known each
other without BANs. The programme
increased the supply of funds to
entrepreneurial companies, rather than
crowding out the private sector.
4
Tax
measures
NESTA
United Kingdom
Enterprise Investment
Scheme (EIS) tax
investment scheme ,
in place since 1995.
Following a review,
the taxation relief
available to investors
in EIS schemes was
increased to up to 30%
on the amount
NESTA study showed that 80% of investors
surveyed used the Enterprise Investment
Scheme (EIS) at least once and 57% of
investments made use of EIS.
Investors indicated that 24% of
investments would not have been made
without EIS (Wiltbank, 2009).
Earlier evaluations were also positive and
suggested significant additionality in terms
of the amount of money invested (over
50%) as well as a positive impact on the
34
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
No Tool
examined
Study name
Section
5
Information on the Main conclusions
tool
invested.
companies in which they invested (Mason,
2009).
5
Tax
measures
OECD
France: ISF scheme –
deduction on wealth
tax
ISF attracted many financial investors
instead of the targeted angel investors
6
Tax
measures
Rudy
Aernoudt,
Amparo San
José & Juan
Roure
(2007)
Enterprise Investment
Scheme (EIS) providing
a 20% tax relief on the
amount invested
EIS scheme is considered to be successful
in attracting a critical mass of investments
to the target segment (Mason and
Harrison, 1999; Boyns et al., 2003).
Rudy
Aernoudt,
Amparo San
José & Juan
Roure
(2007)
Netherlands
guarantee scheme
from 1995-2000
The scheme was abolished after an
evaluation revealed that the scheme was
not considered good value for public
money.
Flanders guarantee
scheme (1996-2005)
The scheme was abolished based on an
evaluation showing all the 75 deals
applying to the scheme would have been
closed without the guarantee support
Belgium: initiative of
the Participation Fund.
Grants subordinated
loan of €125,000 if
matched by finance
from a business angel.
The average deal brought to the
programme was similar to the average deal
closed through Belgian networks.
7
Guarantee
of Business
Angels
Investments
8
Guarantee
of Business
Angels
Investments
9
Coinvestment
funds
Rudy
Aernoudt,
Amparo San
José & Juan
Roure
(2007)
It was not proved whether this programme
has raised additional investment or
whether some of the deals would not have
been closed without the tax advantages
granted.
The programme provides more capital to
the investee companies than is invested by
Business Angels.
Characteristics (size, sector) of the deal,
conversion rate, role of the Business Angels
are not affected by the scheme.
10
Coinvestment
Tllivaxverket
Sweden Regional
venture capital funds
The main contribution is the sharing of the
risk, expertise, through due diligence
35
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
No Tool
examined
funds
Study name
Information on the Main conclusions
tool
(2011)53
with the support of
Structural funds–
investment provided
on the basis of
matching from private
sector – including
Business Angels.
Section
5
conducted and the simplification and
standardisation of contractual procedures.
The cooperation with the venture capital
funds increased their knowledge, skills and
ability to implement investments (71% of
respondents), extend their network (66%)
and their knowledge about investment
opportunities in the region (around 52%).
The initiative has so far led to an increased
volume of investment for around half of
respondents. 45% of co-investors said they
would probably not have implemented the
investment and 10% that they probably
would have implemented a smaller
investment.
11
12
53
Coinvestment
funds
Coinvestment
funds
Hayton and
Gen (see
also CSES
study)
OECD
Scottish CoInvestment Fund (UK)
- Funding coming
from public sources
and the ERDF, total
£44.6 million.
A Scottish Enterprise evaluation showed
that over half of SCF investee companies
felt their chances of raising capital would
not have been possible without SCF and
78% stated that the fund was vital to their
survival (Harrison, 2009).
Complement
investments by various
types of investors
including Business
Angels. .
SCF has had a positive economic impact on
the companies they have supported in
terms of turnover, gross value added and
employment.
The
Technostarters The funds helped boost funding for earlySeed Facility
stage technology firms.
The facility matches
funds
from
both
venture capital firms
and angel syndicates.
The key success factor was the three phase
payback scheme, which provides earlier
payback to the private investors and
potentially higher reward if the companies
perform well.
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt
36
Evaluation of EU Member State Business Angel Markets and Policies
Public help for Angel Investment
Section
5
5.6 - Summary
The review of the evidence on public policy schemes supporting Business Angels suggests a rather mixed
picture. Each of the various types of public policy tool has its own advantages and disadvantages and a
combination of tools may be needed in many cases.
On the one hand there is evidence of positive contribution of tax or other co-investment schemes in
terms of the returns to the investment for government – directly or indirectly. There is also a generally
supportive assessment made of the support of BANs in terms of raising awareness and also, in some
cases, bringing together investors and linking them with firms. On the other hand, the evidence is,
however, not as clear in terms of their viability, the added value of most of their services and their
capacity to reach the whole of the Business Angels’ market. Tax incentives can reach the broader market
but can become too wide in their scope, being used for other types of investments and possibly
providing limited value for money. Co-investment schemes seem to be effective in stimulating the
Business Angels market. However, such schemes require a significant level of resources for proper
planning and management from the public sector side.
In sum, the practicalities of public intervention reflect the problems of dealing with the market failures
in question: high search costs, high transaction costs, and insufficient economies of scale which have
also constrained the entry of private sector institutions into this market.
37
Evaluation of EU Member State Business Angel Markets and Policies
Section
Business Angels and SME financing
6
This section considers Business Angel funding in the context of SME funding as a whole, and assesses
other issues in the terms of reference including the need for public action and exits and rates of
return. Finally, we summarise issues of data availability
6.1 – Business Angels in the context of SME financing
Most SMEs are financed through bank loans. Equity financing forms a smaller (but still important)
tranche of financing. DG Enterprise’s access to finance survey asked companies what type of external
financing they would most prefer to realise their growth ambitions. Only 6.3% of companies with less
than 10 employees would prefer equity capital, with loans being the preferred source.
Table 6.1: Preferred sources of finance
Bank loan
Loan from other sources
Equity investment
Subordinated loans, participation loans etc
Other
No answer
DK/NA
1-9
employees
60.1
14.9
6.3
3.2
6.2
2.6
6.9
10-49
employees
66.2
14.2
6.7
2.7
4.5
2.2
3.5
50-249
employees
64.5
12.5
7.5
3.4
6.2
2.1
3.8
>250
employees
56.5
18.2
9.1
3.7
4.6
3
4.9
54
Source : DG Enterprise SMEs' Access to Finance Survey 2011
Equity capital is of course available from Business Angels and from other sources, in particular venture
capital funds. This report has suggested that visible market investment by Business Angels in Europe
might be of the order of €660 million and the total market, including the non-visible market might be
between €4bn and €5bn. The total venture capital market in Europe, according to EVCA, is €43 billion for
2010, ten times the size of Angel investment. However, only a small part of the venture capital market is
in the start-up and seed areas.
An analysis of the venture capital market in Europe by stage of investment is shown by EVCA as follows
Table 6.2: Investments by stage in the venture capital market
2010
2011
€billion
Buyout
Replacement capital
Rescue/turnaround
Growth capital
Later stage venture capital
Start up
54
29.5
1.7
0.5
6.4
1.8
1.8
34.1
0.9
0.4
5.1
1.7
1.8
accessed at http://ec.europa.eu/enterprise/policies/finance/files/smes_demb.xls
38
Evaluation of EU Member State Business Angel Markets and Policies
Business Angels and SME financing
Seed
Total
0.1
41.8
Section
6
0.2
44.2
Source :EVCA yearbook 2012
If we compare the total of start-up and seed capital investments identified in the EVCA year book, we
find total investments of €1.9 billion in 2010. This is more than the visible Business Angel market (€0.66
billion), but less than the total Business Angel market of between €4 billion and €5 billion. At the start up
and seed part of the market, Business Angels appear to be the major source of risk capital. Venture
capital is the major source at later stages.
6.2 – The funding gap and the need for action
We can now consider whether the supply of early-stage or start-up risk capital from all sources is
adequate or whether there is a funding gap that needs to be filled. This subject has been extensively
debated and virtually all studies point to the existence of a funding gap at some levels of investment –
broadly from the point at which “friends and family” are unable to finance a business, to the point at
which venture capital or other sources of finance become available. Most public bodies, not least the
Commission, have had action plans to help increase the supply of risk capital to SMEs and indeed this
study is part of the work envisaged in the Commission’s Communication “An action plan to improve
access to finance for SMEs”55. And the EIB changed the focus of its €5m Risk capital mandate to allow it
to allocate risk capital to new market areas such as Business Angel co-investments, impact investing and
technology transfer.
The extent to which there has been public support for Business Angels as a source for funding of SMEs
has been related to two main factors: the extent to which such a funding gap has been perceived to
exist by the Member State in question and the extent to which the appropriate public sector
organisation (i.e. ministry of government department) has been aware of the potential of Business
Angels to help meet such a gap where it exists and has had the tools – legal and financial – to intervene,
or had the will to create such tools.
Thus, for example, in the case of Sweden the view of the authorities has generally been that SMEs are
relatively well-served by the regulated market and the existing financial support institutions, so that
separate intervention on behalf of Business Angels is not a major policy priority. On the other hand, in
Germany there is seen to be considerable potential for Business Angels, and in France they are also well
supported, working closely with organisations such as Oseo, the CDE and FSI. In Spain they are also seen
as offering considerable potential and it is understood that legislation is being prepared to support
them. In Poland, while recognised as important and able to make an important contribution to SME
financing, there is also a good deal of attention being paid to creating the correct framework conditions
for their development. In Scotland, Business Angels are being leveraged as a tool for economic
development finance through the development of syndicates.
Also, as indicated earlier in this report, studies in the UK found that there is an “equity gap affecting
SMEs seeking between €300,000 to €6m of equity finance. There are also cyclical issues relating to
the supply and demand of finance”. It was felt that very few venture capitalists invest below €6m
million. Below the level of €300,000 friends and family, grants and Business Angels are the key
55
Com 2011 870 final 7 Dec 2011
39
Evaluation of EU Member State Business Angel Markets and Policies
Business Angels and SME financing
Section
6
sources. The response was the provision of new public support in the form of the Seed Enterprise
Investment Scheme providing enhanced tax breaks to all Business Angel investors.
In summary, the main policy choices are either to support all Business Angels by the provision of tax
breaks, or to support Angel networks or syndicates to enhance the flow of information, reduce
transaction costs and increase transaction volumes. The support to networks or syndicates is
usually relatively small in amount but it reaches only the visible part of the Angel market.
Having said that, the low share of projects brought to networks that are actually funded (some 35%) suggests that either there is still a good deal of scope for expansion of Business Angel activities,
or the quality of projects brought to the market is not very high and the funding gap may not be as
large as is thought.
6.3 – Exits by Business Angels
Exit strategies tend to be an area of concern in all Member States where we undertook more in-depth
research. Most studies suggest that Business Angels hold their investments for about 4 to 7, or 3 to 5
years. Exits are also strongly influenced by prevailing economic and financial conditions. In Italy, there
were substantially less exits reported in 2011 than in 2010 and this appears to be due to inability to find
acceptable purchasers in the prevailing financial environment.
Among the various exit options, the least prevalent tend to be IPOs, followed by exit due to closing the
business. Most exits are through trade sales and buy-backs.
Firm data on returns to Business Angels is not often available and EBAN is sponsoring a long term
research project in this area. A recent study in the UK provides useful data as follows
The most likely outcome in any one angel investment is failure, but ‘winning’ investments are very
attractive. Fifty six per cent of the exits failed to return capital, while 9 per cent generate more than ten
times the capital. Because the 44 per cent of investments that generate positive exits win at a larger
multiple than the costs of the negative exits, the overall return to business angel investing in the UK is 2.2
times the invested capital. These 9 per cent large investment exits produced nearly 80 per cent of all the
positive cash flows. Given the holding period of just under four years, this is approximately a 22 per cent
gross internal Rate of Return (IRR).56
Angel investment is capable of providing good returns, but the risks are substantial.
6.4 – Data availability
As with all previous studies, this study has found a lack of available information on the Business Angel
market and the behaviour of Angels. Even on the visible market, data is not consistent or complete. And
data on the non-visible part of the market (the large majority of Business Angels) is very limited.
The extent to which data and research studies exists on the Business Angel market in different Member
States varies considerably. Thus in Sweden and Germany there have been several studies, both of an
academic nature and by public sector organisations, whereas in other countries there has been
relatively little, as in the case of Italy, where there have been no studies on Business Angels by the
government. However, one key factor in common with these studies has been that they have not been
56
Robert E. Wiltbank ( ), “Siding With The Angels”, Research study of NESTA , Data from the British Business
Angels Association and their members
40
Evaluation of EU Member State Business Angel Markets and Policies
Business Angels and SME financing
Section
6
systematic with varying definitions and methodologies adopted for measuring the visible and non-visible
parts of the market. This makes their results difficult to compare and consolidate into an overall picture,
whether of the visible or the invisible market.
We indicated earlier in this report that there are in principle three main types of data that could be
obtained:
•
•
•
Top down surveys of BANs and potentially of known Business Angels. There is no doubt that this
approach is capable of providing detailed information of the activities of those surveyed, but the
approach will always provide a partial picture of the market with no certainty that the results
can be extrapolated to the market as a whole;
Large scale surveys of investors, such as the GEM data analysed in this report. Such large scale
surveys are capable of giving a picture of the whole market, but since Business Angels are likely
to be a small number of the group samples, the approach cannot give a detailed picture of their
work. Large sample sizes are needed to have confidence in the results;
Analysis of universal tax incentives. Whilst this approach is capable of producing useful
information in those countries that have such tax schemes, it may not always be possible to
know more than the basic details of the investment.
Concluding, none of the approaches provides a perfect solution. Possibly the most appropriate approach
would be a large scale survey of investors with a follow-up focusing on those that fit the definition of
Business Angels. However, given the substantial resources required in the short term the most practical
approach would be to develop and enhance the three partial solutions shown above while ensuring that
common definitions are used to enhance consistency and comparability of results.
6.5 – Summary
Looking at the role of Business Angels in the SME early-stage capital market, there were total
investments by venture capital organisations of €1.9 billion in 2010. This is greater than the visible
Business Angel market (€0.66 billion), but less than the total Business Angel market that is estimated
between €4 billion and €5 billion. At the start up and seed part of the market, Business Angels appear to
be the major source of risk capital while Venture capital is the major source at later stages.
There is continuing evidence from many studies of a funding gap. In summary, the policy choices are
either to support all Business Angels by the provision of tax breaks or to support BANs or syndicates to
enhance the flow of information, reduce transaction costs and increase deal volumes (both by increased
successes from existing volumes and by attracting in new Business Angels, Virgin and Latent investors).
The support to networks or syndicates is usually relatively small in amount – but of course reaches only
the visible part of the Angel market.
Among the various exit options, the available data suggest that most common exits are through trade
sales and buy-backs. The sought-after IPOs are the least prevalent, followed by exits due to the closing
of the business.
There are, in principle, three main types of data that could be obtained:
•
•
•
top down surveys of Business Angel networks;
large scale surveys of investors;
analysis of universal tax incentives.
41
Evaluation of EU Member State Business Angel Markets and Policies
Business Angels and SME financing
Section
6
None of these three approaches provides a perfect solution for measuring the Business Angel market.
The best approach would be a combination of a large scale survey of investors in general with a followup of targeting on Business Angels. But in the short term the practical approach is to develop and
enhance the three partial solutions shown above.
42
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
This section of our report analyses the evaluation questions set out in the terms of reference, and
then presents recommendations
7.1 – Introduction
This section of our report analyses the evaluation questions set out in the terms of reference and
presents points for further action. The evaluation questions are addressed in the same order as
contained in the terms of reference. We have included a brief summary of findings and analysis of the
question, where data is available. There is of course additional substantial data within the main body of
the report.
7.2
Relevance
Two matters are considered under the topic of relevance: the sources of data and public action.
What are the available data sources for the Business Angel market in EU Member States or regions?
There is a wide range of available data sources but they are of variable quality. In respect of the visible
part of the market, the main data sources include data collected by EBAN from national associations and
national BANs and data collected within countries including individual studies referred to in this report.
Data on the non visible part of the market is sparse. The GEM reports (referred to again later in this
section) provide a basis for estimating the number informal investors, some of whom will be Business
Angels. There have also been efforts to estimate the potential number of Angels, based on the number
of individuals that meet the wealth criteria that would enable them to act as Business Angels (for
example in France by the Conseil d’analyse stratégique). However, the data presents a very partial and
fragmented picture.
Underlying the data collected: both actual and imputed, is a layer of complexity that has not been fully
addressed, surrounding the definition and typology of Business Angels. It is difficult for the data to
distinguish between Business Angels and other informal investors such as friends and family. There are
also different motivations for Business Angels There is relatively little information about the potential
supply of Business Angels (except in France) and the factors influencing supply.
What is the identified need for public action (e.g. financing gap, market failure) to support Business
Angel financing and how have the programmes or policies of EU Member States been designed to meet
this need?
It has been well-established in many other studies that there is a funding gap for firms at the seed or
early stage. Firms largely rely on informal sources of capital and are too small to attract venture capital
or some forms of bank funding. This is particularly the case as in recent years venture capitalists have
been increasing their minimum thresholds, while banks have withdrawn even further from seed and
start-up funding.
Business Angels can meet funding requirements from as low as several thousand Euros. Where Business
Angels act in syndicates, or as co-investors, they can contribute to funding packages of 1-2 million Euros
when. So they can play a role in meeting this funding gap.
Data collected by the BANs also suggest that only a very low percentage of projects presented to Bans
are eventually backed - maybe even as low as 3-5%, sometimes less. The issue is, how many of the
43
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
rejected projects could have been backed if more Business Angels existed, or were those projects just
not of sufficient quality to be backed? Our view is that more projects could find backers if more Business
Angels existed. So, to the extent that Business Angels can meet this finance gap there is a rationale to
support them, and possibly also to encourage an increase in supply of Business Angels through policy
measures if possible to do so.
Given the relatively small size of many deals, the main market failures are search costs and transaction
costs which deter investors and those needing investment.
It does appear that the policies used to support Business Angels target these market failures. Tax
incentives should increase the profitability of participating in the market from the supply side. Coinvestment initiatives lead to shared transaction costs, uncertainties and risks (the public sector assumes
part of these). Support for BANs and syndicates can lead to expanding supply and demand to those who
have yet entered the market, reduced search and reduced transaction costs. Each of the three main
policy approaches has a place, and can play a role, but their effectiveness will depend on how they are
implemented – outcomes are not be “automatic”. At present it not possible to say which of the three
policy approaches are the most effective either, due to importance of how they are implemented. In
some Member States tax measures have been done away with and supplanted by support for cofinancing and BANs, in others tax measures are in the process of being implemented. In other parts
BANs are being discontinued as they do not bring additionality.
7.3 – Effectiveness
How effective are different data-collection procedures? Do they allow for consolidation of data on
cross-regional and cross-country level?
The annual survey of Business Angels by EBAN provides the most consistent source of data on Business
Angels in Europe. It is based on common indicators and common definitions that provide a wealth of
information on the characteristics of the networks that respond to the survey, and is capable of being
analysed across regions and member states.
However, the survey covers only that part of the visible market that chooses to respond to the survey.
The survey is sent to national federations and each year there is a different response rate both by
country and within countries from different BANs. So the survey results are not wholly consistent from
year to year. More importantly, a bottom-up survey of this nature cannot obtain data on the non-visible
segment which, our analysis suggests, is many times larger. So the EBAN survey, whilst providing much
interesting data, cannot be a comprehensive indicator of the market.
Alternative sources of information on the whole of the market can come from mass surveys of investors,
or from mass company surveys or data on tax schemes or other support schemes
A mass survey of investors is carried out by the GEM survey. This survey has a number of key
advantages. It covers all EU countries and is based on a common approach and definitions. Thus, it can
be used in order to get some top-end estimates of the overall Business Angel market, including the nonvisible segments. However the GEM survey does not explicitly focus on measuring the Business Angels’
population. As such, it does not always have good data on whether friends and family make
investments, and there is also no coverage of the important aspect of the involvement of investors in
the management of the firms. As a result, the GEM survey data can be used for making initial top-end
44
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
estimations and identifying trends but in this form cannot provide a complete basis for measuring the
Business Angel market.
Similarly, the approach used in France to estimate the potential supply of Business Angels by looking at
the number of individuals with sufficient wealth in a sufficiently liquid form to enable them to be
Business Angels is promising, but does not appear to have been replicated in other Member States. We
did not find any mass surveys of companies across all member states that provided useful data. Those
surveys that were available provided some financing data, but there is a limited requirement for SMEs to
publish finance data and accordingly this route may not be a helpful one to follow
Finally, the limited experience from data from tax schemes suggests that, in practice, they often attract
a broader range of investors than just Business Angels and do not provide a solid basis for measuring the
Business Angel market. Given the different characteristics of the schemes across the EU Member States,
any comparison and consolidation is problematic.
What are the main characteristics of the Business Angel financing in selected markets?
This report has included data on the characteristics of Business Angel financing and a short summary is
presented here. In total, the number of Business Angels in the visible market – namely the members of
BANs - in the eight countries examined is likely to be 18,000-19,000. For the total EU27 it is estimated
that the total number of Business Angels in networks and syndicates may be between 25,000 and
30,000. However, the EBAN data also suggest that only around 50% are active, namely that they have
made at least one investment during the year of the survey.
For the total market – visible and invisible - the total number of Business Angels in the EU27 is estimated
between 170,000 and 240,000, using a top down approach.
The data from EBAN suggests that the average size of investments per firm is generally in the range of
€100,000-200,000 in most countries. However, the investment per Business Angel tends to vary much
more, starting from as low as €18,000 to over €150,000. The median value is around €50,000. Of course,
in most cases Business Angels co-invest either with other Business Angels - the most common - but also
with early stage funds, institutional investors (including government schemes) and VCs. Data from
Germany and Italy indicate a decline in the average size of investment per individual Business Angel and
there were indications of similar trends in some other countries.
Firms in the ICT, Biotech and Healthcare sectors attract the most investments from Business Angels and
represent more than 50% of the total number of deals in the visible market in most countries. Other
sectors include finance and business services, creative industries, environment and clean technologies
with varying weight in the different countries.
In terms of the location of the firms, the vast majority of Business Angels invest in firms in the region or
the country where they are located. Cross-border investments are uncommon but appear to be
attracting more interest, especially for syndicates, as a way of spreading risk. This result is unsurprising
given the need to provide management support, while improved technology and transport
infrastructures can increase the geographic scope of operations.
As expected, Business Angels focus primarily on the initial stages of the firm’s life cycle - Seed and Early
Stage/Start-Up level - typically more than 75% of the total number of investments. In some countries Germany, Italy, Sweden and the UK - the data indicate a sizeable share of investments at the later
expansion stage.
45
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
The data from BANs suggest that female participation represents no more than 10%, and probably more
in the region of 3-5% of the total number of Angel investors.
We estimate the visible segment of the Business Angels market in Europe in 2010 to have invested
around €660 million. For the total market – both visible and non-visible - the rough estimations possible
indicate that total investment in the whole EU27 market in 2010 might be of the order of €4 to €5
billion.
To what extent has the Business Angel market contributed to the SMEs’ access to finance?
Equity finance is used by no more than 6.3% of firms with less than 10 employees. More traditional bank
loans remain the key source of finance for SMEs. However, this varies by sectors – mainly technology
intensive sectors - where firms most often seek equity finance and Business Angels assume a more
important role. Different sectors also have different capital intensities – software tends to need less
than medical technology, for example.
If we compare the total of start-up and seed capital investments identified in the EVCA year book, we
find total investments of €1.9 billion in 2010. This is more than the visible Business Angel market (€0.66
billion), but less than the total Business Angel market of between €4 to €5 billion. At the start- up and
seed stages, Business Angels appear to be the key source of risk capital while venture capital is the
major source at later stages.
How effective is Business Angel financing to bridge the equity gap in the seed and start-up phases of the
SME development? What, if anything, could be done to render Business Angel financing more effective as
a means to achieve these objectives?
As argued above, Business Angels appear to be a major source of risk capital at seed and start-up phases
of SME development. Venture capital is the major source at later stages.
Business Angels financing appears to be able to address only partly the equity gap faced by firms in the
seed and start-up phases. The information available indicates significant variation in its role and
effectiveness among Member States, with the UK market appearing more effective than in other
countries.
The high level of demand for Business Angel financing as evidenced by the number of funding requests
submitted to various BANs, suggests that there is scope to increase the contribution of funding by
Business Angels to seed and start-up projects, assuming they are of sufficient quality. So an increase in
the number of Business Angels might help to expand this market.
The question of the effectiveness, of Business Angel funding is complex. In the first place, it requires a
better understanding of the degree of effectiveness, and the causes of effectiveness than we have been
able to identify from the current literature. Secondly, there is still a learning process going on as the
Business Angels that are emerging in the current market are relatively new market players and the
institutions surrounding them – in particular the BANs (including their associated lawyers, accountants
and consultants) and co-investment funds (including public sector managers), are also learning.
The main part of the Business Angel market is informal and it is important that regulation, although wellintended, does not impede this part of the market. Public support programmes, described more fully
below, can also help.
At the same time, it should be emphasised that the financial support is only one aspect of the Business
Angels added value. Data from Germany, Spain and Sweden suggest that the management support and
knowledge that comes with Business Angel investment is often considered even more important.
46
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
7.4 – Efficiency
How can data sources and data-collection methodologies be improved to allow for comparability across
regions and countries?
None of the current approaches provides a perfect solution to measuring the Business Angel market.
Possibly the most appropriate approach would be a large scale survey of investors with a follow-up
focusing on those that fit the definition of Business Angels. However, given the substantial resources
required, in the short to medium term the most practical approach would be to develop and enhance the
existing solutions shown above while ensuring that common definitions are used to enhance consistency
and comparability of results.
In summary, the main data collection methodologies have the following advantages and disadvantages:
•
•
•
•
•
Top down surveys of BANs and potentially of known Business Angels. There is no doubt that this
approach is capable of providing detailed information of the activities of those surveyed, but the
approach will always provide a partial picture of the market with no certainty that the results can be
extrapolated to the market as a whole;
Large scale surveys of investors, such as the GEM data analysed in this report. Such large scale
surveys are capable of giving a picture of the whole market, but since BAs are likely to be a small
number of the group samples, the approach cannot give a detailed picture of their work. Large
sample sizes are needed to have confidence in the results;
Estimates based on the potential number of individuals with sufficient wealth, educational levels,
experience and willingness to become involved in companies as Business Angels. To calculate/
estimate the wealth of individuals in a given Member State and even for all 27 Member States may
be possible, but the assumptions required to filter that group arrived at down to the core group of
individuals that could be Business Angels may require some quite brave assumptions, which will
influence the robustness of the findings;
Records of Member States where registration is currently, or will in the future, be required to work
as a Business Angel (or BAN) in order to benefit from tax advantages or other forms of public sector
support could be useful, but it is unlikely that all member States will adopt such systems;
Analysis of universal tax incentives. Whilst this approach is capable of producing useful information
in those countries that have such tax schemes, it may not always be possible to know more than the
basic details of the investment which means it may be uncertain if it qualifies as a Business Angel
investment.
Some national BAN and BAN members interviewed have expressed a desire to work towards a more
widely accepted and comparable approach to measurement of Business Angels in the EU, so there is a
willingness to work towards such solutions and an appreciation of the value of having such data. It may
be worth suggesting to the industry to develop a solution, maybe based on a conference dealing with
the subject.
Which existing EU Member State support programmes or policies to facilitate the access to Business
Angel finance for SMEs are the most efficient or inefficient? Are there significant differences between
online and physical programmes or those that operate on a cross-border basis as opposed to a Single
Member state?
The main public policy tools examined in the evaluation studies identified include:
•
Support for the creation and operation of BANs;
47
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
•
•
Section
7
Tax incentives or tax relief schemes;
Co-investment schemes.
Each of the various types of public policy tool has its own advantages and disadvantages and a
combination of tools may be needed in many cases.
Support for the creation and operation of BANs and syndicates can take the form of helping improve the
investment climate, providing finance to start up networks or syndicates and helping with running costs.
Most assessments have been generally supportive of support of BANs in terms of raising awareness and
also bringing together investors and linking them with firms. However, some have been discontinued as
they did not provide additionality, and in some Member States they are dependent on public support for
their continued operations. In addition, support of this nature only reaches the visible market.
There is evidence of some positive contribution of tax or other co-investment schemes in terms of the
returns to the investment for government – directly or indirectly – but again this depends on the specific
system, how it is designed and operates. Tax incentives can reach the broader market but can become
too wide in their scope and the cost of implementing and operating the system also needs to be set off
against its benefits, when looking at it from a wider point of view. Unless they are carefully designed
they may be used for schemes designed to minimise tax liabilities.
Co-investment schemes seem to be effective in stimulating the Business Angel market. However, such
schemes require a significant level of management resources from the public sector side, and significant
investment funding. While there have been some positive evaluations of such schemes, it is too early to
be certain about the financial returns of co-investment schemes and not possible to make
generalisations in this respect.
What are the actual costs of operating the programmes and administrative burden to the SMEs or
Business Angels (for reporting, etc)?
There is very limited data on the costs of administering programmes to support Business Angels
The administrative cost of designing, managing and funding a BAN, or even several, can be kept
relatively low, involving a few individuals at most, and budgetary provision within a ministry or agency’s
operational planning.
Designing and operating tax schemes tends to be onerous in terms of the fact that tax codes have to be
developed (passed in parliament), promulgated, administered, adhered to by taxpayers, policed,
enforced, and even to change or abolish them requires resources. Benefits would have to be significant
to be able to offset these set-up, operational and termination (if appropriate) costs.
The administrative costs of co-investment schemes can also be substantial, but there are some that
could be operated on a less resource-intensive basis, such as the Technostarter Funds, for example, as
compared to those established within institutions such as SCF and Oseo.
However, the crucial factor is to evaluate the relationship between inputs and outputs of the various
approaches and, in this area, very little has been published that can be used to compare approaches
within the three main policy streams (e.g. one co-investment fund with another, or one tax system with
another), or between them.
48
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
How can the efficiency of the Business Angel programmes be improved? What are the best practices that
could be applied in other EU countries?
It will be appreciated that the main part of the Business Angels market is informal and receives no
support other than the schemes offering tax relief. So, aside from these general tax-based schemes, the
main part of the market receives no support.
To improve the efficiency of Business Angel programmes they should be designed around the following
axes:
•
•
•
Raising awareness of the role and nature of Business Angels with both potential Business Angels and
those that have a demand for finance;
Assist the development of new syndicates and BANs;
Ensure that there are mechanisms to prepare projects for investor readiness.
The principles underlying the design of programmes should be:
•
•
•
•
•
To increasing knowledge about the nature and existence of Business Angels (address market failures
in knowledge);
Reduction in search costs for willing buyers and sellers;
Reducing transaction costs;
Creating a more informed environment so as to reduce risks and uncertainties;
To increase the quantity of activity and transactions so as to engender economies of scale that could
draw investment into creating and supporting appropriate economic institutions.
In summary, whichever of the main policy choices are selected, whether to support all Business Angels
by the provision of tax breaks, or to support Angel networks or syndicates, or to encourage coinvestment, the above-mentioned guidelines should be adopted and built into the programmes to
improve their efficiency.
7.5 – Sustainability
Are the identified data sources, data-collection and consolidation procedures suitable for observation of
long-term trends in the Business Angel market?
The available data sources are problematic – if not insufficient - when trying to identify long terms in the
Business Angels market. It is like estimating the size of an iceberg based on its tip: it is possible but some
assumptions will have to be made. The information concerning the invisible segment is both limited in
terms of relevant studies and data collection. This is not the case for the visible segment through BANs
but in most countries it represents only a small share of the market. The EBAN survey data do offer a
basis for identifying long term trends, primarily in relation to aspects of the level of investment, the role
of co-investment, the sectors and stages preferred. But of course they offer information only on the
visible market.
For this reason, it is suggested that existing data collection procedures be continued, and continually
improved to create more comparability, consistency and completeness. However, these should be
supplemented with a series, or well-designed programme, of specific studies aimed at complementing
and meeting gaps in existing knowledge which are quite fundamental to the whole notion and support
of Business Angels. For example, methodologically robust studies on the long-term profitability of
Business Angel investment on pan-European scale is lacking. Because of the informal nature of the
49
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
Section
7
market, data is scarce. EBAN is carrying out work to look at the long term profitability of the visible
market – but of course this does not cover the main part of the market.
Will the effects achieved by the support programmes last in the medium or long term?
Again, this issue needs to be considered in the context that most of the Business Angels market is
informal, and not covered by support programmes.
Some programmes to encourage the formation of syndicates or networks appear to offer sustainable
results, as discussed in this report, but others less so and are closed down. Equally, measures aiming to
improve investment capacity, including co-investment schemes, offer the prospect of sustainability but
it is still too early to analyse the financial results and the overall effectiveness of many of those
programmes. Programmes differ between themselves and, where some might be successful, others may
not be so. As yet, not a great deal of assessment has taken place in this relatively new area. Similarly,
the information from the various tax schemes suggests that only the UK Enterprise Investment Scheme
managed to have a long-lasting effect, and these relate more to capacity-creating than major increases
in employment or turnover but in other countries (e.g. France, Sweden) the experience has been rather
negative, either due to limited interest or problematic design and implementation. The overall picture
does not seem to indicate long-lasting effects in most countries. It is not possible to say much for the
more recently introduced tax schemes (Spain, Italy) or other schemes that are still in the pipeline, and it
is not clear what costs have been included in assessing the viability of schemes.
In the short term, effective support for Business Angels may provide quick returns to governments if
they result in new private investment and the creation of new jobs. Support schemes, including
capacity-building schemes and Co-investment schemes, have a role to play in this regard. Direct support
for networks and syndicates can also be helpful in building capacity. Tax breaks for Business Angels can
reach the whole of the market, including the unmeasured, unlike other schemes.
However, support of Business Angels is not a “quick win” scenario: programmes take time to design and
implement, and with Business Angels investing for between 3-5 years in a project before exiting, the
evaluation of the programme, depending on its aims, is likely to require time series data for quite a long
period that may make evaluation difficult, especially if there are major financial crises, or changes in
ownership, or other major corporate events in the intervening period. This is true for all three policy
types.
7.6 – Recommendations
Recommendations for further action based on the findings of this report include those referring to
data collection procedures, issues for public policy, and the support of Business Angels.
Data collection procedures – visible market
The existing EBAN survey offers the best data on the visible market and is the only practicable way of
obtaining in-depth data on the activities of those Business Angels who choose to make data available.
However, the survey cannot provide a comprehensive picture of the whole market because so much of
the market is hidden. To improve the coverage of the visible market it would be useful to:
•
Simplify the survey, focusing on a small number of key indicators (so as to increase compliance)
based on consistent definitions, that will help monitor the developments of the BAN market and to
give priority on ensuring a wide level of coverage of BANs and the capture of consistent data from
year to year;
50
Evaluation of EU Member State Business Angel Markets and Policies
Conclusions and Recommendations
•
•
Section
7
supplement the survey with a well-designed research programme aimed at filling gaps in knowledge
about the Business Angels market, and also to deal with highly relevant specific issues such as the
effectiveness of Business Angels as such, and Business Angels support.
ensure the use of common definitions and the tracking of the same core indicators in order to
increase comparability across the EU.
Data collection procedures – non measured market
•
The most promising source of data on the Business Angels market as a whole appears to be largescale surveys of individual investors. However, such surveys are expensive and demanding in terms
of the sample sizes needed in order to ensure a representative result. As a result, an EU-wide study
that would ensure comprehensive and consistent data would be difficult to realise. A possible
alternative, in coordination with the GEM is to introduce some additional questions more directly
related to Business Angels targeting entrepreneurs and investors. It is unlikely, however, that such
surveys can serve to provide in-depth detailed information covering the whole market, formal and
informal.
Public policy
•
Given the possible contribution of Business Angels as a source of finance for both mainstream and
technology-intensive early stage and new companies, public policy must take into consideration the
needs of Business Angels when new legislation or regulations are introduced. For example,
securities regulations that limit the sale of securities to the public need to be drawn up in such a way
as to not inhibit legitimate Business Angels activity. There is a need to protect the informal nature of
the market.
Public support for Business Angels
•
Public support measures that directly provide risk capital to start-up and early-stage business should
be designed in a way to attract investment by Business Angels, complementing their role and
making use of the non-financial aspect of their involvement including management expertise and
networking. Public support for BANs or syndicates could possibly focus on developing new
syndicates or BANs and, depending on the national context, the national associations.
51
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Annex
1
This annex contains a summary of data obtained in respect of the activities of Business Angels in
France.
1 - Introduction: Overview of the French Business Angel market
The main source of data on the Business Angel market in France is France Angels, the national
federation of Business Angel networks. France Angels federates 81 networks and over 4,000 angels.
However, as in other countries, the non-visible part of the market is more difficult to assess. Based on
discussions with actors in the field, it is possible to assess the number of non-visible angels to be roughly
the same as that of those who are part of the 81 networks that are part of France Angels. Overall, this
would take the total active Business Angels – visible and invisible - to 8,000. However, it is believed that
the average size of investment is higher and fewer angels participate in any given deal. This is also due
to the very high number of visible Business Angels involved in any given deal.
Also of more interest is the demand for Business Angels by SMEs for which some data are available. The
popularity of Business Angels as a means of financing SMEs has increased between 2007 and 2010 and is
expected to grow even more to 2013 and beyond.
Finally, Business Angels in France are quite well supported by public authorities as part of an holistic
approach adopted which includes public organisations such as Oséo, the CDC and the FSI (Fonds
Stratégique d’Investissement) and supplemented by (possibly less efficient) private schemes such as
Alternet.
2 – Data on the Business Angels market
This section summarises key market data on the visible and non-visible market for investment by
Business Angels
2.1 Visible market
There is substantial information concerning the visible side of the Business Angel market in France. The
national association - France Angels - publishes annual figures on the number of networks, Business
Angels and investments by its members. According to France Angels’ figures, as of 31 March 2011, there
were 85 BANs57 in France with around 4,000 Business Angels as members. In 2010, 320 companies had
been financed by Business Angels, with €40 million invested within the networks. 75% of those
investments were “first round” investments. Of those companies financed, 70% had a turnover of less
than €500,000 at the time the investment was made and two thirds of those operate in three sectors:
ICT, clean technologies and medical technologies58.
France Angels is currently (March 2012) compiling the figures for 2011. While those figures are not
available, there are currently around 4,000 active Business Angels members of networks in 85 networks
and 42 investment holdings. The number of investments is expected to rise to around 360, the amount
invested increased by around 30%. Early indications also point to an oversubscription rate of over 20:1.
The main national BANs can be divided into those with a specific type of sector focus, type of Business
Angel (e.g. alumni of specific tertiary education institutions (Grandes Ecoles, Business schools etc), and
regional focus. The main sectoral angels networks include Alidev Angels (Agrofood), Cleantech Business
57
58
The data presented is for 2010 at which point there were 81 BAN active and reporting.
France Angels, Activite: Les chiffres clés, 2010
52
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National Reports : France
1
Angels (environment), ForInvest (forestry), IT Angels and Seedforsoft (ICT), Angels santé (health) and
Sport Business Angels (sports). Alumni networks include Arts et Métiers Business Angels, Dauphine
Business Angels, EDHEC Business Angels, ENSAED Business Angels, GEN Angels and XMP Business Angels
Distribution of regional networks reflects the economic importance of each region, with for instance 14
networks in Ile-de-France and only one in regions such as Limousin or Champagne-Ardennes.
The data presented in this section has been provided by EBAN but are the same as the data compiled by
France Angels. Both the umbrella organisation and the French Ministry of Finance are planning to set up
certification schemes to ensure a level of harmonisation between the networks. It is estimated that
there are a similar number of angels outside the networks as inside (4,000).
Table 1: Main data on French Business Angels Networks (2010)
Indicator
Number of networks
Number of members (investors)
- Of which, number of active Business Angels
Average number of investors per network
Total number of women Business Angels (% of total)
Number of angel investors recruited during 2009
Number of women investors recruited during 2009
Number of angels who have left the networks
Average number of angels per investment round in 2009
EBAN data
(81 BANs)
81
4,030
3,015
50
9.3%
13
1
6
14
Source: EBAN, CSES
According to EBAN (using data from France Angels), €62.5 million were invested by Angels in 2010 –
double that figure if ones includes co-investors. Based on the assumption that the value of non-visible
Business Angel deals are equivalent to that of registered ones at €177 000,
Table 2: Angel investment, 2010, totals
Indicator
Total amount invested by angels
Average amount of the deal
Average amount per angel investor
Total amount invested – including co-investors
EBAN data
(81 BANs)
62.5 million
177,000
18,000
125 million
Total (estimate)
157 million59
N/A
N/A
N/A
Source :EBAN
According to EBAN data, 220 companies received investments from networks affiliated to France Angels,
an estimated 39% of all Business Angel companies invested in by Business Angels according to our
estimates detailed in the following section.
59
Based on an estimated average amount invested of €177,000
53
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National Reports : France
1
Table 3: Angel investment, 2010, numbers of companies
Indicator
Number of business plans received
Number of business plans submitted to angels
Number of new companies financed
Number of follow-on rounds
EBAN data
(81 BANs)
Total (estimate)
1 190
331
220
2
533
Source: EBAN, CSES
Unsurprisingly, the sector most benefiting from Business Angel investment is ICT, followed by Biotech
and Medtech. Together, these three sectors account for three quarters of visible Business Angel activity
in the country.
Table 4: Sectors in which Business Angels are involved (2010)
Sector
ICT
Biotech
Cleantech
Energy
Medtech
Mobile
Social and sustainable investments
Creative industries
Other
% share of investments
40
14
9
8
8
7
4
2
9
Source: EBAN
2.2 - Non visible market
As in most other countries, it is very difficult to assess the exact extent of the non-visible market for
Business Angels. On the supply side of the market, France Angels estimates the number of Angels not
part of networks to be between 2,000 and 4,000, indicating a total number of French Business Angels
between 6,000 and 8,000. However, this is only a rough estimate. The Conseil d’analyse stratégique
estimates that there are potentially 350,000 individuals in France with sufficient financial resources to
invest €100,000 in a company’s equity without exposing themselves to more than 5% risk. While this
figure can be seen as the total supply capacity of Business Angels in France, it must be noted that within
this group, there are large discrepancies as some Business Angels have a far larger investment capacity
than others.
A study commissioned by the Ministry of research in 200760 provides a basic typology of Business
Angels. “Occasional” Business Angels following trends, usually investing a maximum of €50,000 in one
or two companies; the “Aware” Business Angel invests in groups of 2 or 3 angels for an average of
€100,000 to €250,000, and they tend to be the structuring members and leaders of networks and
represent around 15-20% of the market. Finally, the “experienced” Business Angels tend to have a more
developed financial capability. They are often also involved in venture capital and typically invest
between €150,000 and €500,000. This last category tends not to participate in networks. This typology
60
Ernst & Young BAS (2007), Étude sur le financement des jeunes entreprises technologiques par les Business
Angels en France, rapport final remis au ministère de l’Enseignement supérieur et de la Recherche
54
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National Reports : France
1
underlines the difficulty in assessing the non-visible market as, while the number of “experienced”
Business Angel might be relatively small, the total values they represent can be disproportionate and
the support they can bring at key stages in the development of a company more structured and have
more influence.
One approach is to count the number of recipients of tax breaks received by Business Angels (see
section 4). However, this also includes “love money” and investments by family and friends that are not
considered Business Angels according to the definition used in this study. This analysis has never been
attempted.
Another approach is to focus on demand and estimate the number of companies seeking investment
from Business Angels. In 2011, the French statistical office (INSEE) conducted a survey on access to
finance for SMEs with more than 10 employees. This survey received over 78,000 responses, but the
number of respondents mentioning Bas was marginal. This may have been expected as Business Angels
tend to fund seed/ early stage start-ups who may not employ that many people. In 2010, only 0.29%
(229) of all respondents seeking access to finance did so by seeking the help of Business Angels, of
which 45% secured an investment. There is a steady increase in the share of companies seeking
investment through Business Angels between from 0.07% in 2007 to 0.29% in 2010, with 1.26% or
respondents stating that they would do so in the future.
This sample does not allow for statistically sound extrapolations but it can be used to develop scenarios
for estimating the size of the market. Based on the most recent statistics on the number of enterprises
in France, high, medium and low estimates on the demand for Business Angels in France can be made.
These are presented in the table below.
Table 5: Demand for Business Angels in France 2007 – 2013 (number of SMEs seeking finance support
from Business Angels)
2007
2010
2011-2013
(expected)
Low estimate
133
549
795
High estimate
442
1 830
2,651
Medium estimate
288
1 190
1,723
Source: INSEE, CSES calculations
The low estimate is based on figures representing all companies with less than 500 employees, while
the high estimate only includes firms between 9 and 500 employees. The mean estimate is the average
of the two and accounts for the fact that many of the smaller firms are small shops or restaurants who
may not seek investment from Business Angels.
2.3 Exits and exit strategies
Business Angels as recognised group are relatively new to France. In 2004 there were only 4 or 5 active
networks. Consequently, it is too early to assess the exit strategies. One Angel interviewed in the
process of this study mentioned that out of 20 investments made, only 2 had a positive outcome, with a
third one in the process becoming one.
55
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National Reports : France
1
The most successful exit strategy for Business Angel would be an IPO. However, the performance and
perceptions of the capital markets existing in France, Alternext and Euronext C are mixed61. As of
October 2011, only 434 SMEs and mid-caps were listed in either of the two stock markets62. Listed SMEs
and mid-caps only account for 0.3% of the total of SMEs and mid-caps in France with over 10
employees. More importantly, this number has not really evolved since 2008 when 394 companies were
listed.
Table 6: Number of SMEs and mid-caps listed in dedicated French stock markets (by year)
2008
2009
2010
2011
Euronext C
289
353
305
279
Alternext
105
102
133
155
Total
394
455
438
434
63
Source: Rapport sur le financement des pme-eti par le marché financier
Over the past three years, €1.5 billion was invested by the capital markets in SMEs and mid-caps. The
average capital financing stood at €20 million for companies being listed and €31 million for financial
operations. More detailed data are available for 2010, with a total of 438 SMEs and midcaps listed
(including 133 on Alternext). Overall, the average capitalisation per company stands at €47 million;
slightly lower for Alternext with €32 million.
Table 7: Capitalisation of SMEs and mid-caps – 2010 (amounts in € million)
Number of
companies
Capitalisation
Average
capitalisation
Capital
exchanged
Average capital
exchanged by
company
Euronext C
305
16 300
53
4 000
13
Alternext
133
4 300
32
1 100
8
Total
438
20 600
47
5 100
12
Source: Rapport sur le financement des pme-eti par le marché financier
The take-up by SMEs of opportunities in the financial markets has been relatively low since 2005. A
study by the Banque de France64 provides some interesting insights on the outcome of the capitalisation
of SMEs in financial markets. By looking at companies with some historical data, the study shows that
out of the 88 SMEs listed in 2005, 27% evolved into mid-caps (with the remaining 73% staying SMEs).
61
Euronext provides two opportunities for SMEs and mid-caps to be listed. Alternext is aimed principally at SMEs
although mid-caps are also included. Eurolist which includes Euronext A, B and C mainly lists mid-caps, although
SMEs are also listed on Euronext C
62
The Rapport sur le financement des pme-eti par le marché financier deals with both SMEs and Mid caps and
distinguishes between three Euronex classifications (Euronext B – market cap between €150 million and €1.5
billion, Euronext C – market cap of €150 million and Alternext ). For this section Euronext B companies have been
disregarded as they only concern mid-caps.
63
Market cap € 150 million
64
Banque de France DGAFP – Entreprise cotés sur les marchés à faible capitalisation créées en 2005, March 2010
56
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Annex
1
This is to compare with a control group for which only 18% of SMEs in 2005 evolved into mid-caps by
2008.
2.4 Other characteristics of the French Business Angel market
The average investment per Business Angel is relatively low, at €16 000 per Angel. Because of this the
number of Business Angels involved per project stands at 14 (as opposed to 2.5 in the UK for instance).
This can create a problem as a large number of Angels investing in one company might have different
views as to how to develop the business.
The distribution of regional networks reflects the economic importance of each region, with, for
instance, 14 networks in Ile-de-France and only one in regions such as Limousin or ChampagneArdennes. This is reflected in the number of companies receiving investment form Business Angels. In
2011, 40% of companies invested in were located in Ile-de-France, followed by Rhone-Alpes (12%),
Languedoc-Roussillon (10%) and PACA (7%)65.
Overall, 9.3% of all Business Angels were women in 2010. This is nearly double the figure for most other
Member States where data have been provided.
Another characteristic of the French Business Angel market is the importance of alumni networks. Most
Business Angels involved in networks will also be involved in other local or regional activities, such as
with the Chamber of Commerce and Industry.
3 - SME access to finance
This section examines the contribution of the Business Angel market to the SMEs’ access to finance and
the effectiveness of Business Angel financing in bridging the equity gap in the seed and start-up phases
of the SME development.
3.1 Overview
The number of SMEs having sought access to finance has increased by 8.5% between 2007 and 2010,
and is expected to further increase by 10.8% to 61.7% by 2013.
Figure 1: Share of SMEs having sought access to finance
61.7%
50.9%
42.4%
2007
65
2010
2011 to 2013
France Angels 2012
57
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Annex
1
Source: Insee
According to the SBA fact sheet for 2010, 19% of SMEs were denied access to credit in 2009, 17%
indicated a deterioration in access to public guaranteed and 30 indicated that there had been a decline
in banks willingness to provide loans. Relevant data are also provided from the Observatoire pour le
financement des enterprises’s report which provides a thorough analysis of the type of access to finance
for SMEs and Entreprises de Taille Intermediaire (ETIs)66, mainly through the private sector. While the
report does not distinguish between SMEs and ETIs, it does provide a very comprehensive picture of the
financing situation for SMEs.
Equity finance
The most important source of finance for SMEs seems to still be the companies’ own equity. In 2009,
SMEs and mid-caps67 capital increased by €7.7 billion. While no final data are yet available, early
pointers suggest that this has been done mainly through savings of past benefits, although at the cost of
new investments.
The French capital investment market has taken off in the 2000s and is now the second European
market for VC, behind the UK, having grown at a rate of 10-20% per annum between 1999 and 2010. In
2010 alone, 1,685 SMEs benefited from equity finance through members of AFIC68, totalling €6.6 billion.
The majority of those investments are still leverage buy-outs (LBO) but importantly, risk and
development capital is increasing.
Traditionally, the insurance sector also plays an important role of investor. The sector gathers an
important amount of private capital especially through life insurance and similar products. As of
December 2010, the sector was managing €1,617 billion (although this figure encompasses investments
in all type of ventures, including multinationals, bonds, etc.), €940 billion of which was used to finance
companies.
Financial markets also play a role in equity finance through the normal process of buying shares,
although this is a small part of equity finance, with only 574 SMEs and ETIs listed on the stock exchange
as of 31st December 2010 (Euronext B and C as well as Alternext).
Loans
While SMEs represent around a quarter of all commercial loans from French banks to companies, not all
of them have a similar access to loans. In particular, start-ups and innovative companies have difficulties
in acceding to commercial bank loans as they have little or no credit history and sometimes require a
relatively large initial sum to launch a product. There is also a fear amongst professionals that financial
institutions will be even less likely to lend to SMEs in the run up to the introduction of the Basel III
prudential measures in 2013, requiring banks to increase their CET1, which might in turn lead to a more
adverse inclination to take risks.
Supplier debts are seen as an important means by which SMEs finance themselves. According to INSEE,
debt to suppliers represent on average 10% of the balance sheet of companies in France and this share
appears to be ever larger for SMEs (although no empirical data is available). This is of course not an ideal
66
ETIs are considered in France to have between 251 and 4,999 employees.
French statistics often aggregate SMEs and Entreprises de Taille Intermédiaire (ETI) who have between 251 and
5,000 employees and a turnover of under €1.5 billion.
68
Association Francaise des Investisseurs en Capital
67
58
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Annex
1
situation, especially for the company waiting for a payment. Payment delays have reduced since 2007,
with one estimate suggesting a gain of €3 billion for SMEs.
The French state strives to promote capital investment through tax breaks (22% of income tax is
deducted from the total due when one invests in an SME, or provides funds to a FCPI or FIP) as well as a
50% reduction in the ISF when one invests directly in an SME or in a funds for SMEs). Those tax breaks
are estimated to have cost the public purse €1.1 billion in 2009 underlining the importance of this
mechanism.
One of the key aspects of the market failure problem is rationing of credit. The issue of credit rationing
can be explained by the lack of information available to the lender who therefore tends to overestimate
the risk in lending. This problem is particularly important for SMEs for which information is either
difficult to gather or unavailable. With regard loans, banks must retain a certain amount of equity per
loan they grant.69 The Basel III increases the equity requirement for riskier loans, which can potentially
put at least part of the existing loans market for SMEs in jeopardy.
4
Public support for Business Angels
This section examines the existing support schemes for Business Angel financing in France and, on the
basis of available information, provides an assessment of their performance.
4.1 Support measures introduced
The following fiscal measures have been introduced to encourage Business Angel in France:
The Avantage Madelin provides a tax credit of 25% (and a maximum of €40 000) for any investment in
an SME provided the equity is kept for more than five years. In 2007, the loi TEPA (Loi en faveur du
travail, de l’emploi et du pouvoir d’achat) was adopted, providing a 75% tax break to tax-payers
subjected to the Solidarity tax on wealth (ISF – Impot sur la fortune) for any investment in SMEs, up to a
maximum of €50,000. This break was reduced to 50% in 2010. SMEs financed cannot have over €1.5
million of such equity in their companies. The Ministry of Finance has also played a role in trying to help
angel networks consolidate and federate under the France Angels umbrella, this has included financial
support for the organisation. The ministry is also helping to set up a certification scheme and organises
projects to encourage individual Business Angels to set themselves up in networks. This is an effort to
set up networks which are then encouraged to converge towards the national organisation.
4.2 Evaluations of public support for Business Angels
To date, there has been no evaluation of the public support of Business Angels. The following table
summarises the main features of the direct and indirect support policy support measures related to
Business Angels as well as the conclusions in relation to their contribution to the development of the
Business Angel market.
Table 8: Main public policy measures for the promotion of Business Angels in France
Type of support
Main features
Support of Business Financial support to France Angels
Angels networks
Main conclusions on the basis of
existing information
Contribute to extend the reach BANs to
encompass more existing Business
69
Aubier, Maud and Cherbonnier, Frédéric, Les banques et le financement des PME en France, in Le financement
des PME, La Documentation française, Paris, 2009
59
Evaluation of EU Member State Business Angel Markets and Policies
National Reports : France
Tax breaks
50% tax break to investors subjected
to the Solidarity tax on wealth
Tax credit of 25% (and a maximum of
€40,000) for any investment in an SME
provided the equity is kept for more
than five years
Annex
1
Angels and France Angels to encompass
more BANs
Some contribution to awareness raising
and support investment readiness
Support in creating a certification
scheme to ensure a common level of
standards
Increase visibility of Business Angels
A number of the investments made
under the two measures benefitted
love money, rather than angel’s
investments
The measures have evolved and
changed too often so there is no clear
view as to what the situation is
currently. This lack of fiscal and
legislative stability has been harmful in
trying to use such measures as
incentives for Angels
60
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
This annex contains a summary of data obtained in respect of the activities of Business Angels in
Germany.
1 - Introduction : Overview of the German Business Angels market
The information presented in this report, and estimates provided, are based on a combination of
available studies from academics, research organisations (ZEW) and financial institutions (KfW) as well
as information from the national and the European Business Angels Networks (BAND and EBAN). These
were complemented by an interview with the Federal Ministry of Economics and Technology70.
According to available data, the BA market is comprised of around 5,000-10,000 individual informal
investors with a total size of €200-€300 million per annum. 10-20% of the Business Angel (1000-1400)
and 25-50% of the investments are made from Business Angels that are organised in BANs. There are
around 40 BANs operating in Germany, most of them also being members of the national BAN
association, BAND.
In general, the Business Angels market in Germany should be considered as still under development
with a much smaller number of informal investors per million population in comparison to the US or the
UK. According to the national association (BAND), the Business Angels market in Germany has the
potential to reach a total value of €5 billion.
A key element of the German market is the general risk-adverse attitude of the typical wealthy
individuals among which one usually finds Business Angels as well as a traditional reliance of firms on
debt and the relatively effective provision of it through national and regional banks and public support
schemes. This possibly reduces the demand for equity, even though the data available still suggest that
demand exceeds supply.
2 – Business Angels’ market data
2.1 Visible market
The visible part of the Business Angel market in Germany includes, according to data from EIF71 and
BAND72, 40 BANs that bring together 1000-1400 active Business Angels73. The 40 BANs have multiple
forms. Around half of them have the form of projects supported primarily by the public sector through
the Landesbanks (Regional development agencies) and have a clear geographical focus. 30% of the BANs
are incorporated societies (Verein) created by Business Angels and possibly VCs or banks. They operate
on the basis of the fees paid by their members and tend to have a broader geographical focus. A third
type of BANs is organised as private clubs - circles of friends - with a regional or nationwide focus or
sometimes a sector-specific focus. There are also a few BANs operating as profit driven (e.g. limited
liability) companies.
70
We also came in contact with BAND requesting an interview. Despite repeated efforts no representative was
made available.
71
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
72
http://www.business-angels.de/default.aspx/G/111327/L/1031/R/-1/T/132140/A/1/ID/133257
73
According to the German Ministry the total number of Business Angels in networks is closer to 3000 suggesting
that there are more BANs that are not member of BAND. This information has not been verified by other sources.
61
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
The EBAN survey data for 200974 on the basis of responses from 13 German BANs suggests that each
BAN has around 30 investors.
Table 1: Business Angels Networks in Germany – Data from EBAN 2009 surveys and for the total of
Business Angels’ Networks
Parameter
Number of networks
Number of members (investors)
- Of which, number of active Business Angels
Average number of investors per network
Total number of women Business Angels (% of total)
Number of angel investors recruited by BANs in 2009
Number of women investors recruited during 2009
Number of angels who have left the networks
Average number of angels per investment round in 2009
EBAN survey numbers
(data from 13 BANs)
13
407
218
29
20 (5%)
60
8
25
1
Total
estimate
for all German
BANs
40 (2010)
1,000-1,40075
400-600
Source: EBAN and CSES elaboration
EBAN data also provide information on the investment activity. According to the data from 9 BANs a
total of 3,391 plans were received and 531 plans were submitted to angels through the network, around
13% of which were eventually financed from a total of 60 Business Angels. The total investment was
around €20 million. While extrapolation to the total visible Business Angel market is rather difficult, on
the basis of the average size of a deal and the estimated total number of deals, we estimate a total value
of around €55 million.
According to the EBAN survey, Business Angels in Germany invest around €100k per company (median
value: €30k). The mean is high due to the few high-tech companies that received comparably high
amounts from the Business Angels, some of them more than €1 million. In comparison, the average VC
provided around EUR2.1 million per company, 20 times the value of an average Business Angel
participation.
The study of Stedler and Peters76 in 2003 - based on responses from 232 Business Angels members of
networks – found that Business Angels allocate a maximum of 20% of their entire capital, usually (in 75%
of cases) not more than €500,000, to investments in unquoted companies. It is possible to estimate that
each Business Angel has total capital assets of €2.5–€5 million. Their investments are spread across a
portfolio of between one and five companies. These companies are either at the seed or the start-up
phase. On average 10% of these investments are in university project spin-offs.
74
EBAN data for 2010 are based on only 3 BANs. As a result the 2009 were considered as more reliable as a basis
for making estimates on the total visible market.
75
BAND data
76
Heinrich Stedler and Hans Peters (2003), Business angels in Germany: an empirical study, VENTURE CAPITAL,
VOL. 5, NO. 3, 269 – 276
62
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
2
Table 2: Business Angels’ investment in networks: Type and volume in Germany in 2009 – Data from 9
BANs and estimate for total Business Angel Networks
Indicator
Number of business plans received
Number of business plans submitted to angels
Number of deals made through the network
Number of new companies financed
Number of investors that made investment in companies
presented through the network
Number of follow-on rounds
Total amount invested by angels through BANs (€)
Average amount of the deal (€)
Average amount per angel investor
Total amount invested – including co-investors
EBAN data
3,391
531
69
44
60
21 (8 BANs)
19.6 million (7 BANS)
178,000
111,000
22.3 million (7 BANS)
Total
(estimate)77
15,000
2,400
300
170
€55 million
Source: EBAN and CSES elaboration
In relation to the sector focus, the data from the EBAN survey and the study of Stedler and Peters
indicate a priority to the ICT sector. According to EBAN, ICT and mobile software and applications
represented close to 50% of the deals and 47% of the total investment in 2003. Biotech and healthcare
represented around 11% of the deals reported and around 14% of the amount invested while energy
and environment sectors also around 11% (13% of total invested).
Table 3: Percentage breakdown of Business Angel investment by sector (2009) - Data from 13 BANs
% of total number of
deals
% of total amount
invested
ICT
38.3
38.7
Mobile - including software and service applications
11.1
9.2
Biotech and Life sciences
5.7
9.2
Health Care and Medical technologies
5.5
4.8
Energy/ Environment and Clean-tech
11.3
12.8
Creative Industries
7.5
6.9
Retail and Distribution
4.6
2.7
Finance and Business Services
1.9
2.9
6
5.6
7.7
8.3
Sector
Manufacturing
Other
Source: EBAN survey (2009)
77
Estimates are based on the ratio of total BANs to BANs in the survey.
63
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
2
The EBAN survey also supports the general held view that Business Angels tend to invest in firms in their
proximity with the majority (around 62%) of deals in 2010 concerning firms in the region where the
respective BANs was located.
Table 4: Geographical concentration of Business Angels’ Investment – share of deals by location of
recipient firm
Location of recipient firm
% of deals
In the region where the Network is located
61.9
In the same country, but not in the same region
30.5
Cross-border in Europe
8.0
Outside of Europe
0.0
Source: EBAN survey
The EBAN data suggest that Business Angels in BANs tend to focus on early stages (pre-seed, seed, early
stage and start-up) of the firms life cycle, representing 77% of the deals in 2010. However, a significant
23% is also invested in the second round expansion stages.
Table 5: Business Life Cycle Stage of Investment
Stage of investment
Share of total (%)
Pre-seed
14.2
Seed
30.4
Early stage and start-up
31.8
Expansion
22.8
Pre-IPO
Buy-out and turnaround
0
0.8
Source: EBAN Survey 2009
Finally, according to the EBAN survey, Business Angels tend to co-invest with other Business Angels
inside or outside their own network but also with other early stage or VC funds. The results are very
similar to those reported by Stedler and Peters in 200378 that identified as main partners other Business
Angels, venture capital companies and the government technology venture capital company TBG79 of
the Deutsche Ausgleichsbank. A key aspect is the fact that Business Angels regard other Business Angels
and venture capital companies as providing the most significant due diligence because of their
specialised expertise. The Business Angels panel data confirm this preference and indicate that more
and more Business Angels prefer to operate in syndicates (more than 50% of Business Angels stated this
in 2011 compared to 14% in 2009).
78
Heinrich Stedler and Hans Peters (2003), Business angels in Germany: an empirical study, VENTURE CAPITAL, ,
VOL. 5, NO. 3, 269 – 276
79
Technologie-Beteiligungs-Gesellschaft mbH
64
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
2
Table 6: Level of Business Angel Co-investment
Co-investors
Share of total (%)
Business Angels inside the network
26.3
BAS outside of the network
16.3
Early stage fund
31.3
Venture capital fund
13.8
Family office
3.8
Institutional investors
8.8
Other investors
0
Source: EBAN
Concerning the contribution of Business Angels Networks in Germany, their key role appears to be the
facilitation of deal flows. Involvement in these networks provides Business Angels with access to
investment opportunities. In the case of BAND, a key activity, among others, is the German Business
Angels Day – taking place with the support of the government. This attracted 100 participants (firms or
investors) in 2001, increasing to more than 500 participants in 2008 ..
2.2 Data on non-visible Business Angels market
There are a few sources available providing the basis for estimating the number of Business Angels and
the total size of the Business Angel market in Germany.
The most often cited study of ZEW in 2007, based on information on first round investments received by
high-tech start-ups in the period 2001-2005, indicates a total number of around 2,700-3,400 active
Business Angels. Clearly this number is an underestimate of the total market. Another estimation based
on data from financed exits indicated a total of around 5,200-5,40080. BAND suggested that the total
number of Business Angel investors is in the range of 5,000-10,00081 and that in comparison to the 850
active Business Angels per million population in the USA, German Business Angels are no more than 3341 per million. This number is based on the ZEW estimate and focuses on active investors. As already
indicated, around 1,400 of the Business Angels are organised in BANs, a share of around 10-25%,
depending on which of the above estimates is used.82
Using a different approach, the 2010 Global Entrepreneurship Monitor report83 that provides data on
the number of informal investors among the adult population also allows us to develop an estimate of
the total number of Business Angels. According the GEM data for Germany the share of individuals
between 18-64 years old that have invested in someone else’s business in the last two years was 3.6%. A
large share of such investments are directed to friends and family and do not fit with the Business Angel
80
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
81
http://www.business-angels.de/default.aspx/G/111327/L/1031/R/-1/T/130582/A/1/ID/133257
82
http://www.vc-magazin.de/themen/business-angels///business-angels-in-europa-ein-genauer-vergleichlohnt.html
83
GEM consortium (2010), GEM Germany 2010 report (in German),
http://www.gemconsortium.org/docs/507/gem-germany-2010-report-german
65
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
definition. While there are no specific data available for Germany, the GEM study does provide
information for other EU countries on the percentage of such investments directed to “strangers with a
good business idea”. On the basis of the average value of around 7% for the EU countries available84 we
reach a total number of around 2,500 investors per million people, thus a total number of individuals
that have invested in the last three years of close to 150,00085. This number is not realistic. The 2,500
investors per million population is significantly higher than the 850 per million population indicated in
the US, a country where the Business Angels market is, according to all sources and experts, much more
developed than in Germany. In addition, the accepted Business Angels’ definition implies subsequent
involvement in the business and provision of support, a point that is not considered in the GEM data.
Finally, one should take into account that, according to all sources available, female Business Angels
represent no more than 5% of the Business Angels (see below). Put together, a more realistic upper
estimate should be in the range of 25,000-30,00086.
Concerning the value of the market, according to the ZEW study the amount of capital invested by
Business Angels in 2005 - without other funding and not considering deals in the non-high-tech sectors was €190 million. According to the EIF, the total market is around €300 million annually which appears
more plausible, given the limitations of the ZEW estimates. BAND provides a broader range of €250
million-€1 billion but suggests that the €250 million is the more realistic estimate87.
In terms of the number of deals, the ZEW study identified a total of 3,730 business deals in the period
2001-2005, around 750 annually. The number represented close to 5% of the total high-tech start-ups
identified in the study (73,000). According to ZEW the average amount per investment is typically in the
range of €50-100k and this number seems to be in line with the results from the Business Angels’ panel
survey run by BAND and VDI88. It should be noted that there seems to be a decline in the size of the
deals in comparison to the 2002-2004 period when investments were most often in the range of €100€200k (EIF). Rather similar figures arise on the basis of the responses in the Business Angels panel, the
average total amount invested by a single business angel in 2010 was around €130,000 and in 2011
€110,000. In 2002-2004 the average total amount invested was closer to €500,000-€600,000. The
financial crisis has played a role in the reduction of both the size of the investments and the total
amount of investment, the 2002-2004 period linked also with the dot.com bubble. On the basis of a
total of 5,000 Business Angels this leads to a total market size of €650 million for 2010. However, this is
probably an overestimate since the Business Angels in the panel are all active angels with a higher
number of deals (1.5-2 on an annual basis) than the average Business Angel.
Most sources indicate that Business Angels focus on the seed – or even pre-seed stage – and the startup stage. An earlier study (Brettel,2003)89 of 48 Business Angels also found that the focus is on the pre
start-up/seed stage (41% of investments), start-up (28%) and early-stage (21%). The expansion stage
concerned 10% of investments. Nonetheless, the ZEW study in 2007 indicated that around one third of
84
GEM website, see above
On the basis of the 18-64 cohort representing around 60% of the total population of 81 million.
86
On the basis of 850 investors per million population and only 5% of the female population.
87
Fryges, H., Gottschalk, S., Licht, G. and Müller, K. (2007). Hightech-Gründungen und Business Angels. Final Report
for the German Ministry of Economics and Technology. October 2007
88
The Business Angels panel is based on responses of 20-30 active business and is conducted on a quarterly basis
since 2002.
89
Malte Brettel (2003): Business angels in Germany: A research note, Venture Capital: An International Journal of
Entrepreneurial Finance, 5:3, 251-268
85
66
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
2
Business Angels also provided support for the expansion of existing firms, in the form of second-round
follow-up investments.
On average German Business Angels hold 5 to 7 participations and the average holding period is around
4 to 7 years (Fryges et al, 2007). Wallisch (2009)90 suggests a wider range of 3 to 10 years with an
average of below 5 years).
In relation to the sector focus of Business Angels in Germany, these most often invest in the high-tech
sector or in tech-oriented services. The EBAN survey indicated a focus on ICT and mobile software and
applications, biotech and healthcare, energy and environment. The Stedler and Peters (2003) study
suggested a similar focus with around 52% of investments in the IT sector and 22% in life sciences and
20% in services. The business panel quarterly reports indicate that over the last few years, Business
Angels have given preference to investments in the energy and environmental (technologies),
medical/health (life sciences) and the IT sectors.
Another important aspect is the R&D intensity of the firms supported. According to the ZEW study
which focused on high-tech firms, in comparison to Venture Capital funds Business Angels are less
demanding in relation to the R&D intensity of the firms (20% in comparison to 40% in relation to
turnover) or the use of patents (33% among firms backed by VCs in comparison to 12%). Most of them
could still be considered high-tech companies but it includes, not only cutting edge high-technology, but
also other high quality technology and technology-oriented services.
Typically, the contact of Business Angels and companies was originally established on an informal basis
(according to Fryges et al, 2007: 93%). The Business Angels’ panel data indicate a total of around 50-60
business plans received, 15-20% of which leading to follow-up meetings. According to the ZEW study,
only a third of such contacts are successful, leading to financing. Such data could possibly be seen as an
indication of excess demand for Business Angel financing.
Table 7: Summary table of estimates of total Business Angel market and key characteristics
Estimate on the basis of the
various sources
Number of Business angels (estimate)
% of female in total
Total market size (€ million/year)
Total number of investments/year
Share of seed/start-up finance
Average investment size
Business Angels panel (active investors)
Business plans received/investor/ year
Plans considered
No. of Investments per individual
Total amount invested/Business Angel
Average investment size
5000-10,000
650 (2010)
70%-80%
<€50,000
ZEW study (2007)
Period 2001-2005
2700-3400
3%
300 (2007)
750
€50-100k
50-60
10-15
3-4
100,000-200,000 (2009-2011)
53,000
90
Wallisch, M. (2009). Der informelle Beteiligungsmarkt in Deutschland. Rahmenbedingungen, Netzwerke und
räumliche Investitionsmuster. München, 2009
67
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Germany
Typical share of Business Angels in
individual firm
Average firms per investor
Main sectors
2
20-25%
3.5-5.5
Medical, Environmental
technologies, IT
4-5
Sources: Various sources and CSES elaboration
2.3
Number of exits and exit strategies
The potential for exit is a key concern for Business Angels in Germany and the existing studies indicate
that this remains an issue. According to the ZEW study cited earlier, the most common exit route of
Business Angels has been the buy-back route through the repurchase of shares by the founders. Exit
channels in the form of "trade sale" through the purchase of company shares by a strategic investor or
through an IPO are generally rare. Nor was there any significant use of exit through the purchase of
share by venture capital firms.
The Business Angels’ panel data provide additional evidence in relation to this. Among 125 total exits in
the period 2006-2011, 38 were trade sales to strategic investors (other firms), 23 were buy-backs from
founders, 19 were purchase of shares by financial investors, only 7 IPOs – and none reported since 2007
while there were 18 liquidations. This limited number of IPOs comes in contrast to initial expectations
recorded in Brettel’s study (2003) when almost 50% of Business Angels indicated flotation as the
preferred method for exit.
2.4
Other market and Business Angels’ characteristics
As far as the demographic characteristics of Business Angels are concerned, the existing studies indicate
that the share of female angel investors in the total is very limited. According to the most recent study
97% of the Business Angels in Germany are male, their average age is around 50 years and typically they
are ex CEOs, MDs, or entrepreneurs, and often with own experience in founding companies91. Typically,
the private wealth of Business Angels is higher than €5m (EIF, 2011). Whereas male Business Angels
invest more in the life sciences sector and the electronics industry, female Business Angels show a
strong preference for the service industry sector.92
With regard to spatial patterns of angel investing, as in other countries, Business Angels tend to invest
in firms that are in close proximity. The survey conducted by Wallisch (2009) found that almost 40% of
the companies were within one hour reach for the Business Angels and more than 60% of the
companies were reachable within three hours. An earlier study of Stedler and Peters (2003) indicated
that there is a concentration of Business Angels in the most economically advanced Western and South
Germany (52% and 29% respectively).
2.5
Quality of data sources on Business Angels in Germany
In relation to the other EU countries, the existing data appear sufficient to provide a rather good picture
of the operation and development of the Business Angel market. Even though an estimation of the total
number of Business Angels or the total volume of investments will always suffer from the fact that in
91
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
92
Heinrich Stedler and Hans Peters (2003), Business angels in Germany: an empirical study, VENTURE CAPITAL, ,
VOL. 5, NO. 3, 269 – 276
68
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
many cases such investments are not formally reported, the combination of studies of the ZEW and KfW
and the BAND business panel cover a range of aspects and give a relatively detailed picture of the
market. Still, according to a recent article in VC-Magazin93, “the data from non-visible market are rather
problematic and academic studies are still not of high standard or frequent”.
The Business Angels' panel94 organised by BAND, University of Duisburg-Essen, RWTH Aachen and VDI
news since 2002 is unique. The panel comprises around 30 Business Angels that provide, every quarter,
information on their investment activities. The participants have been selected taking into account
regional balance. The data collected from the angels includes information on sectors of investment, the
geographical focus, their views on the development of the market and the motivations of the angels.
Furthermore, the panel responds to questions about the transfer of know-how, deal flow and invested
amounts. These are complemented with one or two topical questions every quarter, and the
participants are also expected to evaluate the mood of other angels. Usually the data is complemented
with interviews and entrepreneur portraits.
3 - SME access to finance in Germany
This section assesses the contribution of German Business Angels to SMEs’ access to finance and the
effectiveness of Business Angel finance to bridge the equity gap in the seed and start-up phases of the
SME development.
3.1 Overview
German SME financing is traditionally based on debt-finance and relies on the so-called "house bank"
principle ("Hausbankprinzip"). Most small and medium-sized firms maintain a close, confidential and
long-term-oriented relationship with one main bank, their "house bank". The majority of SMEs tend to
co-operate (mostly for many years) with one or two "house banks". The German finance system is longterm-oriented specialised in providing (relatively cheap) long-term credits to SMEs. International
comparisons indicate that, on average, German SMEs have lower equity ratios than comparable
enterprises in other countries, reflecting SMEs' preferences and institutional and legal framework
conditions. However, as a result of recent changes in the financial markets and the banking sector
(reinforced by "Basel II") the equity ratio has gained considerable importance for the financing
conditions. As a consequence, SMEs' average equity capital rate increased from just 6% in 1997 to 20%
in 2009.
In comparison to other EU countries, access to finance for SMEs seems to be relatively easier than the
EU average. According to information from the most recent Small Business Act Fact Sheet for
Germany95, the share of unsuccessful bank loan applications by SMEs is only a little higher than in other
EU countries while around 27% of SMEs responding indicated a deterioration in the banks’ willingness to
provide loans – close to the EU average. German SMEs have to pay higher interest to take up loans of
less than €1 million compared to similar firms in other EU countries (a 29% difference in Germany
compared to 24% in the EU as a whole).
93
http://www.vc-magazin.de/themen/business-angels///business-angels-in-europa-ein-genauer-vergleichlohnt.html
94
www.ba-panel.de
95
EU (2011), SBA Fact Sheet- Germany 2010/2011, http://ec.europa.eu/enterprise/policies/sme/facts-figuresanalysis/performance-review/files/countries-sheets/2010-2011/germany_en.pdf
69
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
Table 8: Access to finance for SMEs – Key indicators for Germany and EU
Indicator
EU average
Share of bank loan applications by SMEs that were not successful, 2009
23%
Willingness of banks to provide a loan (% share of firms that indicated a
deterioration)
30%
Relative difference in interest rate levels between loans above €1 million
and loans below €1 million, 2010
24%
Venture capital investments - early stage (% of GDP), 2009
0.014%
Access to public financial support including guarantees
22%
(% that indicated a deterioration)
Germany
26%
27%
28.9%
0.018%
13%
Source: Small Business Act Fact Sheet for Germany
In terms of government support, the picture from the Fact Sheet is that, overall, the situation in
Germany has been better than the EU average. Germany has a comprehensive system of public support
at national and regional level including debt capital, mezzanine capital, loan guarantees and microcredits as well as – more recently - equity capital support. The large variety of support programmes is
available in the internet database run by the Federal Ministry of Economic Affairs and Technology
(BMWi)96. (http://www.foerderdatenbank.de). Recently (2010), small and micro enterprises were given
access to finance via the German micro-credit fund. German SMEs also have access to credit mediators
(financed by the Federal Government) that help small businesses get access to finance by establishing
contacts with banks and other providers of finance and by moderating negotiations. These mediators
also offer consulting on public support opportunities.
In the terms of access to equity capital, the Fact Sheet suggests that, at a national level, early stage
venture capital is more readily available than on average in the EU. However, a recent analysis of KfW
concluded that in Germany the existing Venture Capital is not able to meet the excess demand of young
innovative companies and only 2-5% of high-tech growth-oriented firms end up receiving VC funding.97.
Furthermore, the study concludes that there is a consistent shift towards later stage finance leaving
significant gaps in relation to early stage finance. The focus is on larger size investments – most typically
of over €1 million – and typically on the expansion stage while seed capital is very limited. There is thus
a clear gap identified when it comes to early equity capital. Another study of the KfW in 201198 indicates
that the demand for venture capital (VC) is positive but that there is insufficient supply. The EIF report99
also states that there is excess demand for early stage financing. The public sector has attempted to
address part of this fund with various measures and programmes including the Investment Fund for
High-tech Start-ups. The fund is a public-private partnership aiming to provide venture capital to young
technology-intensive start-ups.
96
http://www.foerderdatenbank.de
KfW Research (2010), Beteiligungsmarkt nach der Krise : Optimistischer Ausblick Aber Angebotslücke be im
Wachstums capital wird grösser
98
KfW Research, Business Angels aus der sicht von Venture Capitalgesellschaften, Nr. 49, August 2011
99
EIF(2011), Business Angels in Germany EIF’s initiative to support the non-institutional financing market, EIF
Research & Market Analysis, Working Paper 2011/11
97
70
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
3.2
Annex
2
Role of Business Angels
On the basis of the existing equity gap, all studies mentioned earlier made reference to the potential
role of Business Angels for the financing of early stage companies with seed or start-up capital,
particularly in relation to SMEs in high-tech sectors.
As indicated earlier (ZEW, 2007), around 5% of the total high-tech start-ups that were looking for
funding were supported by Business Angels, on average two per firm. Business Angels typically take
minority stakes, most often not investing more than €50,000.
The 2010 investment market study of KfW97 on the role of Business Angels indicates that, while
relevant, the financial support provided is not the most important aspect. The findings of the study
suggest that the main added value from Business Angels comes from the provision of contacts through
their networks and the consulting support and know-how provided. On a scale for 1 (very high) to 6
(very low) these two aspects were given an average rate of 2.3 in comparison to an average of 3.1 for
financial support.
4 - Public support for Business Angels
In this section we examine the existing support schemes for Business Angel financing in Germany and,
on the basis of available information, provide an assessment of their performance.
4.1 Direct support measures
Public support in relation for Business Angels includes a combination of some - albeit limited - tax relief
for capital gains, the support for the development of networks – including the national association of
BANs and the creation of public-private funds co-investing in high-tech start-ups.
The tax scheme in Germany in relation to Business Angels is based on the following elements:
-
-
-
-
-
The top tax rate is 42% and, since 2007, 45% for singles with income of €250,000 and for
€500,000 for married couples. There is also an additional solidarity surcharge that increases this
to 44.3 and 47.8% respectively;
Income coming from shares of corporations of which the shareholder holds more than 1% - as
most Business Angels - is liable for taxation. Since 2009, 60% of the capital gain is liable for
taxation with a tax rate of 26.38%. If the amount held is less than 1%, any capital gain is tax free
if the share has been purchased before 2009 and if it has been held for more than a year. For
shares purchased after December 31st 2008 the tax rate on capital gain is 26.38%;
If the Business Angel is acting through a corporation, 95% of the capital gain is not liable for the
corporate income tax (Körperschaftssteuer). The remaining 5% share is liable at a tax rate of
approximately 30%. Capital gain distributions collected after December 31st 2008, are liable to
the “Abzugssteuer” at a tax rate of 26, 38%;
The taxation of co-investments depends on the fund’s legal form. If the fund is a nonincorporated firm the income tax rates apply. If the fund is a corporate enterprise (GmbH or
AG), the capital gains tax rates apply;
There is no wealth tax as in other countries and, as a result, no property-related tax shield
related to investments from Business Angels.
The discussions with the Federal Ministry of Economy indicate that there are ideas of supporting the
economic returns on investment from Business Angels and certain proposals have been made on the
basis of a so-called roll-over principle in which capital gains are tax free when re-invested in start-
71
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
ups. The government has presented a draft bill introducing investment allowances for Business Angels
financing and it is currently being discussed among stakeholders. Pending issues include the minimum as
well as the maximum limit of investment that should be considered, how to best ensure focus on small
firms and the application of the scheme in the case of investments through a corporation100.
In addition, in cooperation with the European Investment Fund, the Federal Ministry of Economics
launched in 2012 a Business Angels Fund with a total budget of €60 million101. The Federal government
has also created national funds aiming for start-ups, especially in the high-tech sectors. These include
the ERP Start Fund or the High-Tech Start-Up Fund II that are relevant for early investors.102
In relation to the promotion of networks, the national BANs association - BAND - was created with the
support of the Federal Government and private sponsors. It operates as a network of networks and
organises the Business Angels Day, a national network for experience exchange and the Angel of the
Year award. Other activities include the sponsoring of the Business Angel panel presented earlier and
the promotion of investment readiness activities. In addition, as a national association, it represents and
promotes the interests of Business Angels.
Support to Business Angels also comes from some regional authorities. However, a recent article of the
director of BAND in VC Magazin103 suggests that, in terms of financial support, public support for
Business Angels is rather limited, with the notable exception of the Frankfurt (Hess region). In most
other regions the main activities include the promotion of the Business Angels concept (e.g. road
shows), the support to local Business Angels Networks and the strengthening investment readiness
aspect including business plan competitions.
4.2
Evaluation of public support for Business Angels
There are no studies and other relevant information available at this stage to allow for a formal
assessment of the public support schemes provided and their effectiveness.
Stedler and Peter (2003)104 survey of 48 Business Angels considered the importance of framework
conditions and public support measures. The provision of public venture capital support was considered
a significant support factor by the majority of Business Angels in Germany. In their investment activities
Business Angels often work with such public bodies as the Deutsche Ausgleichsbank which specialises in
start-up investment and the KfW. Tax relief was not considered as important for more than 50% of
Business Angels in their informal investment activities although, if the taxation framework was to be
changed, reducing the investment relief quota, half of them suggested that they would respond by
founding their own holding company. Still, Business Angels consider deregulation of the investment
capital market as more important than the provision of tax relief. Such measures could include, for
example, the easing of restrictions on non-stock market shares in enterprises and application of the
fourth financial market promotion law currently under discussion.
100
BAND (2012), Erste Konturen der Investitionszulage für Business Angels Finanzierungen, http://www.businessangels.de/default.aspx/G/111327/L/1031/R/-1/T/130782/A/1/ID/134744
101
http://www.business-angels.de/default.aspx/G/111327/L/1031/R/-1/T/131081/A/1/ID/134718/P/0/LK/-1
102
http://www.vc-magazin.de/themen/interviews/artikel/es-ist-wichtig-eine-business-angels-kultur-indeutschland-zu-schaffen.html
103
http://www.vc-magazin.de/themen/interviews/artikel/es-ist-wichtig-eine-business-angels-kultur-indeutschland-zu-schaffen.html
104
Heinrich Stedler & Hans Heinrich Peters (2003): Business angels in Germany: An empirical study, Venture
Capital: An International Journal of Entrepreneurial Finance, 5:3, 269-276
72
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Germany
Annex
2
Table 9 – Role of framework conditions for Business Angels
Framework conditions
Tax relief
Response to changes in the tax framework
De-regulation of capital market
Importance of public venture capital
Findings
46% important
54% less important
52% found own investment company
25% increase syndication
60% important
40% less important
57% high
20% minor
27% not applied for
Source: Stedler and Peter (2003)
73
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
This annex contains a summary of data obtained in respect of the activities of Business Angels in
Italy105.
1 - Introduction: Overview of the Italian Business Angel market
A key issue that emerges when examining the Business Angels market in Italy is the actual definition of
BAs. In interviews with representatives of Italian organisations involved in the market for Business
Angels, the point was made that in Italy there is not a distinction made at present between investment
in the companies of friends, family and known business associates on the one hand and “strangers” on
the other. The annual survey conducted by the Italian Business Angels Network (IBAN) does not make
such distinction. It was also stated that one of the key factors making Business Angels useful and
important is that they have a very deep knowledge of local realities and businesses and contacts which
gives them access to informal networks in the region which they then access to make investments.
Having said that, Italy was a late starter in the Business Angel market and as the networks that have
been set up since the establishment of IBAN in 1999 grow, there is an increased flow of projects for
consideration and more contact with “strangers” so this aspect of the market is set to grow, particularly
as Italian Business Angels increase their investments in projects in other EU Member States106.
According to Capizzi and Giovaninni there are two types of Business Angel in Italy: financially oriented
Business Angels who do not get involved in operational management (except very marginally); and
industrial Business Angels, who get involved in management of the firm with their know-how and
contacts107. Italian Business Angels tend to invest in seed or start-up rather than turnaround
situations108. Another issue is the difficulty of finding details about the Business Angels deals and their
size109. There is no public register of Business Angels and they also have a preference for privacy which
makes it hard to find them – both for other entrepreneurs and researchers. Often they have a very
strong desire to maintain their anonymity.
Given all these caveats, the data from IBAN survey and interviews with IBAN representatives suggest
that the total number of Business Angels in Italy is around 450-600, 65-75% of which represent the
visible part of the market. The total value of the measured market in 2010 was €33 million.
In its overview of the informal risk capital market in Italy for 2010110, IBAN suggests that the economic
cycle has not had a negative influence on the growth of investments by Business Angels which had
increased both in number and value compared to the previous year. This poses the question as to
whether Business Angels are evolving as an alternative to bank finance and guarantees in the prevailing
105
We wish to thank the Italian Business Angels network (IBAN) for the support provided by making available their
survey data to the study team.
106
An additional comment made was that what constitutes a “friend” is somewhat unclear. For example in the
case of “the friend of a friend”.
107
Capizzi, V. and Giovannini, R. (2010) : Business Angels e Informal Venture Capital in Italia, Bancaria Editrice,
Rome, p.27
108
Marzotto Caotorta, Presentation at the Xth Convention of IBAN, 25 June, 2009, referred to in Capizzi and
Giovannini, p.27
109
Capizzi, V. (2011): What drives the Returns of Business Angels’ Investments? An Empirical Analysis of the Italian
Informal Venture Capital Market, International Journal on GSTF Business Review, Vol. 1, No 2, October 2011, p.55.
110
IBAN (2011): Il mercato Italiano del dapitale del rischio informale – Sintesi Survey 2010, Milan.
74
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
financial climate. Angel investing is becoming an increasingly prevalent phenomenon in the Italian
economic scene.
In terms of government support to Business Angels, the main measure taken so far has been the
introduction in 2008 of a tax relief scheme targeting Business Angel investments. Other measures have
not been taken, despite the efforts of the IBAN, but it appears that the government is now listening to
some proposals. There has not been any evaluation of the tax relief scheme or of the overall policy
towards Business Angels to this point.
2 – Data on the Business Angels’ market in Italy
This section summarises key data on the visible and non-visible market for investment by Business
Angels.
2.1 The visible market
The main source of information on the Italian Business Angel market is IBAN. IBAN has been conducting
a survey of Business Angels for the past 10 years with a continuous series of data since then. The
number of responses has grown, reaching a total of 313 in 2010 which, according to the IBAN,
represents 50-70% of the total number of Business Angels, thus around 450-620 in total. They also get
some data from the Italian Private Equity and Venture Capital Association.
According to the IBAN survey, informal venture capital in Italy has grown from only €400,000 to over
€33 million between 2000 and 2010. Capizzi111 suggests this growth is due to the organisation and
structuring of the market over the past decade, driven, to a large extent, by IBAN.
At the same time, the average investment has declined from €183,000 in 2007 to €145,000 in 2010. The
number of investments (per year) also increased from 105 to 229 over the same period. In addition,
according to IBAN:
•
•
•
•
The number of projects examined seriously has increased from 635 in 2007 to 1,362 in 2010: this
has meant more Business Angels are involved and has also increased the quality of projects;
There has been an emerging trend towards smaller deals to diversify and reduce risks (many
Business Angels tend to only invest up to 10% of their personal wealth in this way);
Some 160 start-up and highly innovative firms were created in Italy thanks to the contribution of
Business Angels in 2010;
Business Angels are more highly diffused than was first thought in Italy; some 30% of survey
respondents do not belong to IBAN.
Table 1: Number of transactions and values invested 2007 – 2010
Year
2007
2008
2009
2010
Total invested (million €s)
19.5
31.1
31.5
33.3
Number of transactions
105
120
179
229
Source: IBAN
111
(2011): What drives the Returns of Business Angels’ Investments? An Empirical Analysis of the Italian Informal
Venture Capital Market, International Journal on GSTF Business Review, Vol. 1, No 2, October 2011, p.56.
75
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
•
•
•
•
•
Annex
3
63% of investments were for values of less than €100 000;
Business Angels tend to invest some 10-15% of their liquid wealth, and more than 90% of the
sample is of the view that the share can increase, which suggests there is substantial scope for the
growth of angel investing;
The Business Angel is increasingly professional and a serial investor: some 12% of respondents
indicated that they had carried out more than 10 transactions in recent years;
There is a reduction in the share of transactions by single investors, as well as an increase in the
share of European transactions as compared to regional ones;
A reduced number of respondents replied to the question about exits, but there were just over 30
recorded. Of these a third involved a cessation of activities, a third a sale to or merger with a
different company, and a third a sale to the project team or larger third investors.
Table 2: IBAN survey – Key Results for the period 2007-2010
Year
2007
2008
2009
2010
Number
of Projects
responding
examined
Business Angels
104
635
140
658
268
1 394
313
1 362
Projects
invested in
105
120
179
229
Average value of Declared exits
projects (€s)
183,000
213,000
176,000,
145,000
23
32
33
31
Source: IBAN
Table 3: Data on the visible Business Angels market in 2010
Indicator
Total amount invested by angels
Number of investments
Average amount of the deal (average investment)
Average amount per angel investor
Total amount invested – including co-investors
IBAN data
(2010)
€33 million
229
145,000
<€60,000
na
Table 4: Business Angels Networks, 2010
Indicator
Number of business plans received by BANs
Number of business plans submitted to angels (“examined”)
Number of new companies financed
Number of follow-on rounds = not syndication – very little info about that; e.g. coinvestment with seed capital,
IBAN data
na
1,362
around 150
na
76
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
Table 5: Business Angels Networks, 2010
Parameter
Number of networks
Number of members (investors)
- Of which, number of active Business Angels
Average number of investors per network
Total number of women Business Angels (% of total)
Number of angel investors recruited during 2009
Number of women investors recruited during 2009
Number of angels who have left the networks
Average number of angels per investment round
IBAN survey numbers (2010)
14
450
75-90 %
Varies: e.g. Ital Angels for Growth = 90,
Trentino = 9. Average approx.: 32
5%
Increased approx. 5-10%
Stays similar share
Very few if any
60% of investments more than 7 (2011);
Around 5% single investors
As regards industry shares, according to the IBAN survey data, in 2010 most of the deals concerned
firms in the ICT sector (20%) followed by business services (16%), entertainment (12%), bio and medical
technology and energy and environment (10% respectively). However, in 2009 the bio/med technology
sector was the one with the higher share.
Table 6: Sectors invested in by Business Angels in Italy (2010) – numbers of transactions
Sector
ICT
Business Services
Entertainment
Biotechnology and Med Tech
Energy and Environment
Commerce and Distribution
Manufacturing
Finance and Insurance
Internet
Agro-Food
Other
Percentage
20
16
12
10
10
8
7
6
5
3
5
Source: IBAN survey 2010
As regards the stage of the development of companies invested in during 2009-11, IBAN points out that
Business Angel investment is an integral element of “early stage” investment in Italy, an area where
Business Angel investing is becoming increasingly important. Taking the aggregate values published by
IBAN and AIFI together, some 70% of deals in this area originate from Business Angels, and the trend
seems to be gradually increasing.
77
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Italy
3
Chart 1: Stage of development of companies invested in, 2009-2011, %.
Initial growth
Start-up
2011
2010
2009
Seed
Other
0
10
20
30
40
50
60
Source: IBAN, 2012
Additional data from the IBAN survey indicate that the most common investment is smaller than
€60,000. Investments are usually held for less than four years. Usually the Business Angels own 20% of
the share capital of the financed firms. In 2011 almost a third of Business Angels responding to the
survey had no investments in their portfolio (this may be related to the recent growth in their numbers
and/ or the state of the economic environment) while the majority (around 55%) had between 1 and 3.
Most Business Angels prefer to work with S.r.L. companies (limited companies, usually with little
capital). Most important determinants for deciding investments are the quality of the management
team of the financed company, followed by market potential of the project112.
2.2 Data on the non-visible market
According to IBAN, the total number of Business Angels in Italy is in the region of 500, which, on the
basis of the data provided earlier, suggests that invisible market includes some 50 - 100 Business Angels.
This number, if accurate, deviates greatly from the numbers from most other European countries where
the invisible share of the Business Angel market usually represents more than 50%, and very often up to
90% of the total.
Considering the data of the GEM survey, around 3% of Italians in the age group 18-64 (close to
1,830,000) are informal investors (i.e. have invested in the business of another person in the last three
years). There are no specific data for Italy but across Europe 5-10% of these invest in the business of
strangers. In the case of Italy, the discussions indicate that this tradition is rather uncommon and we
consider that even an estimate on the basis of 5% (around 90,000) is probably an overestimate. Given
112
IBAN (2012): Il mercato Italiano del dapitale del rischio informale – Survey 2011, Milan.
78
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
that the great majority of investors (95%) are men even this number is most probably an overestimate.
In addition, the GEM data do not differentiate between investors that are actively involved in the
management of the firm. Thus, it is not possible to reach a more specific estimate with a reasonable
level of certainty. Still, on the basis of these numbers, the estimates of IBAN for a very small non-visible
Business Angel market may be somewhat conservative.
2.3
Exits and exit strategies
According to the IBAN survey data, 40% of respondents specify their intended exit strategy at the
moment of investing, and only 7% do not have a predetermined approach. The preferred exit strategy is
that of selling to, or the fusion with, another company (38%), followed by a sale to other investors
(31%).
Using the IBAN data, Capizzi examined some 90 disinvestments made during the period 2007-2010 in
Italy113. It suggests that exit strategy is an important variable to consider when investing in the capital of
an unlisted company. Of the companies on the database, 16.7% were closed activities, with lowest IRRs;
buy-back from the management team has a low IRR (28.9% of exits); sale to/ acquisition by another firm
(35.6%) has the highest return; followed by a stock listing (2.2%); and sale to other investors (16.7%).
Buy-back is usually the last-best strategy after failure of other exit strategies. The average duration with
which investments that were part of the study were held is 3.3 years, and the IRR dramatically falls as
years rise, although increasing after year five. 63% of losses occur in year two of the investment. The
best performing industry was biotech/ medtech (only 1 investment showed a loss), followed by ICT and
then retail. Overall, about one in three investments resulted in a loss (partial or total).
According to IBAN’s most recent survey data, whereas in previous years the average number of exits
declared in the survey was in the region of 30, in the 2011 survey there were only 14 exits declared. It
may be that this is due to the unfavourable economic and financial environment, which has led to
postponing of disinvestments until more favourable circumstances emerge. The average period for
which investments are held was 4.6 years, as opposed to 4 years for the preceding years. Most
disinvestments were in Northern Italy.
The sectors most disinvested from in 2011 were ICT 34% (22% in 2010), followed by manufacturing at
29% (22% in 2010) and energy and environment at 14% (7% in 2010). 64% of disinvestments were in
high-tech companies.
113
Capizzi, V. (2011): What drives the Returns of Business Angels’ Investments? An Empirical Analysis of the Italian
Informal Venture Capital Market, International Journal on GSTF Business Review, Vol. 1, No 2, October 2011, p.57.
79
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Italy
3
Chart 2: Losses and Gains on disinvestment, 2009-2011
Loss>100%
Partial loss
2011
2010
0-19%
2009
20-49%
50-99%
100-200%
>200%
0
10
20
30
40
50
60
Source: IBAN, 2012
Chart 3: Business Angel exit strategies, 2009-2011
Exchange listing
Sale to/ integration with other firm
2011
Sale to other investors
2010
2009
Sale to project team
Cessation of activities
0
5
10
15
20
25
30
35
40
Source: IBAN 2012
The exit strategies selected show some variation. This is probably related to the state of prevailing
economic conditions. For example in 2011 there were no exchange listings.
80
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
2.4
Annex
3
Other market characteristics
According to the IBAN, the “typical” Italian Business Angel is a man (some 5% are female) aged between
44 and 50, has a university degree (58% have a degree, 35% a post graduate title, 7% have a mediumsuperior school diploma) and has private wealth excluding his personal residence of between several
hundreds of thousands of Euros and €1.5 million (38% between €500,000 and €2 million). Around 10%
of this wealth is invested in unlisted firms. In addition, the typical Business Angel usually involves at least
one other Business Angel in his investments and is affiliated to a BAN. Only about 12% were serial
investors. In addition, at least among the Business Angels that are members of BANs, Business Angels
are concentrated in Northern Italy (50% in Lombardia and 11% in Emilio Romagna).
The most important contribution Business Angels bring is strategy, followed by contacts and the capital
and financial knowledge.
The IBAN survey also indicates that the share of Business Angels that would prefer to invest in their own
province, as opposed to nationally of on a pan-European scale, is gradually declining.
Creation of syndicates is increasingly popular among Business Angels. Usually syndicates are formed by
expert angels, and there is a Lead Investor who co-ordinates with other investors and interfaces with the
financed company. This allows diversification of risk and larger sums to be invested. These investments
are targeted at companies that are not yet out of the start-up phase but need funding for the expansion
phase until VCs can enter and close the second equity gap. Syndicates can also attract less expert
Business Angels, encouraging them to be more active, as well as latent Business Angels.
They might also collaborate with the VC organisation AIFI (the Italian Association of Private Equity and
Venture Capital) to jointly support companies throughout their growth and development cycle. They
also co-operate with public sector funds for purposes of making co-investments. Seed funds to finance
ideas and business at first stages exist in Italy that Business Angels can readily co-invest with in
companies. For example, there is the Fondo Eporgen Bioindustry Park del Canavese, the Fondo Rotativo
per le nuove imprese innovative della Camera di Commercio di Pisa, and the New Venture Development
S.p.A.
2.5
Quality of data sources
At present the most robust and reliable source of data about the Business Angel market in Italy is that
developed by IBAN since 2000. IBAN carries out a yearly survey through which it obtains details about
Business Angels in Italy and their activities since 2000, providing a continuous database for that period.
Usually between 30-40% of survey respondents are not members of networks. This is a cross-country
data source and allows for useful comparisons in trends since the data has been collected.
A recent change in tax laws has meant that Business Angels can claim tax relief on their investments
which should allow an additional source of measurement of the extent of the market, however, as yet
data about these numbers, or research based on that, has not yet become available. One issue is that
such data would include all those that claim tax relief under the law, which could include more than just
Business Angels.
A combination of these two data sets should provide a more accurate picture of activity when the data
become available.
81
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Italy
3
3 - SME access to finance - overview
According to the SBA Fact Sheet of 2010-2011, Italy ranks below the EU average in the area of access to
finance for SMEs, with only a few indicators hovering around the average and most falling behind. As
regards the indicators measuring access to private capital (venture capital, difference in interest rate
levels and willingness of banks to provide loans), Italy performs below the EU average. For example,
Italian small firms that want to take out a loan of over €1 million also have to accept a larger interest
rate spread compared to loans above that threshold than their EU peers (36.28% of difference in Italy,
compared to an EU average of 23.98% difference). Moreover, the share of Italian firms that also
identified access to finance as the most pressing problem is higher than the EU average (19% vs.
15.41%).
Table 7: Access to finance for SMEs – Comparison of key indicators for Italy and the EU
Indicator
Share of bank loan applications by SMEs that were not successful, 2009
Access to public financial support including guarantees
(% that indicated a deterioration)
Willingness of banks to provide a loan (% share that indicated a deterioration)
Relative difference in interest rate levels between loans above 1 million EUR and
loans below EUR 1 million, 2010
Venture capital investments - early stage (% of GDP), 2009
Share of Italian firms that identified access to finance as the most pressing
problem
EU
average
23%
22%
Italy
17%
20%
30%
32%
24%
0.01%
36.3%
0.003%
15.4%
19%
Source: SBA Fact Sheet
Policy measures have been taken lately to improve the situation in Italy. Of relevance to the Business
Angel market, is that during the course of 2010, training courses and seminars were organised to
increase the knowledge of venture capital among SMEs. These courses precede the creation (expected
in 2011) of a network of trained accountants, called ‘Equity Angels’, to help SMEs access venture capital.
In addition, exporting SMEs can, since April 2010, apply for targeted financial support that also gives
them the option to become minority shareholders of enterprises investing in innovation and research.
Under this scheme, the financial support amounts to a maximum 25% of the net capital of the
enterprise but no more than €500,000.
3.1
Role of Business Angels
Business Angels of some nature have been present in the market for some time in Italy. However, it has
only been since they have been organised through networks that the market has developed strongly,
and the term Business Angel is still quite unknown in Italy, even among some important Italian SMEfocused organisations, although once explained it is clearer. This suggests that more awareness-raising
activity can still be undertaken by IBAN.
According to Capizzi and Giovannini114 the initial role of BANs as they appeared in the USA in the early
1980’s was to act as a market for bringing supply and demand together. Subsequently, during the
1990’s, they added more services such as pre-screening of projects, selection of appropriate Business
82
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
Angels, consultancy and post-financing services. The crisis of the new economy with the bursting of the
dot.com bubble led to a weeding out of Business Angels and the grouping of more serious and
professional among them into associations. Members tend to be recruited on a more selective basis
than before 2003 and how they can contribute overall is also a factor in such selection.
In Italy, BANs evolved more slowly than in many other European countries. The first BAN was IBAN that
was set up in 1999, followed by additional networks soon after. IBAN became the key player, acting not
only as a referral point and matching agent, but also as a driver of change, dealing with all the themes
relevant to Business Angels in the Italian financial and business environment. The BANs helped resolve
some of the key problems of the Business Angel market: quasi invisibility of the Business Angels and the
high cost of search for new investment opportunities in SMEs that seek funding. Printed marketing
materials distributed through the media did not achieve a great deal of success in persuading Business
Angels to reveal themselves, but web-based approaches such as www.angelsoft.org were more
successful
As a network of networks, IBAN has helped set up regional BANs. Currently there are 13 BANs in Italy,
two of which are thematic - digital (Digital BAN) and life sciences (BAN Life Sciences/ Seven Hills Venture
Partners Consortium) - and one is a « club » (Italian Angels for Growth). The remaining are regional BANs
(e.g. Bologna, Brescia, Lazio). Syndication is an increasingly prevalent phenomenon in the operation of
BANs. However, the deep desire for anonymity among many Business Angels is still a problem in the
efficient operating of the market.
IBAN participates in EBAN and some EU projects such as « Ready for equity » (training for Business
Angels and entrepreneurs, part of the Leonardo programme) and « EASY »115.
It has not been possible to identify a study dealing specifically with the SME funding gap in Italy, but
through their activities, and also their close collaboration with venture and private capital (AIFI) and
other seed funds, Business Angels in Italy are making a contribution to filling the financing gap and
creation of new firms: for example, in 2011, 53% of investments were in companies with zero turnover,
and 69% in companies with less than €100,000, while some two thirds of total investments were in hightech firms.
3.2
Evaluation of the role of Business Angels
We have not been able identify any evaluation of the role of Business Angels in Italy.
4 - Public support for Business Angels
4.1
Direct support measures
In terms of government support to the Business Angel market, the Italian Government has recently
approved a tax relief scheme on capital gains from Business Angel investments (D.L. 112/2008, art.3).
Tax breaks are provided as follows116:
-
Direct investments by a private individual resident in Italy for tax purposes:
115
www.earlstageinvestors.org; www.Startupbusiness.com in Italy is also an on-line platform for bringing together
demand and supply, and information about opportunities.
116
For more detail e.g. as regards restrictions please see EBAN Compendium of Fiscal incentives available to
Business Angels in Europe.
83
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
Annex
3
Dividends–
Dividends from non-qualified participations are subject to a final withholding tax levied at 2.5%.
When the dividends come from a foreign company the withholding tax, if any, suffered in the source
country (i.e. the country of fiscal residence of the foreign company) can never be recovered in Italy.
As of 1.1.2009 (D.M. 2.4.2008), 50.28% of dividends from qualified participations are tax exempt.
Capital GainsCapital gains realised on non-qualified participations are subject to a final withholding/substitute tax
levied at the rate of 12.5%. From 1.1.2009, capital gains realised on qualified participations are taxexempt for 50.28% of their amount. The remaining 49.72% is included in the taxable income of the
shareholder-individual subject to IRPEF117 levied at progressive rates. It is possible to offset such
gains with the losses realised on the selling of participations of the same category.
As of July 2008 (D.L. 112/2008), capital gains realised on qualified and non- qualified participations
by private individual investors, not in a business capacity, are tax-exempt if
• Participations have been owned for at least three years;
• Companies of the referred participations, have been established for no longer than seven years;
• Companies, of the referred participations, have to have realised “productive” investments;
• Capital gains must be reinvested into “start-up” companies within 2 years since the gain accrued.
All requirements mentioned above must occur.
This is also extended to non-Italian private individuals investing in Italy under the same conditions as
residents, although there are some specific dispositions deriving from bilateral agreements against
double taxation.
-
Investment through a public/ private limited company resident in Italy for tax purposes:
DividendsDividends distributed to resident companies are exempt from withholding tax, substitute tax or
other deduction at source. 5% of such dividends are included in the taxable income of the
companies, subject to corporation tax (IRES - levied at the ordinary rate of 27.5%). The effective tax
burden connected with the dividend is therefore equal to 1.375% of the gross amount (5 x 27,%). In
this case as well, no dividend tax credit is available in order to offset that tax.
Capital Gains Capital gains realised by resident corporate entities upon disposal of domestic or foreign
participation could be partially exempt (95%) from corporation tax according to the "participation
exemption" regime. Such regime needs the fulfilment of specific requirements.
If, upon the disposal of the participation, one or more of the requirements are not satisfied, the
capital gain is totally subject to corporation tax levied at its ordinary rate (currently 27.5%).
Whether the participation exemption regime does not apply and the participation is classified in the
fixed financial assets category and is, upon its disposal, held for at least three years, the gain could
be taxed over five years (20% per year), starting from the disposal.
117
L'Imposta sul Reddito delle Persone Fisiche – personal income tax.
84
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Italy
-
Annex
3
Investment by a private individual in business capacity resident in Italy for tax purposes:
Dividends As of 01.01.2009, 50.28% of dividends are exempt. The remaining 49.72% is included, as business
income, in the taxable income of the individual, subject to IRPEF levied at progressive rates.
Capital GainsCapital gains realised on the disposal of participation could benefit from the participation exemption
regime if all the requirements described above are satisfied. In such a case, starting from
01.01.2009, 50.28% of the gains are tax-exempt. The remaining 49.72% is included, as business
income, in the taxable income of the individual subject to IRPEF levied at progressive rates.
Where the participation exemption regime does not apply capital gains are totally included, as
business income, in the taxable income of the individual subject to IRPEF levied at progressive rates.
It is possible to tax the gain in five years as the requirements above described are satisfied.
-
Investment by a partnership resident in Italy for tax purposes
Dividends From 01.01.2009, 50.28% of dividends are tax-exempt. The remaining 49.72% is attributed (together
with the overall taxable income of the partnership) and taxed in the hands of its shareholders.
Capital GainsCapital gains realised on the disposal of participation could benefit from the participation exemption
regime if all the requirements described above are satisfied. In such a case, from 01.01.2009,
50.28% of gains are tax-exempt. The remaining 49.72% is attributed (together with the overall
taxable income of the partnership) and taxed in the hands of its shareholders.
Besides the tax relief scheme, we have not been able to identify any direct public support measure for
Business Angels in Italy.
The Bank of Italy has recently commenced a research project on R&D and innovation, which also
includes financing innovation and brings Business Angels into its ambit. However, the Bank is still at the
onset of the research and specific conclusions about policies have not yet been made. IBAN also reports
that they are campaigning strongly for public support for Business Angels but, while the relevant
departments in the government are listening, it is still early days and no specific measures have been
introduced.
Some spill-over effect supporting the Business Angels market may come from the “Equity Angels”
programme launched to support venture capital.
4.2
Evaluations of public support for Business Angels
There has not been any formal evaluation of the tax relief scheme so far, nor any other evaluations of
the policy towards Business Angels.
85
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Netherlands
Annex
4
This annex contains a summary of data obtained in respect of the activities of Business Angels in The
Netherlands.
1 - Introduction: Overview of business angels market in The Netherlands
Business Angels have been present in the Netherlands for some years – for example, the BAN Meesters
van die Toekoms was established in 1996. In recent years the topic of informal investment has gained
increasing attention in the Netherlands from a policy point of view. In 2010 the Business Angels Network
Nederland was set up to act as an overarching network for all BANs in The Netherlands.
According to the 2010 Global Entrepreneurship Monitor (GEM) Report for the Netherlands, in the past
decade a substantial movement from a ”job culture”, to a more entrepreneurial society, has occurred,
which is reflected in an increase in both early-stage and incumbent rates of entrepreneurial activity.118
This has contributed to an increased demand for early-stage/ seed funds, especially as at the same time
banks and venture capital funds have been moving away from this end of the market.
While, according to the GEM Report, the Netherlands has not performed as well as the group of
innovation-driven economies (economies identified by the World economic Forum as driven by
knowledge-based investment) that it is benchmarked against as regards “informal investment”, there
was a strong, sudden increase in the informal investment rate in 2010 (as also occurred in the countries
it is benchmarked against). Thus, in 2001, whereas the prevalence rate of informal investors was 1.3%
against 3.0% in the benchmark countries, in 2010 these rates were 3.4% and 3.6%, respectively.
Importantly, it needs to be remembered that in the GEM the category ‘informal investors’ consists of
two groups: one made up of friends, family and former colleagues; and another, minority, of strangers –
these latter ones being called “Business Angels” in their report.
According to the GEM Report, informal investment activity in The Netherlands almost doubled between
2009 and 2010, reflecting an increased demand for external finance while banks were still cautious
about lending to new businesses and SMEs. In The Netherlands the amount invested per informal
investor has tended to be relatively high, reflecting the higher share of Business Angels in informal
investors compared to other countries. Over the period 2008-2010, the share of Business Angels in
informal investors was 15% in The Netherlands, lower than the preceding period from 2007 – 2009,
when it was 19% but higher than from 2001 – 2004 when it was 12%. The GEM report suggests that the
great increase in informal investment activity in The Netherlands from 2009 to 2010 was due to nonBusiness Angel investment (friends, family and colleagues)119.
The report Informal Investment in Nederland120 suggests that, overall, informal investment market in
The Netherlands is seen in a positive light: there is sufficient capital available and the authorities support
market development. However, a survey published in April 2012 found that as investors see the future
with increased uncertainty due to the economic environment, they are acting with more
circumspection, seed and venture capital funds are reducing and the size of sums invested are declining
– many firms think “the worst is yet to come”121.
118
Global Entrepreneurship Monitor 2010 The Netherlands The emergence of an entrepreneurial society, p.13
Global Entrepreneurship Monitor 2010 The Netherlands The emergence of an entrepreneurial society, p.69
120
Emerging technology Research p.5
121
Emerging Technology Research Europe (2012); Nederlands investeringsklimaat voor Technostarters, Tornado
Insider, 6-meting, April 2010, for Agentschap NL, p.3
119
86
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
2 – Data on the Business Angels’ market The Netherlands
This section summarises key market data on the visible and non-visible market for investment by
Business Angels.
2.1 The visible market
The main source of information on the visible market in the Netherlands is the data collected by the
Netherlands Angels Association and submitted to EBAN. Unfortunately, because of a reorganisation of
the business angels market in the Netherlands, the 2010 survey included responses from only 4 of the 8
main networks of Angels. Thus, in order to have a more complete picture in relation to the visible part of
the Business Angel market in the Netherlands we present data for both 2009 and 2010.
Table 1: Business Angels Networks in the Netherlands– Data from EBAN 2009 and 2010 surveys and
for the total of Business Angels’ Networks
Parameter
2009 survey
2010 survey
11
4
2375
4470
1070
No data
Total number of women Business Angels (% of total)
30
No data
Number of angel investors recruited by BANs in 2009
202
No data
Number of women investors recruited during 2009
6
No data
Number of angels who have left the networks
72
No data
Average number of angels per investment round in 2009
3
No data
Number of networks
Number of members (investors)
-
Of which, number of active business angels
Source: EBAN and CSES elaboration
Table 2: Business Angels’ investment in Business Angels networks in the Netherlands - Type and
volume (Data from the 2009 and 2010 EBAN surveys)
Indicator
EBAN data
2009
Number of business plans received
3735
Number of business plans submitted to angels
442
Number of deals made through the network
109
Number of new companies financed
Number of investors that made investment in companies presented
through the network
Number of follow-on rounds
Total amount invested by angels through BANs (€)
EBAN data
2010
6
179
44
3
25320000
7400000
87
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
Average amount of the deal (€)
364875
Average amount per angel investor
139875
Total amount invested – including co-investors
24450000
Source: EBAN and CSES elaboration
Table 3: Percentage breakdown of Business Angel investment by sector
Sector
ICT
Mobile - including software and service applications
Biotech and Life sciences
Health Care and Medical technologies
Energy/ Environment and Clean-tech
Creative Industries
Retail and Distribution
Finance and Business Services
Manufacturing
Other
% in total number of deals, 2009
18.6
17.5
0.9
2.1
16.2
10.3
12.3
4.5
12.3
5.3
Source: EBAN survey (2009)
Geographical location
The Nulmeting Informal Investment122 report found that although personal contact between the
informal investor and the business was important from the point of view of coaching and guidance, this
did not necessarily mean that being in the immediate vicinity was critically important. Based on the
EBAN 2009 survey, half of the respondents indicated that they had no preference for participating in
companies within a radius of 50 kilometres of their home, and only 11% had a strong preference for
such close investments.
Table 4: Geographical concentration of Business Angels’ Investment – share of deals though BANs by
location of recipient firm
Location of recipient firm
% of deals
In the region where the Network is located
35.5
In the same country, but not in the same region
53.6
Cross-border in Europe
Outside of Europe
Not known
0
10.9
0
Source: EBAN survey 2009
Survey results revealed quite a difference as regards the stage of investment that Business Angels
invested in. According to the 2011 survey, most investments (40%) were made in young firms at the
stage of exponential growth, followed by the stage just before and at start-up (30% each). In the 2012
122
Bureau Bartels (NV) (2011); Nulmeting Informal Investment, for Agentschap NL, pp.19-20.
88
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
survey there was much more concentration around the start-up (59%), just after start-up (58%) and prestart phase (40%). No data was available for the stage in the business life cycle that investments were
made.
Table 5: Level of Business Angel Co-investment
Co-investors
Share in total (%)
Business Angels inside the network
15.5
BAS outside of the network
5.5
Early stage fund
11
Venture capital fund
7.5
Family office
0
Institutional investors
10
Other investors
2.5
Source: EBAN survey 2009
2.2 Data on the non-visible market
There is no formal detailed study conducted providing evidence on the size of the non-visible part of the
Business Angels market in the Netherlands. The Netherlands Business Angels Association suggested that
the invisible market may be 7 times the visible market (in terms of number of Business Angels) but it has
not been possible to check this number through any other source. As in other Member States, Business
Angels tend to be hard to trace and are often publicity-averse.
The GEM survey provides a possible alternative source. According to the GEM data the percentage of
18-64 population in the Netherlands who had personally provided funds for a new business, started by
someone else, in the past three years was in the range of 1.5-2% for most of the period 2001-2008 but
has increased to over 3% in 2010 and 2011. The authors of the GEM report concluded that the rise was
due to a rise in the number of informal investors investing in the businesses of family, friends or
colleagues.
Table 6: Informal Investors Rate: Percentage of 18-64 population who have personally provided funds
for a new business, started by someone else, in the past three years
Netherlands
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
1.5
1.8
1.3
1.3
2
1.1
2.3
1.7
1.8
3.4
3.7
Source : GEM project
Still, the GEM survey also suggested that for the period 2008-2010 the proportion of informal investors
who invested in strangers’ businesses was around 15%, higher than the average of 10.6% for all
developed economies.
On the basis of these two indicators for 2010, we calculate that around 0.5% of the working population
aged 18-64 can be considered as potential Business Angels, a total of around 57,000 potential angels.
89
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
Data from four of the eight BANs in the BANs 2010 suggested that the visible market had 4,470 angels,
so the GEM data shows that the number of potential Angels in the Netherlands is 13 times the reported
visible market. Given that the visible market is incompletely reported, this estimate is not inconsistent
with the Netherlands Business Angels Association suggestion that the invisible market may be 7 times
the visible market.
2.3
Exits and exit strategies
The 2012 survey 123(p.33) found that informal investors tended not to have detailed plans about exit
strategy and timing. However, respondents did say that they found that it was more difficult to find
buyers and realise good values in the current market.
2.4
Other market characteristics
The profile of Business Angels tended to be similar to those other Member States. The Nulmeting
(2011) survey found that in terms of age some 90% of Business Angels were relatively equally
distributed between the 41-50, 51-60 and 61-70 years age categories. The follow-up survey of 2012
suggested there was a generational difference between the younger and the older Business Angels,
with the older ones considering the younger ones inexperienced and in need of help, and the younger
ones tending to be more involved in the business and considering older ones to “meddling”
unnecessarily in their work. 3% of respondents were female, 94% male (3% did not reply). About two
thirds had more than 5 years’ experience as a Business Angel. Importantly, some 50% of Business
Angels had experience of investing in the funds set up through the Technostarter and Creatieve Starter
initiative (see 4.1 below).
In September 2010, the kick-off meeting for the new overarching organisation linking the various BANs
in the Netherlands took place124 (a “network of networks”). The aim of BAN Nederland is to liaise and
with, and talk to, government and stakeholders on behalf of the member networks; act as a trainer as
regards trends and developments in informal investment; and, to develop a quality standard for BANs.
It also aims to encourage participation by banks and investment funds.
At the time of launch some 14 Bans were part of the BAN Nederland. A recent publication by
Koenraads125 for the BAN Nederland identified the following BANs and some features.
Table 7: Business Angel Networks in The Netherlands
Network
Year
established
Members
Participation
values
Stages
TIIN Capital
1998
600
300k-2m
Growth, MBI/ MBO
Investeerdersclub
2009
45
50-500k
Seed, start, growth
Informal Capital Network
2003
400
up to 1m
Growth, MBO, turnaround
BiD NETWORK
2005
115
10k-1m
All phases
FLIIN
2007
60
50-500k
Growth, start
Meesters van de Toekomst
1996
230
50k-1m
Start, growth
123
Emerging Technology Research Europe (2012); Informal Investment in Nederland, Tornado Insider, for
Agentschap NL, p.33
124
Press release: “Nieuwe koepelorganisatie Business Angels bevordert inovatiekracht in Nederland”, 29
September, 2010.
125
Koenraads, E., (2012); Handboek Informal Investment. De kunst van het investeren, BAN Nederland.
90
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Netherlands
Mind Hunter
2006
>100k
Women Professionals Group
2010
25-300k
Money Meets Ideas
2002
100k-1.5m
NextStage
2004
100
50k-1m
Seed, start, growth
Investormatch
2010
>500
50k-2m
Start, growth, expansion
Annex
4
All phases
Start, growth, MBI/ MBO
All phases
Source: Koenraads
While some of these are platforms and matchmakers rather than clubs with members, and it is also
unlikely that membership lists will be up-to-date and reported accurately, and there may also be
membership of more than one BAN by an individual Business Angel, this does throw some light on the
population of Business Angels (about 1500) that want to be known and to participate relatively publicly
in Business Angel activities.
2.5
Quality of data sources
The data provided to EBAN is affected by response rates and various contingencies so it is not complete
and comparable with earlier periods as a source of visible market data. The GEM survey is highly limited
as a source, due to definitional matters. With the launch of the BAN Nederland, the national BAN, it is
expected that the quality of data will improve.
3 - SME access to finance - overview
According to the SBA Fact Sheet, access to finance is the only area among the various SBA indicators
where The Netherlands is trailing the EU average by some distance. Indicators suggest that this is largely
due to lack of credit provision by private banks, as evidenced by the data in the table below. Overall the
trend is downwards.
91
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Netherlands
4
Table 8: Access to finance for SMEs – Comparison of key indicators for The Netherlands and the EU
Indicator
Share of bank loan applications by SMEs that were not successful, 2009
Access to public financial support including guarantees (% that indicated a
deterioration) 2009
Willingness of banks to provide a loan (%share that indicated a deterioration)
2010
Relative difference in interest rate levels between loans above 1 million EUR and
loans below EUR 1 million, 2010
Venture capital investments - early stage (% of GDP), 2009
EU
average
23
Netherlands
54
22
28
30
32
24
37
0.01
0.02
Source: SBA Fact Sheet
The government has implemented some measures to deal with this issue. For example, in 2010 the
Foundation Microcredits Netherlands (collaboration between the big banks, the Ministry of Economic
Affairs, Agriculture and Innovation, and the Ministry of Social Affairs and Labour) attracted €30 million
for micro-financing start-up companies and SMEs for loans up to €35,000. In addition, a website was
launched (www.eigenbaas.nl – “own boss”) by the Foundation Micro credits and Entrepreneurship
Netherlands offering start-ups information, coaching and advice, both through the website and a
network of more than 30 locations where more detailed advice and support can be provided.
3.1
Role of Business Angels
Overall, it appears that Business Angels are making a small but meaningful contribution to funding of
investments where there is a gap left by reluctance of banks and venture capitalists to enter that
segment. However, Business Angels are also affected by the overall economic conditions and the quality
of projects they can possibly participate in.
In both the 2011 and 2012 surveys mentioned above it was found that the term “Business Angel” is
largely unknown to start-up SMEs in general, although once the concept was explained it was
understood. BANs also were relatively unknown to start ups. Business Angels that were members of
BANs found them, in general, to make a positive contribution, in particular to identify possible deals.
3.2
Evaluation of the role of Business Angels
As mentioned in the introduction, the role of Business Angels has been drawing increased attention
from public policy makers and the reports mentioned (Bureau Bartels, Emerging Technology research
Europe) focus specifically on informal investment, although not from the point of view of an evaluation
or impact assessment but from a monitoring point of view. The reports are intended to be
complementary to provide a time series of data that can be compared to identify trends and any other
developments that may emerge.
4 - Public support for Business Angels
4.1 Support measures
There is a direct support scheme for Business Angel networks in the Netherlands under which the
Government pays a subsidy towards the costs of network meetings. It is understood that the total
budget for this support is €250,000 per annum for the Netherlands as a whole, so the amount is
relatively small.
92
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Netherlands
Annex
4
A tax credit scheme for Business Angel investments was terminated two years ago as it was found that it
was not sufficiently targeted.
A recent initiative that has supported Business Angels is the Technostarter and Creatieve Starter126 funds
within the SEED Capital Funds which are part of the Innovation Fund. With these funds, investors are
supported to up to 50% of the investment budget. These are closed-end participation funds and the
budget for 2012 is €16 million. Although not specifically targeted at Business Angels, at present about
half of the 36 funds operating are operated by Business Angels. They have to have at least three
independent investors, and to avoid any conflicts of interest, they do not invest in the friends, family
and business relations category of the informal investment market. The overall aim of this initiative is to
increase the supply of seed capital funding, given the tendency of banks and venture capital funds to
move away from this market segment. By helping Business Angels to group together it should also make
larger investments possible (syndicates) and spread the risk of those investments. The programme is run
through Agentschap NL.
Agentschap NL also provides support to Business Angel networks through:
•
•
•
•
Stimulating collaboration between networks (e.g. support for BAN Nederland);
Awareness raising and information meetings;
Supporting investment and investor readiness;
Research and monitoring.
4.2 Evaluations of public support for Business Angels
We have not been able to identify any specific evaluations carried out of the Business Angel
support programme in the Netherlands, however, as mentioned earlier in the report, the
Technostarter Funds have been viewed favourably by other reviewers, and the Technostarter
funds are spoken of favourably by the Funds’ manager (Agentschap NL). It is also expected that
the renewed initiatives in support of a national BAN and support through provision of
information and research will have a positive impact on the development of Business Angels in
the Netherlands.
126
Definitions: a “technostarter” is a legal person running a business or preparing to start a business based on new
technical invention or new application of an existing technology (products, processes/ services – not advice); a
“Creatieve Starter” is a legal person running a business or preparing to start a business based on a new creative
invention or new application of an existing creative invention (products, processes/ services – not advice).
93
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
This annex summarises key market data on the visible and non-visible market for investment by
Business Angels in Poland
1 - Introduction : Overview of Polish angel market
The Business Angel market in Poland is still very young. Its development can be presented in three
periods:
-
1990-1995/97 - beginning of the development of entrepreneurship, with very low demand for this
type of investment, which resulted in lack of experience in this respect;
1995/97-2006 - contractors already had some experience in conducting business and the financial
resources and therefore there has been growing interest in this type of investment;
2006 - onwards – period of strong development, mainly because of the accession to the EU,
observed an increase the number of potential Business Angels.
Business Angels in Poland are concentrated around BANs that were mostly financed by the Operational
Programme (OP) Innovative Economy 3.3.1. Due to the specific Business Angels’ investment activity - the
networks are aimed at different regions of the country. Currently there are 10 regional BANs operating
in Poland. According to EBAN data there are around 15,000 Business Angels active in the networks.
The biggest and most active BANs are the Lewiatan Business Angels, PolBAN, Silban, and Amber with
smaller networks operating in different regions. A new initiative in this field in Poland was a creation of
the Association of Business Angels Networks (ABAN), which aims to improve multi-level cooperation
among early-stage market and to join networks of Business Angels and seed capital funds across Poland.
There are some important issues related to the operation of the Business Angel market in Poland. There
are legislative and fiscal difficulties associated with establishing and running a business. At the same
time, there is a low awareness of entrepreneurs of investment opportunities in private companies.
Another problem is the lack of fiscal incentives for business investments, lack of tax breaks and
appropriate solutions to a number of standard investment activities. The only visible tax incentive for
private investors in Poland at the moment is a special deduction for the purchase of new technology
(50%). Grants co-financed by the EU for financing Business Angel networks in Poland accounted for a
substantial capital injection for the market, but the question now is, how many of the already
established networks will be able to continue their operations after the period that support is granted
expires.
94
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
2 – Data on the Business Angels’ market in Poland
2.1
Visible market
In 2011 there were 10 Business Angels networks (see table 1). Most of the Polish networks do not have
a legal personality and they work as part of a larger organisation or association. According to estimates
in the Report of Polish Ministry of Economy, each network associate around 30 Business Angels.127
Table 1: Business Angels Networks in Poland 2011
Name of the Network:
City of establishment:
Year of
establishment
PolBAN Business Angels Club
Warszawa, Bydgoszcz
2003
Lewiatan Business Angels
Warszawa
2005
?l?ska Sie? Anio?ów Biznesu Silban
Katowice
2006
Sie? Inwestorów Prywatnych SATUS
Kraków
2006
Regionalna Sie? Inwestorów i Inwestycji Kraków
Kapita?owych RESIK
2007
Lubelska Sie? Anio?ów Biznesu (obecnie Lublin
Wschodnia Sie? Anio?ów Biznesu)
2007
Sie? Anio?ów Biznesu Amber
Szczecin
2009
Secus Wsparcie Biznesu
Pozna?, Warszawa,
Wroc?aw, Katowice
Ponadregionalna Sie? Anio?ów Biznesu
Katowice, Warszawa, Wroc?aw, 2010
Bia?ystok, Gorzów Wielkopolski,
Zielona-Góra
Gildia Anio?ów Biznesu
?ód?
Studencka Sie? Anio?ów Biznesu
Katowice, Warszawa, Wroc?aw, 2011
Bia?ystok
Kraków, 2010
2010
Source: Polish Ministry of Economy
Many Polish Business Angel Networks are non-profit institutions, but more of these organisations are
taking up commercial activities. In Poland, the Business Angel networks are looking for projects for
which capital needs range from 50,000 to 5 million z? (1,195,320 EURO).
The annual EBAN survey represents the most comprehensive source of information available in relation
to the size and characteristics of the BANs in Poland. The data from the 2010 survey are based on only
one response and do not allow for any meaningful conclusions. The 2009 data are based on the
responses of 5 BANs with 89 angels’ investors in operation, 41 of which were active.
127
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.pdf
95
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
Table 2: EBAN survey data on visible Business Angel market (combined data from 4 Business Angels
Networks in Poland)
Parameter
Number of members (investors) in network
Of which, number of active Business Angels
Number of female Business Angels
Number of angel investors recruited during the year
Number of women investors recruited during the year
Number of angels who have left the network
Number of angels investing in companies through the network
EBAN 2009 data
Total (estimate)
89
41
12
40
7
25
2
150-200
80-100
Source: EBAN and CSES elaboration
EBAN data also provides information on investment activity. According to the data from 4 BANs, a total
of 348 business plans were submitted and 32 of them were successful. According to the limited data –
from only 4 deals – the average deal was around €40,000 with each angel investing around €25,000 per
deal. The data provided by the Ministry of Economy for all BANs suggest that the BANs receive 97
projects each month (1,164pa), from which usually around a quarter are worth closer attention. It is
rather difficult to make projections for the total size of the visible BANs market from these data.
However, the data available do not allow for an estimate of the total market size.
Networks also have their priorities for the industry in which they wish to invest. In terms of the sectoral
focus, the 2009 EBAN survey indicates a strong focus on the high-tech sectors including ICT and mobile,
including software and service applications. In the survey of the Polish Ministry of Economy, networks
also declared preferences in high-tech sector: especially Internet (100 %), Computer, software: (100%),
Media and Multimedia: (100%), Telecommunications (86%), Ecology, environment (86%) and
Biotechnology and pharmaceuticals (86%).128
Concerning the stage of investment, the data from EBAN survey point to a focus on pre-seed (60%),
seed (30%) and early stage start-up (10%).
Table 3: Business Life Cycle Stage of Investment among formal Business Angels (data from EBAN 2009
survey)
Stage of investment
Pre-seed
Seed
Early stage and start-up
Expansion
Pre-IPO
Buy-out and turnaround
Other
Share of total (%)
60
30
10
0
0
0
0
Source: EBAN
Polish networks are in a phase of dynamic development, despite the fact that they face many barriers to
development and implementation of their tasks. According to the directors of the largest networks the
main barriers are reluctance of the scientific community for commercialisation of scientific
128
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.pdf
96
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
achievements, lack of business confidence for this form of financing of the project, or even sometimes
lack of projects to commercialise.
2.2
Non visible market
Research as regards the non-visible market in Poland has not yet been conducted in Poland. It is
therefore difficult to estimate what share of the market is non-visible. However, as it was pointed out in
interviews, of the total amount of investments made in Poland, around 5-10% go through BANs and it is
possible that a slightly lower percentage of Business Angels could be operating outside the networks (in
the non-visible market). However, the investors working outside Polish networks are usually more
experienced and they use their own contacts to receive interesting projects offers. Despite the smaller
number of those investors, they still make more investments than those in the networks.129
According to the GEM survey, in 2011 3.1% of the population age 18-64 have provided funding for the
starting of a new business by someone else in the last three years130. Unfortunately, there are no data
for Poland on the share of those individuals that have provided funding to strangers (not family and
friends). If we use the 5-10% EU average from the data available from other EU countries – possibly a
rather generous assumption in the case of Poland – we can reach an estimate of around 45,000-90,000
individuals131 that have provided funding for the starting a new business in the last three years. Given
the top-down approach of the GEM data and the absence of information concerning the level of
involvement in the business investments, this should only be considered an upper estimate.
2.3
Exits
According to a report on the barriers for Business Angel development, prepared by Polish Ministry of
Economy, the main possibility of exits for Business Angels in Poland 132 are:
-
The basic form of exit for Polish Business Angels is the trade sales to industrial or financial
investors (including Private Equity/Venture Capital funds);
-
Another exit is the entrance to the Stock Exchange (IPO - Initial Public Offering). The debut can
be made on the main Stock Market Exchange (Warsaw Stock Exchange- WSE). However,
conducting a public offering on the WSE is a very complicated procedural process, including the
necessity of admission of securities to the public market by the Financial Supervision
Commission. There is also the possibility of debuting on the NewConnect. The NewConnect
exchange is considered to be effective due to several factors. Firstly, there are limited formal
requirements and simple admission procedures;
-
Buy-back is redemption of shares with the aim of remitting them afterwards. It is only
successful when such purchase is held at higher or equal price to current ratings of the
company on the stock exchange or expectations of the investor. Buy-back has become an
alternative for dividends, however, self-buyouts are not yet as popular as dividends on the WSE,
although slump has caused a rapid increase in interest in buy-back transactions;
-
Another option of exit is repayment. The case of repayment is adjusted by a loan agreement
129
http://cdn.pi.gov.pl/PARP/HTTPFiles/media/_multimedia/656714E145EC457F89D99E61FB7449BE/20101214_1
15814%20business%20angels.pdf
130
http://www.gemconsortium.org/visualizations
131
Total population of Poland in 2011 was 38 million, with around 27 million in the 18-64 age group.
132
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.pdf
97
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
between the investor and the entrepreneur. However, if the loan repayment period is not
marked, the debtor is obliged to return the loan within six weeks after termination made by the
person providing the loan (Art. 723 CC);
-
Redemption of bonds is another possibility for Business Angels to exit the investment.
Redemption of bonds shall be in accordance with terms of the bonds and on the basis of Art.24
of Bond Act; to become a subject of cancelation. Another form is closure of mezzanine
financing - closing of the investment based on a mechanism based on the mezzanine debt
capital repayment, awarded under this funding and/ or potential execution permissions to the
share;
-
Finally, in the case of management buyout (MBO) – namely taking control of the company by
its existing management- there are significant limitations in Poland due to the prohibition of
support by a joint stock company to the purchase of own shares by a third party (so-called
financial assistance). This prohibition does not apply to companies with limited liability133.
While there are clear differences between the exist strategies of Business Angels and Venture Capital,
the data from the report on the Private Equity/Venture Capital market in Poland in 2010134, in the 20072009 period provide some indications. There were 76 exits from VCs that had invested in Polish
companies. The most common way of exiting was by selling to a strategic investor (18 transactions),
then the sale to another venture capital fund (13 transactions) while there were also 12 IPOs.
2.4
Other market characteristics
Business Angels in Poland are most commonly male and aged 35-65 years with higher education and
high asset values. Their investment portfolio has from 2 to 5 companies in which they invest on average
the range of 100,000 - 1 million z³ (€24,000-€100,000) which accounts for 15% of his net assets.135
According to EBAN data, of the 89 investors in the Polish BANs that responded to the survey, 12 were
female (13.4%). This share is rather high in comparison to other EU countries. However, the rather
limited data mean that we cannot have a high level of confidence in this figure.
The EBAN survey data also suggest a clear focus on the Polish Business Angel Networks in the regional
or national market. 66% of the deals closed in 2009 had a regional dimension (firms were located in the
same region as the Business Angel), whereas 33% had a national dimension. Networks in Poland have
been established with focus on the regions’ needs. The larger networks are mainly focusing on the most
developed region in Poland – Mazowieckie, mainly Warsaw.
2.5
Quality of data sources
In general, the data on Business Angels is still poor, lacking governmentally/academically initiated upto-date evaluations and assessments of the market. One of the measures to be undertaken by the
ABAN136 association in the coming months is to investigate the early-stage market in Poland that
is poorly penetrated. Currently, ABAN is researching a possible methodology and discussions
with potential partners who could assist us in conducting research and evaluation.
133
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.pdf
http://polban.pl/inwestycje-private-equityventure-capital-polsce-2/
135
European Business Angels Network, “EBAN Tool Kit. Introduction to Business Angels and Business Angels
network activities in Europe”; Brussels 2009.
136
http://www.aban.org.pl/
134
98
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
3 - SME access to finance
3.1
Overview
According to the SBA fact sheet for 2010, Poland performs on a par with the EU average on access to
finance. Private credit lending has been deteriorating at a similar pace as in the EU: 28% of SME owners
had noticed a declining willingness of banks to provide loans and about 25% of those who applied for
credit were actually refused a loan in 2009. When it comes to the cost of financing, the interest rate
difference between loans above and below 1 million EURO is significantly lower than in the EU, meaning
that SMEs in Poland can borrow money at a cost only slightly higher than large companies do. On the
other hand, the venture capital market is not yet very well developed, which does put some limits on
the availability of risk capital for highly innovative companies in early stages of development.
Table 4: Access to finance for SMEs – Comparison of key indicators for Poland and EU
Indicator
Share of bank loan applications by SMEs that were not successful, 2009
Access to public financial support including guarantees
(% that indicated a deterioration)
Willingness of banks to provide a loan (%share that indicated a deterioration)
Relative difference in interest rate levels between loans above 1 million EUR and
loans below EUR 1 million, 2010
Venture capital investments - early stage (% of GDP), 2009
EU Structural Funds dedicated to stimulating entrepreneurship and SMEs in 20072013 (% of total allocation by MS) (2011)
EAFRD dedicated to Support for business creation and development in 20072013 (% of total allocation) (2011)
EU
average
Poland
23%
25%
22%
27%
30%
28%
24%
3,38%
0.01%
0%
22%
5,5%
2,29%
5,73
Source: SBA Fact Sheet
A few policy measures have been initiated since 2010 to improve the situation in Poland, some of which
directly or indirectly related to access to equity. The current form of the financing policy framework has
been largely defined by the provisions of the National Development Plan 2007–2013137 (2004) reflected
in the government Strategy for Increasing the Innovativeness of the Economy for 2007–2013138 (MG
2006) and the programme for the simplification of commercial law. The latter identified the existing
regulatory barriers to the process of obtaining capital by businesses in the venture capital/private equity
and leasing segments and pointed to possible solutions.
137
138
Original: Narodowego Planu Rozwoju 2007-2013
Original: Kierunki zwi?kszania innowacyjno?ci gospodarki na lata 2007-2013
99
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
4 - Public support for Business Angels
4.1 Direct support
Polish law does not provide a specific legal basis (in the strict sense) for dedicated venture capital or
Business Angel activity.
In terms of the tax regime, the maximum income tax rate in Poland is 40%. If registered as an
entrepreneur or as a company, a flat tax rate applies of 19%. Currently, two capital gains taxes exist in
Poland: withholding tax 19% (Belka tax), which applies mainly to the dividends’ and yearly income tax
(also 19%) calculated as an income minus cost and applies to gains from the selling of shares. The only
tax incentive available currently is a special deduction for the purchase of new technology. The investor
may deduct some of the expenses that he invested in the purchase of machinery, equipment and
buildings from his taxable income139.
More direct support to Business Angels is through the financial support schemes for BANs. BANs in
Poland operate on a support system of grants co-financed by the European Union ERDF (Operational
Programme Innovative Economy) and the state budget: Priority 3 - Capital for innovation, Measure 3.3 Creating a system facilitating investment in SMEs. This allows the creation of advisory platforms (e.g.
Angel Investment Network or BAN), which are responsible for linking entrepreneurs looking for capital
with Business Angels.
This support is not expected to be continued. The grants have already been distributed and, according
to the Ministry, a further call for proposals for action 3.3.1 OP is not likely to be repeated. The grants
accounted for substantial support for the market and were critical for the creation and operation of
BANs in Poland. However, it was pointed out in interviews that the question that remains is how many
of the established networks will be able to continue their operations after the period of grant support
expires. It was suggested that ongoing financing has to be continued in the future to enable the
networks to continue the activities that they have taken up.
In relation to the access to equity, the following instruments are currently available:
•
National Capital Fund (NFC) – was established by the Polish Government on July 1st 2005, in
accordance with the National Capital Fund Act, with the aim of filling in the equity gap on the Polish
SME market. It is the central fund of venture capital/private equity funds (VC/PE) in Poland. The
NCF provides VC funds with financial support for their investments in SMEs of innovative character
showing strong development potential operating in Poland;
•
Seed funds (e.g. AIP SEED CAPITAL, IIF Group or Business Angel Seedfund) – these are venture
capital funds, specialising in investments in projects that are at the seed and start-up stage. In
Poland they are mainly based on public support, EU funds, VC and private equity funds. Average
amount of funds invested through seed funds in 2009 in Poland was more than 6,200,000 z?
(approximately €1.5 million);
•
NewConnect – this is a new stock market financing the growth of young companies with a large
growth potential, organised and operated by the Warsaw Stock Exchange, which was started in late
August 2007. NewConnect has the status of an organised market outside the regulated market as
an alternative trading system for young, growing companies, especially in the high-tech sector (but
companies from other sectors may also be eligible for trading). Because of this issuer profile,
139
EBAN: Tax incentives available to private informal investors or Business Angels in Europe; june 2006
100
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Poland
5
NewConnect offers more liberal formal obligations and information requirements, which reduces
the cost of capital.
The establishment of the three instruments was expected to lead to a significant closing of the equity
gap, according to a study by Tamowicz in 2007140. In the report, the equity gap is understood as a
discontinuity in the supply side of capital (either a complete lack of capital on the market or weakness
of institutions offering some portion of funding). At that time, the equity gap in Poland was estimated
to be up to €10 million. Its existence was connected with weakness of venture funds and systematic
growth of private equity funds. It was estimated in the report that those three initiatives, along with
more active BANs, reduced it to €1.5 - 4 million. It is also pointed out that there are theories that the
equity gap in Poland has been addressed by availability of capital for various investments, including
different sectors and the level of companies’ development. However, the issues still remain, though not
connected to the availability of capital, but to the level of accessibility, information policy concerning
the funds and entrepreneurial education, that still require improvement in Poland.
4.2
Assessment of existing policy framework
There is no formal evaluation or other assessment of the policy support for the Business Angel market.
The support of BANs has been one initiative but there is no information on its effectiveness or the
viability of these networks. Similarly, there is no information on the impact of the government initiatives
on increasing the access to equity and to the Business Angels market more specifically.
However, the interviews conducted pointed to a number of government actions that could bring
improvements. These include:
•
Intensification of training activities of investors and entrepreneurs; the popularisation of various
forms of financial investments (including passive investment), increasing the number of offers of
investment in private equity;
•
Organisation and simplification the legal aspects of setting up a business, ranging from tax issues
through legal regulations related to the conduct of companies (licensing / authorization) and ending
on the legislative stability;
•
Creation of a favourable environment for establishing a real collaboration, bringing together
Business Angels institution with centres of innovation, research institutes and universities to recruit
from these sources of high quality, innovative projects;
•
Establishment of a system of direct tax incentives for individual investors, drawing on experience
from Western Europe;
•
Support of educational campaigns to prepare the effective cooperation and exchange of investment
and investor readiness;
•
Creation of new, or modification of existing, legal forms designed for BA investment activity;
•
Tidying up the market by the encouragement of joint investment by the BANs and venture capital
funds both within the country and internationally, and by associating them with the appropriate
institutions to facilitate the acquisition of valuable partners.
140
P. Tamowicz, „Business angels. Pomocna d?oo kapita?u”, Polska Agencja Rozwoju Przedsi?biorczo?ci, Gdansk
2007
101
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
This annex contains a summary of data obtained in respect of the activities of Business Angels in
Spain.
1 - Introduction : Overview of Spanish angel market
The notion of the ‘professionalised’ Business Angel is relatively new in Spain, especially when compared
with other EU countries, or particularly with the U.S.
The first BAN appeared in 2002 in Catalonia, the Business Angels Network Catalunya (BANC). Although
other economic development companies or European Innovation Business Centres were founded
earlier, Business Angel activities in the sector came after this date. From that time, Business Angel
networks began to spread throughout Spain, the first networks with their own legal entity being located
in the regions of Catalonia, Madrid, Canary Islands and Galicia. As the chart below shows, from 2005 the
number of networks increased considerably, more than 75% of the networks identified in Spain having
been created since then and extending to almost the entire Spanish territory.
Chart 1: Evolution of the number of Business Angels’ Networks in Spain
60
50
50
46
41
40
33
30
20
20
21
11
10
1
1
2
3
2000
2001
2002
2003
0
2004
2005
2006
2007
2008
2009
2010
Source: ESBAN
In Spain, there are three types of BANs:
•
•
First, national Business Angels such as the Spanish Network of Business Angels (ESBAN) formed
in 2004 and the Spanish Association of Business Angels (AEBAN), both representing the interests
of the networks in Spain and aimed at promoting the business angel concept, the growth and
development of the sector, the competitiveness of the SMEs and collaboration with the
authorities to develop a legal framework for this kind of investment;
Second, regional and local Business Angels, providing services in their area of influence; and
sectorial or thematic specialisation in a particular sector;
102
•
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
Virtual networks that provide services through the Internet and ‘alumni’ angel networks that
were created by leading business schools in Spain, such as IESE and ESADE.
So far, neither Business Angels nor BANs are directly subject to any regulation so they are not, therefore,
registered or verified by any public or private entity. For this reason, most networks are part of other
organisations and do not have their own legal entity. These networks are promoted by European
Business Innovation Centres, public bodies like city councils or chambers of commerce, economic
development agencies, business schools and universities. Also, there are a small number of networks
that operate as trading companies, associations and foundations.
As mentioned above, in Spain the notion of the ‘professional’ Business Angel is relatively new and the
need for institutional support in these early stages, both financially and structurally, is quite important.
This could explain why most networks are legally part of other organisations or entities.
In Spain, most BANs do not specialise in any specific sector, although there are a few specialised
networks in ICT/software/multimedia and biotechnology. They are typically based in industrial zones,
business incubators, science and technology parks and universities and which, in many cases (e.g.
universities, science and technology parks), by nature promote specialised projects in a specific sector.
Likewise, in line with the European trend, Spanish Business Angels tend to have a local or regional focus
of their investment as they are usually involved directly in the management of the business projects
invested.
With regard to the profile of the Spanish Business Angels, most of the available data on the sector is
from the Project GEM Spain. According to the Project GEM Spain, the investor who puts money into
another's business in Spain is, more often than not, a male (61.2% of cases), about 40-41 years old, well
educated (59.4% cases) and has a professional training (44.2% of cases). 5.9% of these investors had
been entrepreneurs in the past and, in 3.8% of cases, directed a successful business activity. A total of
90.3% of these investors are of Spanish origin.– Data on Business Angels Market
This section summarises key market data on the visible and non-visible market for investment by
Business Angels.
2.1 Visible market
Nationally, the most recent study that has attempted to measure the volume of the visible Business
Angel market in Spain was conducted by the Directorate General of SME Policy of the Ministry of
Industry and ESBAN, Spanish Network of Business Angels, and provides data for 2008. According to the
report:
•
•
In 2008, there were 40 BANs and 1,465 investors, representing the 0.4% of the total of angel
investors. The number of angel investors recruited during 2008 was 83, 5 of whom were
women;
The COTEC report 2011141, based on data provided by the ESBAN, raised the number of BANs at
the end of 2009 to 46 with 1,623 associated investors;
141
COTEC, Foundation for Technological Innovation. It publishes annually the Cotec Report on Technology and
Innovation in Spain since 1996 with the main aim of providing a collection of indication on the state of innovation
and technology in Spain and the positioning with respect to the countries of its environment.
http://www.cotec.es/index.php/pagina/publicaciones/novedades/show/id/945/titulo/informe-cotec-2011-tecnologia-e-innovacion-en-espana
103
•
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
The number of deals performed in 2009 by 66 investors was 41 with a total amount of €9
million, on average €220,000 per deal.
Although so far there are no published official data, according to one of the expert interviewees142, the
number of networks and number of Business Angels for 2010 reached 50 and 1,729 respectively.
EBAN statistics are based on data provided by surveyed BANs that are members of the European
network and are one of the best sources of information on visible Business Angels that operate through
BANs. In the case of Spain, data for 2010 is based on the responses provided by 13 BANs. These 13 BANs
had 807 investors of which 34.2% were active and around 6% female.
Table 1: Business Angels Networks in Spain (2010)
Parameter
Number of networks
Number of members (investors)
- Of which, number of active Business Angels
Average number of investors per network
Total number of women Business Angels (%)
Number of angel investors recruited during 2010
Number of women investors recruited during 2010
Number of angels who have left the networks
Average number of angels per investment round in 2010
EBAN data (13 BANs)
13
807
276
34
18 (2.23%)
10
1
2
1
ESBAN data
50
1,729
57 (0.4%) (2008)
83 (2008)
5 (2008)
55 (2008)
EBAN also provided information on the investment type and volume. In Spain, 594 business plans were
submitted to angels through the 13 BANs that responded to the survey in 2010. There were 58 deals
made through the networks and around 6% of those were financed with a total investment of around €8
million.
According to the 2011 COTEC report, up to 2007 there had been 122 deals in Spain for over €25 million,
with an average of around €205,000 per transaction. In 2008 there were 79 investors who made a total
of 46 operations by more than €13 million, with an average per transaction around €270,000. In 2009
the number of deals performed by 66 investors fell to 41 for an amount of €9 million, nearly €220,000
on average per transaction. These investments involved 209 deals throughout the period (2007-2009)
for a total of €47 million, generated 435 jobs (direct or indirect), and reflect an increasing tendency to
perform co-investment and syndication by Business Angel groups.
142
Mr Albert Colomer, Treasurer of ESBAN and Spanish representative in the Board of Directors of EBAN
104
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
Table 2: Business Angels investment Type and volume in Spain (2010)
Indicator
Number of business plans received
Number of business plans submitted to angels in 2010
Number of deals made through the network in 2010
Number of new companies financed
Number of follow-on rounds
Total amount invested by angels through BANs (€)
EBAN data (13 BANs)
1,189
594
58
38
2
8,162,000
Average amount of the deal (€)
Average amount per angel investor
182,197
137,033
Total (ESBAN data)
41 (2009)
9,000,000 (2009)
28,300,000* (2010)
220,000 (2009)
Source: ESBAN * Including co-investment.
The Ministry of Industry, Energy and Tourism also offers quantitative data on the BAs market based on
the information provided by BANs granted under the ‘Programme of Impulse to Business Angel
Networks’ of the Ministry described in detail in Section 4. Even though this information is not collected
or checked by the Ministry, it is a good approximation of the visible market. However, it has to be taken
into account that these figures correspond only to the BANs that had received grants under this
Programme. According to the information provided by 44 networks that applied for grants in 2010 and
2011, the total amount provided by their own sources was €3.2 million. The number of projects received
in 2009 was 1,755 and increased to 2,704 in 2010. A total of 529 of business plans were submitted to
angels in 2009 and 670 in 2010, representing around the 25% of the projects received. This led to 55
deals being made through these granted networks with a total investment of around €14 million in
2009, and increased to 91 deals and around €21 million in 2010.
Although the 2011 data are provisional, it is clear that there was a considerable increase to both the
number of projects received and those that were submitted to investors. The number of deals is over
250 and the total amount invested by angels is more than double over the previous year.
Table 3: Data on Business Angels networks that received grants under Spanish government Impulse
programme
Indicator
2009
2010
2011*
1,755
2,704
4,694
Number of business plans submitted to angels
529
670
1,421
Number of deals
55
91
253
13.929.588
21.008.885
44,932,358
Number of business plans received
Total amount invested by angels (€)
Source: Ministry of Industry, Energy and Tourism ; * Provisional data
Breakdown of Business Angel investment by sector
According to the study, ‘Nature of Business Angels networks in Spain and main characteristics of market
players’ 143 (2008 data), economic sectors with relatively high levels of investment by the Spanish BANs
143
Naturaleza de las redes de Business Angels existentes en España y principales características de los agentes del
mercado. (in Spanish).
105
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
are: ICT/software/multimedia, biotechnology and renewable energy. One reason for concentration in
these sectors may be that in order to attract business projects, the Spanish networks are typically based
in industrial zones, business incubators, science and technology parks and universities. Also, many
Spanish networks have a strong dependence on host organisations which, in many cases, are
universities, science and technology parks, which by nature offer specialised projects in a specific sector.
This also emerges from the data provided by EBAN of the 13 Spanish networks that provided
information for 2010. As shown in the table below, the highest percentage of deals was concluded in
the ICT sector, 33% of the total for 2010. This is followed by Creative industries and Manufacturing
sectors with 14% and 13% respectively. Both Biotech and Life Science and Environment and Clean-tech
sectors represented around 10% each.
Table 4: Percentage breakdown of Business Angel investment by sector (2010) – Data from 13 BANs
Sector
ICT
Creative Industries
Manufacturing
Biotech and Life sciences
Environment and Clean-tech
Other*
Health Care and Medical technologies
Energy
Retail and Distribution
Logistics and transportation
Mobile - including software and service
applications
Social and Sustainable Investments impact investing
Finance and Business Services
% in total number of deals
33.3
13.9
13.2
10.3
9.6
4.2
2.8
2.8
2.9
2.8
2.1
% in total amount invested
35.7
8.9
14.8
8.5
10
5.3
4.7
0.4
1.3
1.8
7.7
1.4
0.1
0.8
0.9
Source: EBAN Survey. (*Automotive, Intelligence).
Percentage breakdown of association members’ investment by geographical region
Concerning the location of investment, Spanish Business Angels tend to have a regional focus, in line
with the general European trend. According to the above-mentioned Spanish study, 2008 data indicate
that most of the Business Angels networks identified (52%) invested in their own region while 25%
invested in the same country but in a different region. Only the 8% of the networks had an international
scope. EBAN data of the 13 BANs, confirm that the vast majority of Business Angel Investment in Spain
takes place in the same region where the network is located. Only around 4% of the investment was
made in the same country, but not in the same region where it is located and less than 1% of the
investment was made outside Europe.
Table 5: Business Angel Investment by location of the recipient firm
Location of recipient firm
In the region where the Network is located
% of deals
94.7
http://www.ipyme.org/es-ES/Financiacion/BusinessAngels/Documents/AGENTES%20DEL%20MERCADO.pdf
106
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
In the same country, but not in the same region
4.5
Cross-border in Europe
0
Outside of Europe
0.8
Source: EBAN
Life Cycle Stage of Investment at which Business Angel Funding Occurs
The EBAN data for the 13 Spanish BANs suggests that the vast majority of funding takes place at the
seed and early stage and start-up level. Around 3% of funding takes place at pre-seed level and less than
8% of the investment was for the expansion projects.
Table 6: Business Life Cycle Stage of Investment in Spain (2010)
Stage of investment
Share (% of deals)
Pre-seed
3.1
Seed
40.3
Early stage and start-up
48.9
Expansion
7.7
Pre-IPO
0
Buy-out and turnaround
0
Other
0
Source: EBAN
Co-investment between angels with other bodies
The table below illustrates the percentage of the total number of deals that co-invested in 2010. Around
30% of the 13 Business Angels monitored by EBAN co-invested with Business Angels inside the network
and around 5% with Business Angels outside the network. Just over 10% of the co-investments come
from venture capital funds, while co-investments from institutional investors contributed less than 2%.
Table 7: Level of Business Angel Co-investment in Spain (2010)
Co-investors
Share in total number of deals
Business Angels inside the network
29.2
Business Angels outside of the network
5.4
Early stage fund
Venture capital fund
Family office
Institutional investors
Other investors
0
10.4
0
1.9
0
Source: EBAN
107
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
The study "Spanish Network of Business Angels: research procedures and market volume"144 analyses the
preferences of Spanish BANs with regard to co-investment, based on a survey of the 40 BANs in 2008.
According to this study, most of the Spanish BANs that decide to co-invest prefer to invest along with
other Business Angels (over 40%), a trend similar to elsewhere in Europe. However, the study also shows
that in Spain over 20% of investors prefer to invest alone.
2.2 - Data on the Non-visible Business Angels market
Quantification of the invisible market is very difficult, mainly because of the desire of BAs to remain
anonymous and the undocumented nature of their investing activities. In Spain, no study has attempted
to measure the non-measured market.
The GEM Project145 provides some valuable information. Data for 2010 are based on a survey with a
sample of 26,388 interviews. According to this study:
•
•
3.24% of the adult population reported that they had invested in someone else’s business in 2010,
much higher informal investment (3.02% of the population aged 18-64 years) than investment
conducted by the Business Angels (0.22% of the population aged 18-64 years). In other words,
Business Angels represent less than the 7% of individual investors who invested in someone else’s
business (2010);
Given that for the same year, the adult population (people between 18 and 64) was 30,741,514
(INE, the National Institute of Statistics), the number of active Business Angels in Spain would stand
at around 67,700 people in 2010.
According to ESBAN data (Table 1) there are 1,729 Business Angels belonging to recognised networks.
This, combined with the above data, would suggest that the active Business Angels in the invisible
market should not exceed 66,000 (67,600 minus 1,729).
This number is most probably an overestimate of the size of the invisible Business Angel market. In that
respect, some interviewees questioned the appropriateness of using the GEM data because it is not until
2010 when the GEM project for Spain began to distinguish between the informal investor and Business
Angels, the latter not having any family relationship with the entrepreneur.
According to the Treasurer of ESBAN and the Spanish representative in the Board of Directors of EBAN,
the invisible part of the Business Angel market is most probably around 20 or 25 times greater than the
visible or formal Business Angel market, thus no more than 43,300 (1,729 x 25). Overall, and taking into
account both sources, the non-visible market could be between 34,600 and 67,700 individuals in 2010.
These estimates suggest that, compared with other countries, the invisible Business Angel market is
relatively large in Spain in relation to the measured/visible part. This is quite possible given the business
culture in Spain and the ‘informal’ nature of many activities.
Regarding the demand for finance, some conclusions can be obtained from the report, ‘Thermometer of
investments in start-ups in Spain 2011’146, developed by Ready4Ventures based on the information
extracted from a series of surveys and interviews of entrepreneurs with investment projects searching
144
Redes españolas de Business Angels: investigación de procedimientos y volumen de mercado (in Spanish).
http://www.ipyme.org/es-ES/Financiacion/BusinessAngels/Documents/VOLUMEN%20DE%20MERCADO.pdf
145
Informe GEM España 2010 (in Spanish). http://www.gemconsortium.org/docs/download/616
146
Termómetro de la inversion en Startups en España 2011(in Spanish). http://www.readyforventures.com/wpcontent/uploads/2011/05/Termometro-de-la-inverson-en-Startups-en-Espana-2011.pdf
108
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
for investors. The information is derived from 66 questionnaires answered by investors, mainly BAs and
private investors, and 109 questionnaires answered by entrepreneurs, mainly serial entrepreneurs:
•
•
•
72% of these entrepreneurs financed their projects by own savings and family support, 42% made
use of loans and financing from investors;
For 2011 and 2012, only 35% stated they will consider credit as an option, while 58% expected to
apply for funding from private investors;
Contrary to what is believed by some entrepreneurs and analysts, 42% of investors forecasted an
increase in the availability of funds for investment during 2011 and 2012. In addition, 55% expected
to grow the number of deals closed during that period.
2.3 - Exits and exit strategies
As in other countries, the Spanish Business Angels invest temporarily in the companies - on average
between 3 and 5 years. Disinvestment typically occurs through: sale of shares to other shareholders or
the company itself, sale to a third party or sale to a venture capital firm. However there are no studies
or relevant data providing more information concerning the exit strategies of the Business Angels in
Spain.
2.4 - Other market characteristics
As mentioned above, the notion of the professional Business Angel is relatively new in Spain, especially
compared with other European countries and the US, with the first BAN created in 2002.
Another characteristic of the market in Spain is the concentration of BANs in certain regions Catalunya, Valencia and Madrid.
Analysis of the different sources identified shows that the number of female angel investors and
entrepreneurs receiving angel investment in Spain is very limited.
According to the 2008 study ‘Spanish Business Networks: research procedures and market volume’, only
0.4% of the 1,465 investors identified were women. Even though the data provided by EBAN for 2010
shows an increase in the proportion of women angels in the sample of 13 networks, representing
approximately 6% of the investors, their representation remains low. Another example is the data
provided by ACC1Ó from the Generalitat de Catalunya that refers only to the Catalonian BANs. In 2010
there were 295 investors and only 1% was female. It is also noteworthy that for the same year no
female entrepreneurs received angel investment. Overall, the picture is that Business Angel activity is
Spain is still very much male dominated.
2.5 Quality of data sources
Unlike some other European countries, in Spain, there is currently no register of Business Angel
networks or of the activity of Business Angels. The new Law on Entrepreneurs that the Government is
about to approve will regulate Business Angels and will create an official registration by the Comisión
Nacional del Mercado de Valores (see section 4.1).
So far, most of the available information on the Business Angel market comes from the detailed studies
produced by ESBAN, the Spanish Network of Business Angels, and the Directorate General of SME Policy
of the Ministry of Industry between 2008 and 2009. These studies provide data on Business Angel
networks in Spain up to 2008. Since then, there have been no similar studies.
In recent years COTEC, Foundation for Technological Innovation, annually publishes a report, (‘COTEC
Report on Technology and Innovation in Spain’), which includes basic data on the size and volume of the
109
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
formal market of Business Angels, according to data provided by ESBAN, which monitors the activity of
the network in Spain.
2 - SME access to finance
This section assesses the contribution of Spanish Business Angels to the SMEs’ access to finance and the
effectiveness of Business Angel finance to bridge the equity gap in the seed and start-up phases of the
SME development.
3.1 Overview
In Spain, the design and management of programmes of financial support to start-ups and SMEs is the
responsibility of the Dirección General de Política de la PYME (DGYME) and the Instituto de Crédito
Oficial (ICO). The funding support of entrepreneurs provided by DGPYME is performed by ENISA, a
Spanish governmental agency which helps and invests in the technological innovation. In addition,
CERSA is a state corporation under the same Ministry through DGPYME aimed at the refinancing or
partial coverage of risk assumed by mutual guarantee companies to SMEs that require additional
guarantees to solve their financial problem, prioritising the financing of innovative projects and micro
firms and start-ups.
The ICO is the State’s Financial Agency, attached to the Ministry of Economy and Finance through the
Secretariat of State for the Economy. ICO offers different lines of financing to promote all phases of the
companies/projects: ICO entrepreneurs, ICO SME and ICO business growth (unified in 2010 in ICO
investment) and ICO Internationalisation.
Finally, the NEOTEC initiative of the CDTI which aims to support the creation and consolidation of
technology-based companies in Spain, has a number of tools to support technology entrepreneurs from
the moment of the conception of the business idea until turning it into a viable company. The initiative
is implemented primarily through grants, ayudas NEOTEC, and venture capital contributions through
two companies: a fund of funds (NEOTEC Venture Capital Fund Company, SA, SCR) and a co-investment
fund (Joint Venture NEOTEC, SA, SCR).
According to the findings of the White Paper on Entrepreneurship in Spain, promoted by the Fundación
Príncipe de Girona (FpdGi)147 and written by ESADE Business School experts, in comparison to other
European countries there are not many sources of funding for new entrepreneurs. In addition to their
own personal savings, entrepreneurs obtain funding mainly from banks. The proportion of companies
that obtain funding by venture capital or private investors is much lower and is mainly linked with highly
innovative companies.
According to the expert opinion presented in the same study, funding is one of the problems that
inhibits development of entrepreneurship in Spain, although there are some who claim that ‘good
entrepreneurs will always find capital’. Thus, although 43% of experts believe that in Spain there are
sufficient funding sources for new initiatives, 72% believe that lack of funding is a major constraint for
the entrepreneurs that want to start up their ideas.
Chart 2: Expert’s opinion on the financing of the entrepreneurial activity in Spain
147
LIbro Blanco de la Iniciativa Emprendedora en España. (in Spanish).
http://itemsweb.esade.es/wi/research/eei/Investigacion/LBIEE_DocumentoFinal%20_27-072011_%20Rev%20Oct11.pdf
110
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
There are funding sources for
new initiatives
The that lack of funding is a
major constraint for the
entrepreneurs that want to start
up their ideas
21%
7%
0%
Not at all
36%
21%
20%
To some extend
43%
36%
40%
36%
60%
To a large extend
80%
100%
Completely
Source: White Paper on Entrepreneurship in Spain.
Since early 2009, the Spanish Chamber of Commerce regularly carries out a survey of SMEs (from 1 to
249 workers) that have tried to access external funding in the last three months. Results of the survey
for the last quarter of 2011148 (based on a representative sample of 400 SMEs) are in line with the
findings of the previous study. The survey indicates that most of the SMEs (65.5%) had problems in
obtaining funds from financial institutions while 3.25% of SMEs rejected available support because of
the onerous conditions. A total of 15.75% of the SMEs were rejected and the remaining 5% were still in
the process of applying for funding. Besides higher interest rates, the Spanish SMEs had to face higher
transactional costs. A small percentage of businesses used alternative instruments to get external
financing – mostly venture capital (1.3% of SMEs). On average, companies that used these alternative
instruments satisfied 24.4% of their funding needs.
Table 8: Share of companies that have used alternative instruments to obtain external financing
Average 2010-2011
Fourth Quarter 2011
Venture capital
3.2
1.3
Business Angels
0.5
0.0
Seed capital
0.3
0.0
Participative loans
1.6
0.0
Funds from the EU
0.2
0.5
Source: “Encuesta Cámaras sobre el acceso de las pymes a la financiación ajena” (December 2011).
148
“Encuesta Cámaras sobre el acceso de las pymes a la financiación ajena” (December 2011).
http://www.camaras.org/publicado/shop/prod_42282/estudios/pdf/encuesta_finan/financiacion_pymes_4__trim
estre_2011.pdf
111
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
According to the Small Business Act Fact Sheet for Spain 2010-2011149, almost 50% of SMEs have faced
deterioration in access to credit since 2009 - considerably greater in Spain than the EU average. Almost
50% of the SME owners indicated that access to public financial support including guarantees has
experienced a deterioration compared with the previous year (8 percentage points higher than the EU
average). Similarly, indicators measuring credit lending are also below the EU average. More than half
of the SME owners (57%) had noticed that banks were less willing to provide loans and actually refused
credit to almost one third of their customers. The cost of credit to small businesses (for loans under €1
million) is more than 40% higher than for larger enterprises. Likewise, in Spain the venture capital
investments in the early stages of a company are much lower than the EU average.
Table 9 : Access to finance for SMEs – Comparison of key indicators for Spain and EU
Indicator
EU average
Spain
Share of bank loan applications by SMEs that were not successful, 2009
23%
31%
Access to public financial support including guarantees
22%
47%
Willingness of banks to provide a loan (%share that indicated a deterioration)
30%
57%
Relative difference in interest rate levels between loans above 1 million EUR
and loans below EUR 1 million, 2010
24%
40.48%
0.01%
0.004%
(% that indicated a deterioration)
Venture capital investments - early stage (% of GDP), 2009
Source: SBA Fact sheet Spain.
The same pattern is reflected in the results on the survey conducted by IESE in 2009150 of entrepreneurs
that participated in the Investors’ Forum of IESE Network of Private Investors between 2006 and 2008.
The survey asked entrepreneurs to rate the relative importance of five external factors to ensure the
development of their project/company (easier access to sources of financing, the availability of a more
qualified workforce in the market, the existence of support services and resources for the development
of the project or company). The results reveal that ‘Access to finance remains’ a key concern of
entrepreneurs, even by those who have obtained funding from other sources but need additional
resources to continue growing (58% of respondents considered it the key factor in ensuring the future
development of their companies). Entrepreneurs also rated their overall perception of the public or
private support regarding the search for funding during the analysis period (2006-2008). Only 27%
indicated feeling satisfied about the support (public or private) received for raising funds. Nevertheless,
there is evidence of a comprehensive effort to improve access to credit when this is not available
through the private sector.
149
EU (2011), SBA Fact Sheet- Spain 2010/2011, http://ec.europa.eu/enterprise/policies/sme/facts-figuresanalysis/performance-review/files/countries-sheets/2010-2011/spain_en.pdf
150
La Financiación externa de empresas innovadoras en fases iniciales de desarrollo. Restricciones financieras,
fallos de mercado y papel de los inversores privados. IESE Business School-Universidad de Navarra (in Spanish).
http://88.84.77.137/madridemprende/sites/default/userfiles/Informe%20IESE%20Business%20Angels.pdf
112
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
2.2 - Role of Business Angels
All existing studies on the Business Angel market stress the potential role they have for the financing of
SMEs in their early stages, mainly for high technology-based companies, and especially in recent years
when access to credit has suffered a significant deterioration.
Business Angels can help fill the equity gap that occurs between the stage of personal or family funding
and the eventual entry of venture capital funds. According to the above-mentioned study by IESE, in
Spain in the absence of reliable data on the activity of the informal venture capital market, some
analysts estimate this gap to lie in the range from €600,000 (although others lower this limit) to up to
€2-3 million, i.e. investments of a size that would be suitable for venture capital funds. According to the
report Venture Capital & Private Equity in Spain published by ASCRI (Spanish Association for Venture
Capital and Private Equity)151, 80% of venture capital operations closed in 2010 were below €1 million.
As in other countries, in addition to the provision of financing, especially in the early stages of the
company, Business Angels also have a crucial role in attracting additional funding in subsequent phases
of the development of the company and provide added value with their knowledge and experience. The
survey of entrepreneurs included in the IESE study measured the reputational impact of the entry of
private investors in the business project. All entrepreneurs indicated that the entry of a private investor
is a key factor to attract additional funding in later stages (62% indicated it helps a lot and 38% quite a
lot). Likewise, the survey asked if the Business Angels also provided knowledge and experience to their
projects and more than half of the entrepreneurs (52%) completely agreed with this statement and 27%
to a large extent.
In addition, according to the IESE survey, 58% of the surveyed entrepreneurs “completely agreed” with
the statement ‘without the entry of external capital, the project could not continue forward’ while 21%
agreed “to a large extent”.
151
Informe Capital Riesgo & Private Equity en España (page 9). ASCRI. 2011.
http://www.ascri.org/upload/documentos/20110718_122112_563886714.pdf
113
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
4 – Public support for the Business Angels market
In this section we examine the existing support schemes for Business Angel financing in Spain and, on
the basis of available information, provide an assessment of their performance.
4.1 Tax breaks
Since 2006, there have been various initiatives to promote Business Angels. However, the Spanish legal
system does not recognise the status of Business Angels and there is no favourable tax treatment for
their activity. Some Autonomous Communities (Madrid, Catalonia, Galicia and Navarre) have introduced
fiscal support measures but they are of limited scope due to the conditions and restrictions on the
maximum amount to be tax deductable (€4,000 in Catalonia recently increased to €6,000). At a national
level, in July 2011, the Government introduced a favourable tax treatment for tax on capital gains from
investment in newly created companies. In particular, the capital gains generated by the transfer of
shares or units in such initiatives are exempted from tax when the investment is in new or recently
created companies (there is exemption from tax on capital gains from the sale of shares whose value
does not exceed €25,000 per year).
In 2008, the Law 4/2008 of 23rd December, stated that the Government will consider the formulas that
exist in comparative law to encourage the creation of SMEs and to support entrepreneurs and Business
Angels in order to study its feasibility in Spain and, where appropriate, a legal and fiscal regime that will
result from its application. This was reflected in two reports152 published by the then Ministry of
Industry, Tourism and Trade and conducted in collaboration with ESBAN.
In the second report, it was proposed to apply to Business Angels a similar legal and fiscal regime to
that which applies to venture capital. In summary, the measures proposed include:
•
•
•
Establishing a regulatory framework defining the operational scheme of investments by BAs;
Identification of a supervisory body for the operation of this funding market that could be the
Comisión Nacional del Mercado de Valores (CNMV), the Spanish government agency
responsible for regulating the financial securities markets in Spain; and
Establishing fiscal measures that encourage development of this sector.
One year later, in 2009, the Congress of Deputies approved a motion (‘proposición no de ley’) urging the
Government to promote a legal framework that recognises and promotes the figure of the Business
Angel or informal investor, so that all subsequent policies to encourage employment and economic
activity could refer to it. It also urged initiation of collaborative processes between the government and
BANs to define the future legal and fiscal system for these investors in order to establish further
mechanisms of information, promotion, monitoring and validation of projects, allowing assessment of
their impact on the economy.
In this motion, it was also agreed to prepare a Proposition of law (‘proposición de ley’) to articulate the
relevant financial and fiscal incentives for funding by Business Angels, similar to venture capital and
applicable to both individuals and corporations. However, so far, none of the existing proposals have
152
‘Análisis de tributación comparada de la figura de los Business Angels en Europa’ and ‘Propuesta de medidas
fiscales de fomento de la figura de los Business Angels en España’ (in Spanish).
http://www.ipyme.org/SiteCollectionDocuments/IPYME/EmprendedoresCreacionEmpresas/Finanziacion/BUSINES
S%20ANGELS_%20AnalisisTributacionComparada.pdf
114
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
been implemented and Business Angels do not have a specific tax system, in contrast to some other
countries, and therefore are taxed like any other securities investment.
To summarise, the current regulation and taxation framework concerning Business Angel investments is
as follows:
Lack of tax benefit for the investment made;
Dividends received by a business angel from the company in which he/she has invested (target
companies) are taxed at the rate of 18%, like any other income from savings;
Interests received on loans to target companies are subject to the overall scale;
Income of Business Angels that comes from advisory services is also taxed on the overall scale;
Property gains are taxed at 18%, like income from saving. Losses are also taxed at 18% and can only
be offset against positive income from savings;
There is not a special regulation for Corporate Tax, taxing to 32.5% for 2007 and 30% for 2008 and
subsequent years, except for entities with less than 6 million euros turnover, in which case they are
taxed at reduced rates (25%). The general rules for dividends and capital gains are applied;
Similarly, neither Property Transfer and Stamp Duty nor Inheritance Tax has fiscal benefits.
•
•
•
•
•
•
•
However, the current framework is expected to develop further soon. On June 29, 2011 the governing
party submitted the first proposal to regulate Business Angels included within the Proposition of law to
support entrepreneurs to the Congress. So far, this has not materialised but, although the current
economic situation in Spain has caused a significant reduction in the general state budget, according to
some experts interviewed, the proposals relating to Business Angels will be launched, so it is more than
likely that it will retain the main measures. The following summarises the chapters of this Proposition of
Law which refer to the Business Angels:
It includes the definition of informal private investors or Business Angel. However, it seems that it is
not contemplated that the Business Angel, as an individual, can operate as a legal person except in
the case of joint investment. Among the conditions to be met by these legal entities, is to be part of
a registered BAN;
It establishes investment limitations - the maximum investment, including both capital and bonus
payouts, as the participation loans, of a business angel or informal investor in one company may is
€200,000. It restricts the volume of investment and measures are not contemplated when the startup grows or when it requires further rounds of investment;
It also includes the definition of BAN and indicates that it will be determined by regulations which
are the requirements that a BAN must meet in order to be officially recognised. Also, an official
register of BANs in Spain supervised by the Comisión Nacional del Mercado de Valores, is to be
established.
Tax incentives for Business Angels are to be established.
•
•
•
•
Proposed tax incentives for Business Angels
•
Personal Income Tax: (i) Deduction of payable tax. (a)The initial investment of a business
angel, maintained for at least three years, will result in a deduction of 25% of the investment
with a ceiling on the deduction base of €100,000. (b) The taxable basis of the deductions may
not exceed for each of them the 10% of the taxable income of the taxpayer. The investment
volume will be certified by the network registered in the Official Register of Business Angels in
which the investor participates. (c) The deduction generated and not applied as a result of a
115
•
•
•
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
quota or insufficient taxable income, may be initiated within 5 years following accreditation.
(d) If the Business Angel breaches the minimum period of three years of the investment the
Business Angel must return the deduction, plus interest for late payment. (ii) Disinvestment.
(a) Capital gains by disinvestment will be taxed at the standard tax rate as savings income. (b)
Those capital gains that are reinvested in the twelve months following its acquisition shall be
exempt from tax. (c) When a capital loss or participation loan loss ensues, this loss is offset
against the savings tax base without any limitation. In the case that compensation gives a
negative balance, this may be offset by the general basis with a limit of 25%. If the resulting
balance continues to be negative it can be offset over the next five years. Also, there is a 99%
exemption from Corporate Tax on the income generated by investment via capital gains or
interest on equity loans.
Capital Gains Tax: To establish an exemption from Capital gains tax on investments by Business
Angels.
Inheritance Tax: 95% reduction in the transfer ‘mortis causa’ of the investments made by the
Business Angel , but only if the heir maintains the investment for at least three years.
Property Transfer and Stamp Duty: Corporate operations of incorporation and capital increase
shall be exempt when the company operates as Business Angel. Also, it will be exempt from
this tax if the capital increases as a result of a Business Angel investment. In any case, the
exemption shall be conditional on the certification issued by a BAN registered in the official
record maintained by the CNMV.
4.2 Direct support measures
Even though the Spanish legal system does not recognise the status of Business Angels and there is no
favourable tax treatment for their activity at this point, in recent years there have been initiatives
recognising the importance of Business Angels and the need for supporting them. Besides the
Proposition of law to support entrepreneurs outlined above, these include the Programme of Impulse to
Business Angel Networks launched by the Ministry of Industry, Tourism and Trade, and several coinvestment fund schemes.
Programme : Impulse to Business Angel Networks
In 2010, the then Ministry of Industry, Tourism and Trade (now Ministry of Industry, Energy and
Tourism) launched an initiative to encourage BANs ‘Programa de impulso a las Redes de Business
Angels’153 (Programme of Impulse to Business Angel Networks). The aim of this programme is to
strengthen and professionalise organisations that perform brokerage services between enterprising
companies and potential investors (or Business Angels) so that the services are provided in a more
professional manner. This should improve the opportunities for SMEs to access Business Angel funding.
The programme is open to both public and private entities that have their own legal personality, fulfil
certain conditions to attract investors, are able to assess and promote investment in innovative projects
carried out by enterprising SMEs with the support of agents related to the creation of companies and
innovation (development agencies, technological parks and centres, etc.). In the first year the
programme granted €440,000 to 24 BANs and this increased to €708,604 (30 BANs) in 2011.
153
Programme of Impulse to Business Angel Networks
http://www.ipyme.org/enus/SubvencionesAyudas/RedesBusinessAngels/Paginas/ImpulsoRedesBusinessAngels.aspx
116
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
As to the regional distribution of grants between 2010 and 2011, there is a concentration in certain
regions, in line with the concentration of BAN. The Community of Catalonia received most grants (18,
worth €434,892), followed by Madrid (5 grants worth €120,000) and Valencia (4 grants worth €100,000).
So far no official results and impacts of the initiative have been published. Similarly, it is not known yet if
a new call will be launched for 2012.
Co-investment fund schemes
ENISA, a Spanish governmental agency under the Ministry of Industry, Energy and Tourism, through the
Directorate General of Industry of the SME has a cooperation agreement with AEBAN and IESE which
helps and invests in technological innovation. ENISA provides participative loans from €100,000 to
€1,500,000 to innovative companies that meet certain criteria and are proposed by BANs that have
signed the partnership agreement.
From 2009 to March 2012, ENISA financed 23 projects to the value of €5,545,000. 4 other projects for a
total investment of €1,050,000 are under study and one has been already approved for €100,000. Since
the launch of this line of co-financing 67 projects have been abandoned or rejected, mainly for not
complying with the requirements or providing the necessary information.
17 of the 23 projects approved and disbursed in the period are located in Barcelona and 5 in Madrid.
Most participative loans are for between €100,000 and €200,000, about 26% between €220,000 and
€300,000 and just over 17% from €450,000 to €600,000. Analysis of the activities of the beneficiaries
shows that the vast majority are from the field of ICT and Creative Industries; although in all cases the
activities have an innovative component, an essential requirement for the granting of such funding.
At a regional level there are also other co-investment initiatives with Business Angels, as launched by
the Generalitat de Catalunya. The IFEM, a subsidiary of the Catalan Institute of Finances (ICF), has a
collaboration agreement with, to date, 11 BANs to co-invest in start-ups. The last call was launched in
late 2011 and will fund a total of 80 start-ups until 2015 for a total amount of 10 million euros. These
companies will receive between €50,000 and €200,000 with the condition that the Business Angels have
to provide the same amount as the IFEM.
The IESE study mentioned above also indicates the perception of entrepreneurs about options for coinvestment with public and private funds. The survey assessed whether entrepreneurs perceive the
possible entry of external capital together with public funds as an attractive element and, at the same
time complementary (e.g. covering the requirements of funding) for a private investor deciding to
invest. The results show that more than half of the entrepreneurs who responded to this question are
rather cautious regarding the possibilities of cooperation schemes as described, probably due to lack of
further information (41% think it can help “a lot”, 18% that it could help “somewhat” and 18% that it
could help “very little”).
4.3
Evaluations of public support measures for Business Angels
So far, there have been no formal assessments of the results and impacts of any of the above described
public initiatives supporting Business Angels.
Even though these initiatives represent evidence of the increasing importance that Business Angels
assume in Spain, everyone agreed that there is still a need for a uniform BA policy from the government,
a regulation of the definition of the status of the informal investor and establishment of a favourable tax
treatment for their activity. In this respect, the representative of AEBAN and Director of Madrid
117
Evaluation of EU Member State Business Angel Markets and Policies
Section
National reports: Spain
6
Business Angel network, was of the view that the application of a mechanism for regulating the market
and provision of tax incentives allowing the application of reduced rates on capital gains or losses
deductions would enhance the development of the sector and encourage such investments. The Head of
Finance of the DGPYME from the Ministry of Industry, Tourism & Trade, added that the Spanish Business
Angel market is new but is growing and has great potential. She added that the creation of new
networks of private investors, thanks to initiatives like the Programme of Impulse to Business Angel
Networks, is helping to reveal the opportunities of the Business Angel market.
In relation to the co-investment schemes, the feedback from the interviews indicates that the response
of investors and entrepreneurs has been very positive so far. They are considered as contributing to
filling the equity gap in the early stages, leading to higher volume of investment and sharing the
investments risk.
According to those interviewed the key added value of BANs comes through its role of raising awareness
of the market, making it visible, by spreading this kind of investment, encouraging supply and demand
to grow, and creating the mechanisms to bring willing buyers and sellers together. The current trend
suggests that most Business Angels with investing capacity do not find investment opportunities suitable
to their expectations. At the same time, entrepreneurs have difficulty identifying potential Business
Angels, since a good number of these Business Angels value anonymity excessively. In addition,
according to the Spanish BANs, in most cases investors prefer to co-invest with another Business Angel.
In this sense, the role of BANs is crucial, creating a circle of trust between investors and promoting a
number of Business Angels to join for investment operations.
118
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
This annex contains a summary of data obtained in respect of the activities of Business Angels in
Sweden.
1 - Introduction: Overview of Swedish Business Angels market
On the basis of the data available, the Business Angels market in Sweden includes around 3,000-5,000
potential investors – although depending on the definition adopted they may be up to 27,500 - and a
total volume of investments in the range of €200-400 million. It is organised around a formal segment
that is based on 22 BANs distributed around the country with 600-1000 investors representing between
5-15% of the total. An upper level estimate of the total annual number of Business Angel investments in
the period 2004-2007 was around 30,000 in a total of 7,500 firms.
As regards the overall role of the Business Angel market in access to finance, in comparison to the EU
average, access to bank loans remains easy and banks are the key source of finance. Still, there has been
significant growth of the equity markets in the last years – especially in relation to firms in high-tech
sectors – putting Sweden among the top countries in Europe in terms of access to early stage equity
capital.
In terms of public sector support to BAs, government policy has been mainly indirect. The main focus
has been on promotion of BANs. This included an initial financial support towards the formation of a
network of BANs across Swedish regions and the development of a national association to promote
networking and activities to increase investment readiness. Indirectly, the existing initiatives for the
provision of equity finance to high technology start-ups - ALMI Invest and Innovation Bridge - also
contribute to the development of the Business Angel market by requiring additional private sector
investment but also by offering a certain guarantee through their selection process. On the other hand,
there are no dedicated tax breaks or other tax schemes to promote Business Angel investments
although the government is considering one.
2 - Data on the Swedish Business Angels Market
This section summarises key market data on the visible and non-visible market for investment by
Business Angels in Sweden.
2.1 Data on the Visible market
According to Swedish Venture Capital Association, that has been responsible for the organisation of the
promotion and coordination of BANs in Sweden since 2005, there were 22 BANs operating in Sweden in
2010 with around 1,000 registered members, of which some 400-600 were active154. 13 of those BANs
were registered in the SVCA database with a total of 681 angels155.
The annual EBAN survey provides the most comprehensive source of information available on the size
and characteristics of the Business Angels in Sweden. Still, the 2010 data are based on the responses of
4 BANs with 135 angel investors in operation, 57 of which were active. These 57 angels represented 1014% of the 400-600 Business Angels in the 22 networks identified in 2010. Thus, the estimates provided
concerning the total formal Business Angel’ market are based on an extrapolation from the EBAN data.
154
155
Sofia Avdeitchikova interview
www.svca.se
119
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
Table 1: Business Angels Networks in Sweden (2010) – Data from 4 Business Angels networks and
estimate for total
Parameter
Number of networks
Number of members (investors)
-
Of which, number of active Business Angels
Average number of investors per network
EBAN survey numbers
Estimate for total
4
22 (2010)
135
750-1000
57
400-600
34
Source: EBAN and CSES elaboration
EBAN data also provide information on the investment activity. According to the data from the 4 BANs, a
total of 98 business plans were submitted and 18% of those were eventually financed with a total
investment of around 3 million Euros. On the basis of this, the total value of the deals through BANs is
estimated at around €21-30 million. Another SVCA study on the basis of 166 angels from 14 BANs
reported investment activity in 2010 of approximately €12 million. Extrapolated to the total number of
BANS it suggests a total value of around €30 million.
Table 2: Formal Business Angels’ investment type and volume in Sweden (2010) – Data from 4 BANs
and total estimates
Indicator
EBAN data (4 BANs)
Total (estimate)
Number of business plans received in 2010
435
Number of business plans submitted to angels in 2010
98
700-1000
Number of deals made through the network in 2010
25
175-250
Number of new companies financed
17
120-170
Number of follow-on rounds
5
Total amount invested by angels through BANs (€)
3,020,000
Average amount of the deal (€)
91,850
Average amount per angel investor (€)
65,500
21 -30 million
Source: EBAN and CSES elaboration
In terms of sectoral focus, the 2010 EBAN survey indicates a strong focus on the high-tech sectors
including Healthcare and ICT. They represented 57% of the total number of deals and 55% of the total
amount invested. Mobile phone applications, biotech and environmental technologies also received a
little more than 10% of the total, respectively.
Table 3: Percentage breakdown of formal Business Angels investment by sector (2010)
Sector
Health Care and Medical technologies
ICT
Mobile - including software and service applications
Biotech and Life sciences
% in total number of
deals
31
26
13
13
% in total amount
invested
25
30
13
21
120
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
Environment and Clean-tech
Energy
Creative Industries
Social and Sustainable Investments - impact investing
Retail and Distribution
Finance and Business Services
Logistics and transportation
Manufacturing
11
4
2
0
0
0
0
0
7
8
2
1
0
0
0
0
0
Source: EBAN
The EBAN survey data also indicate that the Swedish BANs have a clear regional orientation. The 13
BANs in the database are present in all different regions of the country even though there is, as
expected, a concentration in the south part of the country where the main economic centres and most
of the population is concentrated156. The interviews with experts – including the representative of one
Network157 – confirmed that the regional orientation is particularly strong.
Table 4: Formal Business Angels’ Investment by Region
Location of recipient firm
In the region where the Network is located
In the same country, but not in the same region
Cross-border in Europe
Outside of Europe
% of deals
100
0
0
0
Source: EBAN
AS regards the stage of investment, the data from EBAN survey point to a focus on early stage/start-up
(73.75% of the total), and less so on the expansion (17.5%) or seed stages (8.75%). This makes them
rather similar to the UK Business Angels and less so with the German, Italian or Spanish Business Angels
which, according to the EBAN data, focus more on the seed stage. However, the information on the 13
BANs provided in the SVCA website158 indicates a focus of the BANs on the seed stage (9/13), with only 3
referring to start-up stage and one on expansion. In the absence of additional information the main
conclusion is that seed and early stage phases are dominant.
Table 5: Business Life Cycle Stage of Investment among formal Business Angels
Stage of investment
Pre-seed
Seed
Early stage and start-up
Expansion
Pre-IPO
Buy-out and turnaround
Share
0
8.75
73.75
17.5
0
0
Source: EBAN
Finally, according to the EBAN survey data, formal Business Angels in Sweden do not seem to have
strong preferences in terms of their co-investors. They co-invest both with other Business Angels inside
156
10/13 in or around the main centres of Stockholm, Gothenburg and Malmo.
Interviews with Sofia Avdeitchikova of University of Lund and Jeannette Anderson from Connect Skane
158
SVCA, http://www.svca.se/membersearchen?type=BusinessAngelNetwork
157
121
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
their own networks – although less than in most other countries – but also with Business Angels outside
the specific networks as well as institutional investors or even venture capital funds.
Table 6: Level of Co-investment among formal Business Angels
Co-investors
Business Angels inside the network
BAS outside of the network
Early stage fund
Venture capital fund
Family office
Institutional investors
Share in total
13.33
23.33
10
13.33
0
26.67
Source: EBAN
2.2 Non-visible market
The data on the non-visible segment of the Business Angel market are not extensive and are relatively
old, referring to the period 2004-2007 and therefore not reflecting any impact of the financial crisis. Still,
available studies allow for estimates that could be considered relatively reliable. Overall, the sources
identified suggest that the total Business Angel market (visible and invisible) is in the range of €200-400
million. Thus, on the basis of the earlier data on the formal part (€21-30 million) the invisible part
represents 85-95% of the total. In terms of the number of investors, the estimates range greatly from
less than 1,000 to up to 7,500 depending on the approach followed.
The data collected from the Global Entrepreneurship Monitor159 (GEM) suggest that the proportion
of informal investors in the adult population160 in Sweden is significantly higher than most other EU
countries following a significant increase during the last 5 years. While it was similar to the EU average –
around 2% - it has developed, especially after 2005, reaching a total of 6.5%, 2-2.5% higher than the EU
average. However, a large share of those investments is directed to friends and family and do not fit
with definition of Business Angels used in this report. While there are no specific data available for
Sweden, the GEM provides information for a number of EU countries on the percentage of such
investments directed to “strangers with a good business idea”. On the basis of the average value for the
EU countries available161 - around 7% - we estimate that there are some 27,500 informal investors162 around 3,000 per million of the population. One needs to treat such a number with some scepticism,
given that the relevant number in the USA is 850 per million of the population, the country where the
Business Angels market is, according to all sources, the most developed. As a result, this number of
27,500 investors should be considered as an upper limit.
Besides the estimates derived from GEM data, there have been two main academic studies attempted
to directly measure the number of Business Angels. The first major study of Business Angels in Sweden
was carried out in 2004 at Lund University163. It developed a database of Business Angels including
members of BANs, investors in companies registered in the Swedish Patent and Registration Office and
159
GEM (2011), Entrepreneurship in Sweden, National Report 2011 (in Swedish)
Percentage of population aged 18-64 who personally provided funds for a new company, started by someone
else, over the past three years.
161
GEM website, http://www.gemconsortium.org/docs/cat/4/national-reports
162
On the basis of the 18-64 cohort representing around 60% of the total population of 9.3 million.
163
see Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of Sweden,
Venture Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
160
122
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
through information in articles and journals. It concluded with a total of 894 Business Angels. This
number represents the lowest estimate since some individual investors should be expected to have
been missed by this approach. It should also be expected to be biased towards members of BANs as this
was the first and easier source of information.
A different approach was followed in a study by Avdeitchikova164 to identify the share of informal
venture capital investors among the Swedish population on the basis of a survey of a random sample of
the population. From a total of 24,166 responses, around 861 individuals claimed to have made informal
venture capital investments165 in the last 5 years. The analysis of a smaller number of them (401) led to a
total of 298 (69.3%) identified as actual informal investors. About half of them had an entrepreneurial
background, some of them with multiple start-up experience (‘serial entrepreneurs’). Extrapolating the
results from the sample - using weights based on the size of the initial sample in relation to the adult
population in Sweden and adjusted with respect to background variables to eliminate the non-response
bias – it was estimated that the number of informal investments in Sweden was between 27,800 and
32,600 annually. It also estimated then that the number of businesses financed by informal venture
capital investors should be around 7,500 per year (on the basis of around 4 investors per business). The
study does not provide for a direct calculation of the number of Business Angels. However, the author
suggested that the data available indicated that the number of Business Angels was approximately 5,000
and that this may have slightly increased since. The Swedish Venture Capital Associations also referred
to a total of 3,000 to 5,000 angels in Sweden166.
As regards the total investment value, according to the Swedish Agency for Economic and Regional
Growth, a rough estimate of the volume of the Business Angel market is at least 3 billion SEK per year
(€340 million)167. SVCA also referred to a total – formal and informal - market size in 2004 of 2 billion
SEK (€225 million), around half of the VC investment. The Lund study estimated the total annual
investment at around 3 billion SEK (€335 million) and Avdeitchikova reached a value of €385-450 million.
The Avdeitchikova survey also suggested that the majority (59%) of individuals are fairly low activity
investors who have made only one investment, and the average number of investments per individual is
2.33. The investments completed were generally rather small, on average just over €6,000 and only 4%
of investments are larger than €100,000.
Concerning the investment stage, the Lund study indicated that seed and start-up stage represented
48% of the total investments while a quite high 33% concerned expansion stage. According to
Avdeitchikova, about 59% of investments were in the early stages of a company’s development (seed,
start-up and early growth). Both studies indicate a relative focus on the expansion stage when
compared against data from other countries.
164
Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital: An International Journal of Entrepreneurial Finance, 10:1, 55-85
165
The definition used was : individuals that had, within the previous five years, made non-collateral investments
in unquoted companies to which they did not have any family connections,
166
SVCA, Business angels – a complement to formal private equity, http://www.svca.se/en/Our-members/Angelsventure-and-buyout---who-is-who/Business-Angels/;
167
Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of Sweden, Venture
Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
123
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
Table 7: Summary table of estimates of total Business Angel market and key characteristics
Business angels
% of female in total
Total market size (€ million/year)
Number of investments/year
Share of seed/start-up finance
Investments per individual
Amount invested per individual in last 5
years
Total amount invested/individual
Average investment size
Investors survey
(Mansson & Landstrom, 2004)
894 (identified)
4%
335
48%
5.6
€50% in the €0.05-€0.5 million
range
Population survey
(Avdeitchikova, 2004)
3,000-5,000 (estimate)
19%
385-450
7,500
59%
2.3
92% less than €100,000
€6,000
The studies presented do not offer extensive information concerning the membership (or not) of
investors in BANs. However, on the basis of the information provided earlier, we can estimate that the
Business Angels in networks represent 10-20% of the total number of informal investors (depending on
the number of Business Angel members adopted) and the total amount of €21-30,000 invested around
5-15% of the total size of the market.
2.3 Exits and exit strategies
Exit from investment is a key issue for Business Angels. Our discussions with Business Angel
representatives and Tillvaxverket suggest that this is still problematic. According to the representative of
Connect Skana, Business Angels often end up in participating in second and third rounds of investment
in the absence of alternative exit route options.
The existing studies do not provide information on the exit strategy of Business Angels. According to the
Mansson and Landstrom database of Business Angels, the average investor in 2004 had seen the
companies in which he or she invested go bankrupt 1.1 times and made 1.5 exits during the previous
five-year period. Data for 2003 and 2006 provided by SVCA168 indicate that trade sales represent the
most common exit route while bankruptcy/liquidation is also a very common outcome. In 2003, out of
the 109 exits reported in the survey, 54% ended up in bankruptcy/liquidation while around 40%
included sales to financial or industrial buyers169. 2006 data provide a more positive picture with around
65% of exits reported based on trade sales and only 18% ending to bankruptcy. The SVCA data show that
the IPO route accounts for less than 10% of exits in 2006 and close to 5% in 2003. Still, according to a
Connect representative, the specialised Swedish equities market targeting growth oriented SMEs Aktietorget170 171 - is well placed to provide an effective exit route172.
168
Nils Månsson (2007), Swedish Business Angels, Presentation in the German Business Angel Day, www.businessangels.de/DWD/_111327/upload/media_5609.ppt
169
The high bankruptcy rates may be due to the fact that this period coincided with the dot-com crash.
170
Aktietorget, http://www.aktietorget.se/AboutGeneral.aspx
171
There are currently 125 firms listed in Aktietorget with market capitalisation ranging from €1-100 million.
172
No additional information was found to help assess the number of IPO for firms supported by Business Angels
and to help assess the effectiveness of Aktietorget as an exit route option.
124
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
Chart 1: Common exit routes for Business Angels
46%
Industrial buyer
20%
18%
Bankruptcy/liquidation
54%
17%
Financial buyer
13%
9%
Initial Public Offering
5%
7%
The entrepreneur
4%
2006
2003
3%
4%
Multiple types of buyer
0%
10%
20%
30%
40%
50%
60%
Source: SVCA
2.4 Other market characteristics
Business Angels characteristics
The two studies cited above provided additional information on the characteristics of Swedish Business
Angels. In general, Business Angels have a fairly high income by Swedish standards: 49% have an annual
household income of over €111,000 while 10% have a household income in excess of €444,000 per
annum. Their average wealth is €16.1 million while the median wealth around €2.2 million.
Swedish Business Angels are generally experienced investors with a history of 11 years of informal
investments. They had, on average, made 5.6 investments each within the past 5 years and the majority
of them (66%) have invested less than €0.5 million in total in the last 5 years. The great majority (91%) of
investments are in syndicates. Swedish Business Angels are also highly entrepreneurial, as over 90%
have started a minimum of one company. Of those who have started companies, the median number of
start-ups is three while the average number is 4.4.
Another finding (Avdeitchikova, 2008)173 is that Business Angels may have different forms of
contribution to the firms supported. The study differentiated between:
- Micro-Investors that provide low investment and low skills;
- Fund managers offering large investment but limited skills support;
- Mentors: low investment, high skill;
- Business Angels: large investments and high skills.
173
Avdeitchikova (2008), On the structure of the informal venture capital market in Sweden: developing
investment roles, Venture Capital, Vol. 10, No. 1, January 2008, 55–85
125
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
Female Business Angels
The existing studies on the Business Angels market provide only limited information on the share of
female Business Angels. The population-based survey of Avdeitchikova indicated a total share of female
informal investors of around 19%, imply a total number close to a total of 1,000. However, the data from
Mansonn and Landstrom study indicated a much lower share, around 4% of the total. The data from the
EBAN survey indicated a female share of 7.4% while SCVA suggested a total of 5-10%174. No additional
information on the activities of female Business Angels, such as sector focus, average investment size
was available.
Regional distribution
As regards the regional distribution of Business Angels in Sweden, Mansonn and Landstrom (2006)175
found that over half of the investments (53%) of Business Angels were in companies located within
geographical proximity – less than 100 km – from the investor. A second study of Avdeitchikova
(2007)176 corroborates this conclusion indicating a concentration of informal investment in the
metropolitan regions of Stockholm, Gothenburg and Malmo (70-80%) – in line with the concentration of
population and economic activity - followed by some university cities (20%).
2.5 Quality of data sources
While allowing for a number of general estimates concerning the size of the Business Angel market, the
available data for Sweden are more than 5 years old. Furthermore, the data available has been collected
mainly through one-off exercises rather than systematically repeated exercises that would allow for a
monitoring of the development of the Business Angel market over time. The activities of Business Angels
in networks are more frequently monitored via SVCA but, again, there is no systematic monitoring of
activities beyond the data sources provided by a small number of BANs through the EBAN study.
It would clearly be useful to update and extend the database of 894 Business Angels created as part of
the study of Mansson and Landstrom. This could be used to provide a panel basis for monitoring trends
over time and providing a reliable source data. Population surveys conducted by Avdeitchikova may also
be informative – as they allow for an extrapolation to the general population – but are time consuming
and expensive and can only be conducted in long intervals.
3 - SME access to finance
This section reviews the available information on the access of Swedish SMEs to finance and the role of
Business Angels.
174
Nils Månsson (2007), Swedish Business Angels, Presentation in the German Business Angel Day, www.businessangels.de/DWD/_111327/upload/media_5609.ppt
175
Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of Sweden, Venture
Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
176
Sofia Avdeitchikova (2009): False expectations: Reconsidering the role of informal venture capital in closing the
regional equity gap , Entrepreneurship & Regional Development: An International Journal, 21:2, 99-130
126
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
3.1 Overview
According to the recent Small Business Act Fact Sheet for Sweden177, the level of access to finance for
SMEs seems to be better than the EU average on most aspects considered. The share of unsuccessful
bank loan applications by SMEs is lower in Sweden than in other EU countries. Moreover, banks in
Sweden – which traditionally represent the most common and important source of finance for SMEs
(Cressy and Olofsson, 1997; Klagge and Martin, 2005) – appear to fulfil their role of providing loans.
There is a lower share of unsuccessful loan applications and a smaller share of firms indicating a
deterioration in the willingness of banks to provide them with a loan. Having said that, Swedish SMEs
wishing to take up loans of less than €1 million have to pay more interest than on bigger loans compared
to similar firms in other EU countries (a 38% difference in Sweden compared to 24% in the EU as a
whole). Furthermore, access to bank loans has been made more difficult by the new collateral rules of
2005, which worsens the position of banks in case of bankruptcy. In terms of access to equity, the Fact
Sheet also suggests that in Sweden venture capital is more readily available than in the EU. However,
there are important differences at the regional level178 as VC firms are concentrated in the metropolitan
regions of Stockholm and Gothenburg.
Table 8: Access to finance for SMEs – Comparison of key indicators for Sweden and EU
Indicator
EU average Sweden
Share of bank loan applications by SMEs that were not successful, 2009
23%
14%
Access to public financial support including guarantees
22%
5%
30%
15%
(% that indicated a deterioration)
Willingness of banks to provide a loan (%share that indicated a deterioration)
Relative difference in interest rate levels between loans above 1 million EUR
and loans below EUR 1 million, 2010
24%
37.60%
Venture capital investments - early stage (% of GDP), 2009
0.04%
0.01%
Source: SBA Fact Sheet
The above positive picture is replicated in a recent study by the Swedish Agency for Economic and
Regional Growth (Tillvaxtverket)179 which found that access to loans and credit does not appear to be a
major obstacle to the growth of SMEs. Furthermore, according to the Nordic Entrepreneurship
Monitor (2010), "[regarding] the access to early-stage venture capital Sweden is second to none". The
data indicate that, in relative terms, Sweden is among the top countries in terms of access to venture
capital – especially in relation to early stage capital. The data from the Global Entrepreneurship
Monitor180 also indicate that the informal venture capital market has developed rapidly since
177
EU (2011), SBA Fact Sheet- Sweden 2010/2011, http://ec.europa.eu/enterprise/policies/sme/facts-figuresanalysis/performance-review/files/countries-sheets/2010-2011/sweden_en.pdf
178
Bjorn Berggren and Lars Silver (2010), Financing entrepreneurship in different regions -The failure to
decentralise financing to regional centres in Sweden, Journal of Small Business and Enterprise Development Vol. 17
No. 2, pp. 230-246
179
Tillvaxtverket (2012): Opportunities and Obstacles to Growth in Swedish SMEs, summary
180
GEM (2011), Entrepreneurship in Sweden, National Report 2011 (in Swedish)
127
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: Sweden
7
2000. While at the start of the period the proportion of informal investors in the adult population181 was
similar to the EU average – around 2% - it has increased, especially after 2005, reaching a total of 6.5% in
2009, 2-2.5% higher than the EU average. However, the GEM data suggest that the increased availability
of informal investment has not coincided with an increase in entrepreneurship activity in the respective
period as expressed by the Total Entrepreneurship Activity182 indicator or the share of the population
starting a business.
Chart 2: Evolution of entrepreneurship activity and share of informal investors in Sweden and EU
7.0%
6.6%
6.0%
6.0%
2000
4.9%
5.0%
4.0%
5.0%
2010
5.1%
4.9%
3.8%
3.7%
3.5%
3.4%
3.0%
3.0%
2.8%
2.6%
2.6%
2.5%
2.3%
2.0%
1.9%
2.0%
1.0%
0.0%
Sweden
Small EU
countries
Large EU
countries
% of informal investors in the adult
population
Sweden
Small EU
countries
Large EU
countries
Total Entrepreneurship activity
Sweden
Small EU
countries
Large EU
countries
% of population aged 18-64 who is
currently starting a business,
Source: GEM
In contrast to the above statements, according to a 2009 report from the Nordic innovation Centre183
there has been a substantial decrease of the number of venture capital investments since 2007,
particularly in relation to initial stages with much greater focus on later stage follow-on investments.
Business Angels were recognised as an alternative source but, as suggested in the report, the financial
crisis had had a negative impact and the amount of capital invested has decreased due to the
recession184.
181
Percentage of population aged 18-64 who personally provided funds for a new company,started by someone
else, over the past three years.
182
Percentage of population aged 18-64 who is either an entrepreneur in the making or own and manage a new
business.
183
Nordic Innovation Centre (2009), Challenges and Initiatives for the Nordic Seed Stage - Promoting a common
Nordic seed capital market, http://innovationsbron.se/wpcontent/uploads/2012/04/Challenges_and_initiatives_for_the_nordic_seed_stage_final_report1.pdf
184
No specific data are provided in the study
128
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
Considering the role of Business Angels’ finance for SMEs, Berggren and Silver’s (2010)185 survey of
Swedish SMEs in the manufacturing and professional services sector provides information on the
importance of different sources of finance in Sweden. For the majority of respondents, bank loans
remain the main source of finance (64% of firms indicating as the most important source of finance),
followed by industrial partners (11.7%). Business Angels and VC are less important and considered as
the main source for 4.2% and 3.5% respectively. However, among SMEs in metropolitan regions - that
were also typically younger and more growth-oriented - Business Angels have had a greater role as a
source of finance (6.5%). Furthermore, while around 8% of the total respondents indicated that they
approached a venture capital firm and 6.5% a Business Angel over the last three years, only 2.2% ended
up using VC funding in comparison to 5% that used Business Angels’ support. Among firms in
metropolitan regions of Stockholm and Gothenburg, a higher percentage (9.6%) had approached
Business Angels and 7.6% actually ended up using their support. The results indicate that Business
Angels are an important source of finance for a sizeable number of SMEs, particularly among the
growth-oriented and dynamic firms. We should note that the survey sample is comprised of firms that
are well established with an average age of 14 years. Thus, the responses may under-represent the total
demand for Business Angel finance which is more fitting to newly created firms in the seed or start-up
stage.
3 - Public support for Business Angels
In this section we examine the existing support schemes for Business Angel financing in Sweden and, on
the basis of available information, provide an assessment of their performance.
4.1 Direct support measures
The Swedish government has had a direct role in the development of the domestic venture capital
industry. The first venture capital fund was established in 1973 as a collaboration between the
government and the private sector. By the mid-1980s, the number of private and public venture capital
funds were 20 and 30, respectively. For example, Företagskapital was created in 1973 by the
government together with merchant banks. Regional development funds and corporations were also
launched during this period.
In comparison, in the case of Business Angels the role of the Swedish government has been less direct.
According to Silver (2008) while certain legislative proposals and programmes had a bearing on Business
Angels, they have not been a priority objective of the Swedish government and the relevant government
agency (Tillvaxtverket- former Nutek) has not assumed the promotion of Business Angels as an explicit
objective. Our own discussions with Tillvaxverket support this view although, as suggested, there is
currently a renewed focus through a number of support programmes in the pipeline.
There are currently no targeted tax breaks or other relevant tax schemes supporting investments by
Business Angels. The basic capital gains tax rate in Sweden is 30% for individuals – with two more rates
at 50% and 55% - and 26.3% for corporations. Under certain circumstances, dividends received by
185
Bjorn Berggren and Lars Silver (2010), Financing entrepreneurship in different regions - The failure to decentralise financing to regional centres in Sweden, Journal of Small Business and Enterprise Development Vol. 17
No. 2, pp. 230-246
129
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
individuals from private equities can benefit from a tax deduction186, although there are no similar
provisions for venture funds or corporations. The Swedish government had in the past considered
proposals to exempt companies investing venture capital in other companies from capital gains tax on
any subsequent profits made in order to increase financial resources for re-investment. Tax deductions
were proposed for private investors who channelled equity to small businesses, with a minimum holding
period of five years. However, the proposals failed to stimulate sufficient interest in venture
investments in small firms and the scheme was cancelled shortly after187. According to the information
provided by the SVCA, no such tax break is available at this stage. Our discussions indicated that the
government is currently considering the possibility of re-introducing a tax scheme.
The focus of policy has been on the promotion of BANs. Only a few networks existed in 2000, notably
the Connect network that was established in 1999, transferring the experience of the CONNECT network
in San Diego, USA. CONNECT currently has a number of regional branches across the country. NUTEK
also supported the creation of the Swedish Business Angel Network (SwedBan) in 2001. This was a
private entity organised in the form of an economic for-profit association. SwedBan was intended to
create a number of local and regional platforms or forums for matching entrepreneurs and Business
Angels and to provide angels with deal flows, opportunities to co-invest with other angels, and an exit to
the formal venture capital market. Swedban ceased operating in 2005 and, since then, the Swedish
Venture Capital Association was awarded a contract to support the operation of BANs networks. SVCA
activities included the organisation of meetings within local networks, provision of support material to
increase investment readiness and promotion of Business Angels' activity in the media. Following the
expiration of the contract with SVCA, Tillvaxverket is currently considering revitalising the formation of a
national association, this time through the incubator association.
In the past, NUTEK had supported the operation of Business Angels through initiatives like the Cap Tec
project, where young companies in the early technological development phase presented themselves to
potential investors, whether venture capital companies, Business Angels or corporate investors (OECD,
Braygan,2003)188. There is, however, no information available on the effectiveness of this initiative.
Currently, Tillvaxverket is preparing the implementation of 7 projects focusing on education and
improving investment readiness and improving matching.
In terms of the direct financial support, there is no scheme such as a fund of funds directly investing in
BAs. The most relevant forms of support is through regional venture capital funds created with the
support of the EU Structural funds. The first venture capital funds were set up in 2005 with three pilots
in three regions (West Sweden, Gotland and Mid-North Sweden). The regional companies of ALMI
Företagspartner189, a non-profit limited company fully owned by the Swedish state, set up subsidiaries
(ALMI INVEST) that managed the partnership funds. The pilots were structured to promote a change
from being a passive partner to an active private co-investor and were completed in 2008 with a total of
186
According to EBAN database of existing tax schemes, investments made through a limited liability company,
capital gains and dividends from investments in unquoted shares, or quoted shares if the holding represents at
least 10 % of the total votes, are tax free.
187
OECD report
188
Baygan, G. (2003), “Venture Capital Policies in Sweden”, OECD Science, Technology and Industry Working
Papers, 2003/11, OECD Publishing, http://dx.doi.org/10.1787/784213407652
189
ALMI Företagspartner, a non-profit limited company fully owned by the Swedish state. ALMI Företagspartner
has 19 regional offices (subsidiaries) in Sweden. These are 51% owned by the Swedish state and 49% by regional
public authorities. The main focus of ALMI Företagspartner is the provision of finance -mainly in the form of loansto SMEs. At the same time it provides business advice services.
130
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
71 investments totalling SEK 112 million (€13 million) in 62 companies. The investments were made in
conjunction with 49 partners.
In 2006, the European Investment Fund (EIF) carried out an analysis of the opportunities to enhance
SMEs’ access to capital through the JEREMIE initiative on the basis of a requirement of both national
public co-financing and private co-financing. Eventually, the Structural Fund partnerships of the eight
programme areas and the Swedish Agency for Economic and Regional Growth invited financing actors to
apply for ERDF funds for regional venture capital funds aims to create revolving financing tools for
equity. Twelve regional venture capital funds were created covering 8 regions of the country. ALMI
Invest regional subsidiaries manage 8 of the 12 funds and the remaining are managed by other regional
public-private partnership organisations. The total investment – public and private – for all 12 funds has
reached SEK 2.2 billion190 (€256 million).
Finally, Innovation Bridge (Innovationbron191) is a state-owned limited company with seven regional
offices that provides equity capital and business support to newly created firms in the form of equity
capital. The Innovation Bridge is mainly oriented towards young firms (or even firms not yet
established). The main aim of the support is the commercialisation of research and innovation through
the provision of venture capital via their investment subsidiaries (Teknoseed AB, Uppsala Seed Capital
and Innovationsbron Rendera Såddkapital AB) and through advice and help with research-based firm
formation and development. The Innovation Bridge has a clear focus on innovation and follows a highrisk strategy through an explicit focus on new, previously non-existent technologies. Investments are
typically around €250,000 and may, but need not, be matched by other investors. Innovation bridge
does not focus on co-investments with Business Angels but, as in the case of ALMI Invest, it can often
operate as a guarantee and help spread the risk of individual investments.
4.2
Evaluation of public support for Business Angels
There has been no formal assessment made of the above support schemes. One relevant source is the
2008 review by Lars Silver192 that assessed the work of NUTEK (currently Tillvaxtverket). As a general
observation on Swedish policy towards Business Angels, Silver concluded that there had been no
uniform policy from the government and that the work of NUTEK has been largely experimental in
nature. The study also notes that while a number of legislative proposals on industrial policy have had a
bearing on Business Angels, they were not explicitly addressed in any of them.
The overall assessment of the approach followed by NUTEK was that the relatively limited resources
dedicated have been effectively utilised. The support provided for the development of BANs is
considered by Silver - and our own interviewees - as rather positive, and critical for the development
and the survival of some of them. BANs are generally considered as effective even if they cover only a
small part of the total number of Business Angels (no more than 15%). According to the representative
of CONNECT Skane, the main contribution of the BANs is to filter the deal flows and support Business
190
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt,
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/evaluations/sweden/files/1111_swede
n_venture_eval_en.pdf
191
http://innovationsbron.se/investering-kapital/
192
Silver, L., (2008), Utvärdering av Nuteks insatser och stöd för utveckling av regionala affärsängelsnätverk samt
nationell intresseorganisation för affärsänglar och affärsängelnätverk [Evaluation of Nutek's efforts and support for
development of regional business angel networks and national association for Business Angels network], (in
Swedish), http://www.tillvaxtverket.se/download/18.21099e4211fdba8c87b800030531/Utv+Affnglar+slutrapport+27+juni.pdf
131
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
Angels’ syndication that helps spread the risk of investments and represents more than 90% of total
investments in BANs. In addition, Avdeitschikova193 observed that, through their various activities and
support services to entrepreneurs, BANs promote learning about Business Angels and contribute
towards increased investment readiness, a necessary first step in strengthening the Business Angels’
market. On the other hand, Silver concluded that not all networks created had the necessary size to
build up solid and sustainable structures. Some of them were not successful on leveraging private sector
funding and were fully invested after a brief period. Their viability depended on additional public
funding. Outside the main metropolitan areas and the university centres, the demand for Business
Angels’ finance is limited and the viability of some BANs has proven problematic. Still, the support
provided did help broaden the coverage across the country, a relevant aspect, given the importance of
proximity for business angel investment.
As regards the venture capital funds created with the support of ERDF funding the main finding so far is
that they have successfully attracted Business Angel investment, primarily as a result of the sharing of
the risk and the professional screening process. The evaluation of the initial pilot initiatives of the period
2005-2008194 suggested that venture capital funds largely achieved the objectives set. It was assessed
that the venture capital funds stimulated the supply of capital to the regions. However, the distribution
of investments was not even and some parts of the regions did not take part in any investment. The
evaluation also concluded that the availability of business and financial expertise in the regions
increased with the establishment of venture capital funds. The model for co-investments also worked
well and responded to an existing need and was appreciated by fund managers, co-investors and
companies. The function of co-investors seemed, in most cases, to provide companies with both
expertise and networking while the recruitment of partners/co-financiers took place through networks
which led to attraction of Business Angels in a large number of cases. It was also clear that regional and
local knowledge was also an important success factor in the pilot funds’ work. The fact that the venture
capital funds had a regional basis and that they cooperated with investors from their own region meant
that the parties could obtain good knowledge and insight into the invested company and in the
entrepreneur as a person.
The currently running funds (period 2009-2014) are experiencing a great deal of interest from
companies in the region and the inflow of new objects is considered as rather good even though not all
proposals meet the requirement for high growth and potential for exit with 4-7 years. Up to the end of
2011 the venture capital funds had received 1,467 investment proposals and made investment decisions
in 124 companies with a total investment of SEK 786 million (€93 million), SEK 458 million (€54 million)
being private co-finance. The majority of the funds have so far invested in accordance with, or close to,
the investment plan but 4 of them require additional efforts to achieve the targets set. In terms of the
firms support, start-up and early stage represent the majority of firms invested (around 60%) with ICT
representing around 40%, industrial 23%, trade and life sciences 13% each.
The key point from the Business Angels market perspective is the fact that more than 55% of coinvestors were Business Angels while 36% were VC investors. The main contribution of the VC funds –
and the main attracting element – is the sharing of the risk, the expertise and professionalism brought
to the investments, the thorough due diligence conducted and the simplification and standardisation of
193
Input from interview
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt,
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/evaluations/sweden/files/1111_swede
n_venture_eval_en.pdf
194
132
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
contractual procedures. Furthermore, the evaluation indicated that the cooperation with the venture
capital funds increased their knowledge, skills and ability to implement investments (71% of
respondents), extend their network (66%) and their knowledge about investment opportunities in the
region (around 52%). In terms of the additionality of the venture capital funds investment, 45% of coinvestors said they would probably not have implemented the investment and 10% that they probably
would have implemented a smaller investment. On the other hand, 42% considered that they would
have invested about the same amount, but in the latter case without the venture capital fund's coinvestment. Thus, the initiative has so far led to an increased volume of investment for about half of
respondents.
According to the representative of Connect, the key added value for Business Angels comes through the
screening of the business proposals, the quality assurance that is provides to any potential Business
Angel and the capacity to spread the investment risk. Indeed the data for 2010 indicate that more than
half of the co-investors - in a total of over 90 deals - were Business Angels, either as individuals or in the
form of syndicates195.
Finally, concerning the effort to create a national association of BANs, Silver refers to problems of
operational efficiency that led to its closure. Silver also points to scepticism by some Business Angels of
the potential added value of the presence of a national association since most Business Angels prefer to
remain anonymous or develop their own networks at the regional level. On the other hand, it is
recognised that a dedicated organisation can promote the specific interests and needs of Business
Angels in the policy making process. In that respect, the appropriateness of transferring the
responsibility for the operation of the national network to SVCA - the national Venture Capital
Association - is questioned. Silver, as well as the representative of Connect and Tillvaxverket, questioned
the appropriateness of subordinating angels under the Venture Capital association due to the different
focus and interests of the two types of activities - different size of investment, different stages in the
firms’ life cycle. From the SVCA side, the involvement of SVCA provided the opportunity for greater
cooperation and the development of a bridge between Business Angels and VCs activity. However,
Silver’s (2008) review suggests that this bridge is more theoretical than practical and no specific data of
such cooperation or other information was made available to indicate that this bridge is indeed working.
The following table summarises the main features of the direct and indirect support policy support
measures related to Business Angels as well as the conclusions in relation to their contribution to the
development of the Business Angels’ market on the basis of the available feedback.
195
http://www.slideshare.net/googlehumano/first-results-of-the-survey-on-european-early-stage-venture-capital
133
Evaluation of EU Member State Business Angel Markets and Policies
National reports: Sweden
Annex
7
Table 9: Main public policy measures for the promotion of Business Angels in Sweden
Type of support
Main features
Support of Business
Angels networks
Financial support for the creation of
Business Angels networks in different
regions
Creation of a national
association of
Business Angels
Creation of a national BANs association
to represent the interests of Business
Angels and organise meeting and other
promotion activities (through the
national Venture Capital Association)
Venture capital funds scheme providing
equity to early stage firms and requiring
matching from private investors – not
direct support to Business Angels
Public sector
supported equity
finance schemes
Main conclusions on the basis of existing
information
Contribute to extending supply of Business
Angels capital beyond capital areas
Some contribution to awareness raising and
support investment readiness
Positive role in syndication
Limited/problematic viability
Added value rather marginal
Different views on the need of such an
organisation and the appropriateness of
involvement of VC association
Significant number of investments so far with
high level of leverage (additionality) and no
evidence of crowding out.
High level of Business Angel attractions (main
co-financers)
Positive role as quality assurance and risk
spread for Business Angels.
Viability of some funds in less developed
regions is questionable
134
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
This annex contains a summary of data obtained in respect of the activities of Business Angels in the
UK.
1 - Introduction : Overview of the UK business angels’ market
The visible sector of the Business Angel market in the UK differs throughout the country. There are two
main Angel Federations.
The British Business Angel Association covers the whole of the UK, but in practice operates principally
in England and Wales. Its members include networks of Angels (17 networks are listed as members196).
More recently it has become involved in the organisation of syndicates of Angels, including the
operation of a Co-investment fund. Overall its membership includes almost 100 organisations, including
over 20 early stage venture capital funds, as well as professional service providers and advisers,
including accountancy and law firms, corporate finance, banks, regional development agencies,
universities and public policy-makers.
The position in Scotland is different where there is a much greater emphasis on syndicates. LINC
Scotland is the main federation and they see their role as to: “Support and improve the working of the
business angel environment in Scotland. At individual deal level, we focus on improving the efficiency of
the 'process' by making targeted introductions to well matched business angels among our members.
These include most of the well known syndicates and hundreds of individual investors who prefer less
public visibility” 197
LINC has been established since 1993 and the Scottish Business Angel marketplace is now amongst the
most developed in Europe. LINC supports the emergence and formation of structured Business Angel
syndicates. There are 13 funding groups who are members of LINC, mainly large syndicates. Archangel
Informal Investment198 (formed 1992) and Braveheart Investment Group199 (formed 1997) are amongst
the longest established Business Angel syndicates in Europe.
Most studies suggest that a large amount of the market does not go through either the syndicate or
network model, and is composed of direct investments by individuals. The most comprehensive recent
studies of the UK market are the annual reports on the Business Angel Market in the UK by Mason and
Harrison200. The latest report covers the period to March 2010 and was published in 2011. It appears
that the series will not continue.
2 – Business Angels market data
2.1 Visible market
Data on the visible market in the UK must be considered in the context of the differing systems in
Scotland and the rest of the UK. Scottish investors are generally organised in syndicates rather than
networks, so data for the UK on the number of networks is not comparable with other countries. Some
data is available from returns made to EBAN for 2010 (UK information is generally provided for the year
196
http://www.bbaa.org.uk/member/directory?type=1
http://www.lincscot.co.uk/about-us
198
http://www.archangelsonline.com/
199
http://www.braveheart-ventures.co.uk/
200
Accessible at http://www.bis.gov.uk/assets/biscore/enterprise/docs/a/11-p116-annual-report-business-angelmarket-uk-2009-10
197
135
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: UK
8
to 31st March when the national fiscal year ends). The most comprehensive source of UK data is the
annual report on the Business Angels Market201 by Mason and Harrison. The last available report is for
the year to 31st March 2010. The reports provide some information for the whole of the UK market, as
well as detailed breakdowns by constituent country within the UK.
The first table provides data largely based on information from the BBBA, i.e. excluding Scotland where
Angels are largely organised in syndicates.
Table 1: Business Angels Networks in the UK– Data from EBAN 2010 surveys and for the total of
Business Angels’ Networks
Parameter
EBAN survey numbers
Number of networks
22
Number of members (investors)
537
-
Of which, number of active business angels
177
Average number of investors per network
24
Total number of women Business Angels (% of total)
30
Number of angel investors recruited by BANs in 2010
57
Number of women investors recruited during 2010
8
Number of angels who have left the networks
67
Average number of angels per investment round in 2010
3
Source: EBAN and CSES elaboration, Mason and Harrison
EBAN data provide also information on the investment activity. The table below is based on the same
sources, but also provides some estimates for the UK as a whole based on research by Mason &
Harrison.
Table 2: Business Angels’ investment in networks: Type and volume in UK in 2010
Indicator
EBAN data
Total
(estimate)202
Number of business plans received
Number of business plans submitted to angels
115
Number of deals made through the network
127
Number of new companies financed
40
316
Number of investors that made investment in companies
presented through the network
Number of follow-on rounds
201
202
4
Annual Report on the Business Angels Market in the United Kingdoms, Mason & Harrison
Estimates are based on the ratio of total BANs to BANs in the survey.
136
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: UK
Total amount invested by angels through BANs (€)
€18 million
Average amount of the deal (€)
142500
Average amount per angel investor
25000
Total amount invested – including co-investors
8
€73 million
57170000
Source: EBAN and CSES elaboration
A breakdown of investment by sector is shown below. As in other countries, there is substantial
investment in technological sectors.
Table 3: Percentage breakdown of Business Angel investment by sector (2010)
Sector
ICT
Mobile - including software and service applications
Biotech and Life sciences
Health Care and Medical technologies
Energy/ Environment and Clean-tech
Creative Industries
Retail and Distribution
Finance and Business Services
Manufacturing
Other
% in total number of
deals
26.34
% in total amount
invested
43.67
0.56
23.53
11.44
9.37
5.83
0.91
0
18.65
3.37
1.73
19.86
11.23
7.58
4.45
1.58
0
8.17
1.73
Source: EBAN survey (2010)
The EBAN survey also supports the generally held view that Business Angels tend to invest in firms in
their proximity with the majority (around 73%) of deals in 2010 concerning firms in the region where the
respective BAN was located.
Table 4: Geographical concentration of Business Angels’ Investment – share of deals by location of
recipient firm
Location of recipient firm
% of deals
In the region where the Network is located
72.87
In the same country, but not in the same region
22.47
Cross-border in Europe
2.60
Outside of Europe
1.40
Not known
0
Source: EBAN survey
The EBAN data suggest that Business Angels in BANs tend to focus on early stages (pre-seed, seed, early
stage and start-up) of the firms life cycle, representing 79% of the deals in 2010. However, a significant
19% is also invested in the second round expansion stages.
137
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: UK
8
Table 5: Business Life Cycle Stage of Investment
Stage of investment
Share in total (%)
Pre-seed
0
Seed
7
Early stage and start-up
72
Expansion
19
Pre-IPO
2
Buy-out and turnaround
0
Other
0
Source: EBAN Survey 2010
Finally, according to the EBAN survey Business Angels tend to co-invest with other Business Angels
inside or outside their own network but also with other early stage or VC funds.
Table 6: Level of Business Angel Co-investment
Co-investors
Share in total (%)
Business Angels inside the network
95.24
Business Angels outside of the network
6.02
Early stage fund
3.90
Venture capital fund
0.90
Family office
17.78
Institutional investors
0.59
Other investors
57
Source: EBAN
2.2
Data on non-visible business angels’ market
Data on the non-visible market in the UK, as in other countries, is difficult to estimate. However, there
has been a series of annual reports on the business angels market in the UK by Mason and Harrison
which provide some overall market estimates, shown in the table.
138
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
Table 7: Summary table of estimates of total Business Angel market and key characteristics
Number of Business angels (estimate)
% of female in total
Total market size (€ million/year)
2.3
Estimate on the basis of the various
sources
25000
£317m (€381m)
Quality of data sources on business angels in the UK
Whilst the UK market for Business Angels is relatively well researched, data on the activities of Angels
and in particular those who do not participate in the visible market is hard to come by. There are a large
number of reports on small business financing and it would not be possible to list more than the key
sources.
There have been two annual reports on the Business Angels market in the UK by Mason and Harrison,
which draw together data from other sources and in addition provide some survey data. The main
national federations in the UK (BBBA and LINC) provide data on the visible market, although the data
provided to EBAN by BBBA for 2010 was much less complete than in previous years.
As far as small business financing as a whole is concerned, quantitative data comes from the small
business financing surveys carried out by the Department for Business Innovation and Skills (BIS), the
relevant UK government department. There are also important studies carried out for Scottish
Enterprise, bearing in mind the different nature of the Angel market in Scotland.
3 - SMEs’ access to finance in the UK
This section assesses the contribution of UK Business Angels to SMEs’ access to finance and the
effectiveness of Business Angel finance in bridging the equity gap in the seed and start-up phases of the
SME development.
3.1
Overview
There has been continuing research in the UK into the provision of risk and growth capital for SMEs, and
into potential market failures in the provision of such capital. Almost all studies find that there is a lack
of such capital provision.
One of the most recent government sponsored studies was the Rowlands report into The Provision of
Growth Capital to UK Small and Medium Sized Enterprises203. The report found that there was a gap in
the provision of equity capital in the range between £2 million (€2.5 million) and £10 million (€12.5
million). As far as business angels are concerned, this is likely to be at the top end of the range of
funding they could contribute to. As the report says :
203
Accessed at www.bis.gov.uk/files/file53698.pdf
139
Evaluation of EU Member State Business Angel Markets and Policies
Annex
National reports: UK
8
“Drawing on two separate data sources, we estimate that there are 25,000 - 32,000 UK businesses that
are growing and/ or restructuring and with characteristics that may make them suitable for growth
capital. Our analysis suggests that up to 5,000 of these firms per annum will be viable SMEs which are
likely to experience significant problems in accessing capital as the economy emerges from recession. It is
likely that those SMEs which are seeking to access growth capital in amounts above 2million – the
current upper limit of public/private provision – and below 10million – the minimum level at which
private equity providers will fund – will face particular difficulties”
?
3.2
?
Role of business angels
The UK government also carries out a periodic survey of small company financing204. The 2011 survey
found that the majority of SMEs either used their own funding or obtained external funding. Of those
seeking external funding, 74% were successful. But there were market failures and in particular an
“equity gap affecting SMEs seeking between £250,000 to £5m of equity finance. There are also
cyclical issues relating to the supply and demand of finance”. It was felt that very few venture
capitalists invest below £5 million. Below the level of £250,000 friends and family, grants and
business angels are the key sources.
According to Mason and Harrison205, below the level of £2 million (€2.5 million), there is more likelihood
that business angels will make a significant contribution. Their view is that “Business angels have
become by far the main source of risk capital for new and early stage businesses seeking amounts of
under £2m. The paucity of venture capital finance means that business angels are also increasingly
required to make follow-on investments in their portfolio companies. The public sector in various forms is
also a significant source of funding in this space, both as a direct investor and also through coinvestment funds which invest alongside business angel groups”
Overall, in the UK it seems clear that business angels play an important role in providing finance at an
early stage. The existence of syndicates of Angels enables such syndicates to continue to provide finance
in larger amounts
4 - Public support for business angels
In this section we examine the existing support schemes for Business Angel financing in the UK and, on
the basis of available information, provide an assessment of their performance.
4.1
Direct support measures
This section discusses the main areas of support provided to Business Angels in the UK. The topics
covered by the section include the following aspects of support:
-
Tax allowances aimed at improving the supply of early stage risk capital;
Direct support for Angel syndicates or networks;
Other initiatives, in particular co-investment funds.
Tax allowances
The principal tax allowance schemes to support early stage risk capital are the Enterprise Investment
Scheme (EIS) and Venture Capital Trusts (VCT). In addition, since April 2012 there has been a new
204
205
Accessed at http://www.bis.gov.uk/assets/biscore/enterprise/docs/s/12-539-sme-access-external-finance
Mason and Harrison, Annual Report on the Business Angel market in the UK, 2010
140
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
scheme, the Seed Enterprise Investment Scheme (SEIS), aimed at the smallest companies. In all cases
there are detailed rules and restrictions and investments can only be made in certain trades. Brief
details of the schemes are shown below.
Enterprise Investment Scheme - EIS provides tax relief to individuals who invest in the shares of
qualifying unquoted companies. Brief details of the scheme are shown below based on the scheme
details206 issued by HM Revenue & Customs, the UK tax collection department. The scheme provides the
following reliefs to individuals:
•
•
•
Income tax relief at 30 per cent of the cost of the shares. Relief can be claimed up to a maximum of
£500,000 invested in such shares, giving a maximum tax reduction in any one year of £150,000;
Any gain is free from Capital Gains Tax provided the shares are held for 3 years or more, and
deferral relief in certain circumstances;
If the shares are disposed of at a loss, the loss, less any Income Tax relief given, can be set against
income instead of being set off against any capital gains.
Companies which can use EIS:
•
•
•
•
Must not be quoted on a recognised stock exchange at the time the shares are issued (alternative
markets such as AIM are not recognised exchanges);
Must not be controlled by another company;
Must be a small company;
Must have fewer than 50 full-time employees.
Companies are not allowed to raise more than £2 million in any 12 month period from the venture
capital schemes, and there are restrictions on the type of trade that qualifies.
Venture Capital Trusts - A VCT is a company, broadly similar to an investment trust, which has been
approved by HMRC and which invests in small unquoted companies. The VCT Scheme is designed to
encourage investment in small unquoted companies. Individuals invest by holding shares in a VCT. The
VCT invests in a spread of small unquoted companies, enabling investors to spread their risk, just as they
do by holding shares in an ordinary investment trust company.
An approved VCT has a number of tax advantages207:
•
•
•
•
the VCT is itself exempt from CT on chargeable gains (and losses for chargeable gains purposes are
not allowable losses);
individual investors can claim income tax relief on subscriptions;
individual investors are exempt from income tax on dividends;
individual investors are exempt from Capital Gains Tax.
Seed Enterprise Investment Scheme - The UK government has planned an additional new relief, the
Seed Enterprise Investment Scheme (SEIS)208. The new relief comes into effect for investments made on
or after 6 April 2012. This relief is specifically targeted at Business Angels investing in very small startups.
206
The HMRC guidance was accessed at http://www.hmrc.gov.uk/eis/guidance.pdf
The HMRC guidance was accessed at http://www.hmrc.gov.uk/manuals/vcmmanual/VCM60020.htm
208
The HMRC guidance was accessed at http://www.hmrc.gov.uk/seedeis/index.htm
207
141
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
The relief offers income tax relief at 50% on the amount subscribed for ordinary shares (although there
are provisions to permit certain preferential dividend rights) up to a limit of £100,000. As with EIS, gains
on the Seed EIS shares will be exempt, providing certain conditions are met. Additionally capital gains
made in 2012/13 that are reinvested into seed EIS shares will themselves become exempt.
The target company can raise no more than £150,000 in total under Seed EIS. It must be a small
company; one with less than 25 employees and assets less than £200,000 immediately before the share
issue. Additionally it must have been incorporated in the two years before the share issue and be
carrying on a new trade.
The UK government issued a consultation paper before finalising SEIS and published the responses209.
The main reasons for introducing an additional scheme are that:
•
•
•
the gap between the risk of the business proposal and the risk the investor is willing to take is larger
at this stage;
that investments were moving away from seed stage companies; and,
although EIS works well to encourage seed investment now, the planned changes to the amount
companies can raise per year (to £10 million, subject to State aid approval) could make it more
difficult for seed companies in future.
Evaluation of EIS and VCT
An evaluation of the EIS and VCT schemes was carried out in 2007210 by the Institute of Employment
Studies. This focused on the performance of companies, rather than on the supply of capital. The study
showed that, as far as companies were concerned, the conclusions were that “Overall, these results
indicate that EIS and VCT investments have a positive effect on capacity building in recipient companies.
However, in material terms, these effects remain at present very small. There is some additional limited
evidence of a profit enhancing effect. However, we also note that both schemes appear to be associated
with differentials in performance depending on the size, age and sector of the recipient company.”
Around 10,000 individuals invested through EIS in 2008-09, the last year for which figures are available
and around 6,300 through VCTs.
Direct support for networks or syndicates
In Scotland, the main association LINC Scotland receives a small amount of funding from Scottish
Enterprise to help set up new Business Angel syndicates. This represents seed funding and after a short
while syndicates have to pay their own costs. The establishment of new syndicates is a specific objective
put on LINC. In other parts of the UK, a small amount of support was received from Regional
Development Agencies although these bodies have now been abolished
Co-Investment funds
There has been increasing use of co-investment funds as a means of improving the supply of early stage
risk capital.
In the UK, the earliest use of co-investment funds were in Scotland. The Scottish Government and
predecessor investment agencies had made use of ERDF funding for publicly supported venture capital
funds such as the Edinburgh Technology Fund (ETF in 1999 and an evaluation published in July 2001
209
210
Accessed at http://www.hm-treasury.gov.uk/consult_tax_advantaged_venture_capital_schemes.htm
Accessed at http://www.hmrc.gov.uk/research/report44.pdf
142
Evaluation of EU Member State Business Angel Markets and Policies
National reports: UK
Annex
8
found that they “had facilitated better business propositions and ensured larger turnovers than would
otherwise have been achieved”.
The Scottish Co-investment Fund was established to provide capital to companies with high growth
potential. The fund invests pari passu with private sector investors. SCF initially appointed, (after a
tendering process), approximately 24 investment partners who bring deals to SCF. Partners were
appointed after an advertisement to meet public procurement rules, and include both Scottish partners
and others from the rest of the UK. One of the objectives of the fund was to attract investors to Scotland
and this has been achieved. Two evaluations of SCF have been published. An evaluation by CSES of
SCF211 in the context of EU funding showed that the funds helped the local financial community and that
the survey evidence suggests high additionality from SCF – lenders would not otherwise have accessed
the funds. An evaluation for Scottish Enterprise212 showed that the fund “was attaining its objectives
and was held in high regard by all parties: partners, investees, non-partner intermediaries and nonpartner investors.”
The SCF has since been developed to include three co-investment funds aimed at different sizes of
investments. They are:
•
•
•
Scottish Seed Fund - Funding from £20,000 to £250,000 for start-up and young businesses
launching new products, entering new markets and increasing employment;
SCF - Funding from £100,000 to £1 million for deals of up to £2 million between Scottish
businesses and our private sector partners; and,
Scottish Venture Fund - Funding from £500,000 to £2 million for deals between £2 million and
£10 million between Scottish businesses and our private sector partners.
In 2010-11 the programme invested £23 million in 109 companies and leveraged £53.7 million of private
sector investment. In the year there were seven exits producing £10.8 million of returns
In other parts of the UK there has been a recent extensive development of co-investment funds. An
overview of funds has been published by Capital for Growth213, a UK government agency. From the point
of view of Business Angels, The Business Angel Co Investment Fund214 (Angel CoFund) has £50m
available to invest alongside BANs or syndicates into eligible SMEs. The Fund operates by investing
alongside and on the same terms as syndicates.
The Fund was created by a consortium of private and public bodies with expertise in Business Angel
investment. It is a quasi-private sector body with clear objectives to boost the quality and quantity of
Business Angel investing in England, and to support long-term, high quality jobs in high growth
companies. Capital for Enterprise staff work with the fund to encourage strong proposals for investment
to come forward from both established and emerging business angel syndicates around the country. The
fund was launched in November 2011 and by May 2012 had committed some £7.2m in five investments.
There is also an extensive network of venture capital funds supported by UK public funding.
211
Evaluation of the Scottish Co-Investment Fund and ERDF funding by CSES, accessed at
http://www.scotland.gov.uk/Resource/Doc/209231/0055411.pdf
212
http://www.evaluationsonline.org.uk/evaluations/Browse.do?ui=browse&action=show&id=32&taxonomy=INV
213
http://www.capitalforenterprise.gov.uk/portfolio
214
http://www.angelcofund.co.uk/
143
Evaluation of EU Member State Business Angel Markets and Policies
Annex
Grossing up factors
9
The sample of eight countries used in this study represents 69% of 2010 EU 27 GDP and 63.6% of the
2010 EU 27 population. In estimating data for EU 27 countries as a whole, we have grossed up the
sample data using grossing up factors based on these percentages. The 2010 population and GDP data
has been obtained from Eurostat as shown below.
Table 1: EU 27 GDP and population, 2010
Gross domestic product at
market prices
Population number
Millions of euro
EU27
Sample
EU27
Sample
Belgium
354,688
10,839,905
Bulgaria
36,052
7,563,710
Czech Republic
149,313
10,506,813
Denmark
235,609
5,534,738
Germany
2,476,800
Estonia
14,305
1,340,127
Ireland
155,992
4,467,854
Greece
227,318
11,305,118
Spain
1,051,342
1,051,342
45,989,016
45,989,016
France
1,937,261
1,937,261
64,694,497
64,694,497
Italy
1,553,166
60,340,328
Cyprus
17,334
803,147
Latvia
17,975
2,248,374
Lithuania
27,535
3,329,039
Luxembourg
40,267
502,066
Hungary
97,095
10,014,324
Malta
6,123
414,372
Netherlands
588,414
Austria
286,197
Poland
354,582
Portugal
172,670
10,637,713
Romania
124,059
21,462,186
Slovenia
35,416
2,046,976
2,476,800
588,414
81,802,257
16,574,989
81,802,257
16,574,989
8,375,290
354,582
38,167,329
38,167,329
144
Evaluation of EU Member State Business Angel Markets and Policies
Grossing up factors
Annex
9
Slovakia
65,744
5,424,925
Finland
179,721
5,351,427
Sweden
349,216
349,216
9,340,682
9,340,682
United Kingdom
1,706,302
1,706,302
62026962
62,026,962
Total
12,260,495
8,463,917
501,104,164
318,595,732
Sample as % of total
69.0
63.6
Grossing up factor
1.45
1.57
Source : Eurostat
145
Evaluation of EU Member State Business Angel Markets and Policies
Interview programme
Member State (if
applicable)
Organisation
EBAN, CEO
EBAN, President
EBAN, Board Member
EBAN, Researcher
EBAN, Former President
EBAN, Former CEO
EIF
Programme Manager, HBAN
France
France
– Service de la compétitivité et du développement des
PME - Ministère de l’Economie, des Finances et de
l’Industrie
Centre d'Analyse Stratégique - Département
Economie- Finance
France Angels
Germany
Federal Ministry of Economics and Technology
Germany
Federal Ministry of Economics and Technology
Italy
SDA Bocconi School of Management,/ Italian Business
Angel Network
Italy
Ministero dello Sviluppo Economico
Italy
Associazione Bancaria Italiana
Italy
Banca d’Italia
Italy
Italian Business Angel Network
Netherlands
Business Angels Netwerk Nederland
Netherlands
Agentschap NL
Poland
Association of Business Angels’ NetworkS - ABAN
Poland
Ministry of Economy
France
Annex
10
Type of stakeholder
Business angels network
representative
Business angels network
representative
Business angels network
representative
Business angels network
representative
Business angels network
representative
Business angels network
representative
Government
authority/agency
Business angels network
representative
Government
authority/agency
Governmental Research
organisation
Business angels network
representative
Government
authority/agency
Government
authority/agency
Business angels network
representative
Government
authority/agency
Government
authority/agency
Government
authority/agency
Business angels network
representative
Business angels network
representative
Government
authority/agency
Business angels network
representative
Government
146
Evaluation of EU Member State Business Angel Markets and Policies
Interview programme
Poland
AMBER Business Angel Network; Polish Entrepreneurs
Foundation
Poland
Sweden
Sweden
Lewiatan Business Angels and Vice President of
European Business Angels Network (EBAN)
Head of Finance of DGPYME - Ministry of Industry,
Tourism & Trade
Coordinator of the Annual Investment Forum and
Project Manager at ACC1Ó, Generalitat de Catalunya
AEBAN and Director of Madrid+d Business Angel
network.
ESBAN - Spanish representative in the Board of
Directors of EBAN.
CIRCLE, Lund University
Swedish Venture Capital Association
Sweden
Ministry of Enterprise, Energy and Communications
Sweden
Sweden
Tillvaxverket (Swedish Agency for Economic and
Regional Growth)
CONNECT Skane – Business Angels Network
UK
UK
LINC Scotland
Angel syndicate
UK
Investment Director, Scottish Enterprise
UK
Senior Investment Manager
Scottish Investment Bank
Spain
Spain
Spain
Spain
Annex
10
authority/agency
Business angels network
representative
Business angels network
representative
Government
authority/agency
Government
authority/agency
Business angels network
representative
Business angels network
representative
Expert
Expert
Government
authority/agency
Government
authority/agency
Business angels network
representative
Expert
Expert
Government
authority/agency
Government
authority/agency
147
Evaluation of EU Member State Business Angel Markets and Policies
Bibliography
Annex
11
References (Germany)
-
-
European Investment Fund (2011), Business Angels in Germany - EIF’s initiative to support the
non-institutional financing market – Working paper, Helmut Kraemer-EIS, Markus Schillo
ZEW (2007), Hightech-Gründungen und Business Angels (High-tech companies and business
angels), Helmut Fryges, Sandra Gottschalk, Georg Licht · Kathrin Müller
Venture Capital Magazin (2011), Business angels in Europa : Ein genauer Vergleich lohnt
KfW (2011), BUSINESS ANGELS AUS DER SICHT VON VENTURE CAPITALGESELLSCHAFTEN, Nr. 49,
August 2011
KfW (2008), Der informelle Beteiligungskapitalmarkt in Deutschland (The informal venture
capital market in Germany), KfW Research Witschaftsobserver online, Nr. 41, November 2008.
EU (2011), SBA Fact Sheet- Germany 2010/2011,
http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performancereview/files/countries-sheets/2010-2011/germany_en.pdf
Business Angels Test panel quarterly results, http://www.businessangels.de/DWD/_111327/upload/media_6795.pdf
References (France)
France Angels, Activite: Les chiffres clés, 2010
Ernst & Young BAS (2007), Étude sur le financement des jeunes entreprises technologiques par les
business angels en France, rapport final remis au ministère de l’Enseignement supérieur et de la
Recherche
Banque de France DGAFP – Entreprise cotés sur les marchés à faible capitalisation créées en 2005,
March 2010
Aubier, Maud and Cherbonnier, Frédéric, Les banques et le financement des PME en France, in Le
financement des PME, La Documentation française, Paris, 2009
-
CAE (2006), Jean-Paul Betbèze & Christian Saint-Étienne – Conseil de Analyse Economique - Une
stratégie PME pour la France, 2006, http://www.cae.gouv.fr/IMG/pdf/061.pdf
References (Italy)
Capizzi, V. and Giovannini, R. (2010) : Business Angels e Informal Venture Capital in Italia, Bancaria
Editrice, Roma
Capizzi, V. (2011): What drives the Returns of Business Angels’ Investments? An Empirical Analysis of the
Italian Informal Venture Capital Market, International Journal on GSTF Business Review, Vol. 1, No 2,
October 2011
IBAN (2011): Il mercato Italiano del capitale del rischio informale – Sintesi Survey, Milan.
IBAN (2011); Il mercato Italiano del capitale del rischio informale
References (The Netherlands)
-
Bureau Bartels NV (2011), Nulmeting Informal Investment, for Agentschap NL
EBAN Survey, 2009, 2010
Emerging Technology Research Europe (2012); Informal Investment in Nederland, Tornado Insider,
for Agentschap NL
Emerging Technology Research Europe (2012); Tornado Insider, Nederlands investeringsklimaat
voor Technostarters 6-meting, April 2010, for Agentschap NL
Hartog, C., Hessels, J., van Stel, A., and Wennekers, S. (2011): Global Entrepreneurship Monitor
2010 The Netherlands The emergence of an entrepreneurial society, EIM, Zoetermeer
148
Evaluation of EU Member State Business Angel Markets and Policies
Bibliography
-
Annex
11
KMO financiering (2007); Vermogen om te ondernemen. De Nederlandse finance gap, Den Haag
Koenraads, E., (2012); Handboek Informal Investment. De kunst van het investeren, BAN Nederland.
Napier, G. and van den Heuwel, J. (2007); The Dutch Risk Capital Market and the Role of
Government Policies, ICE Working Paper
Parastuty, Z (2006); Exploring the informal capital market in the Netherllands: characteristics,
mismatches and causes, SCALES/ EIM
Press release: “Nieuwe koepelorganisatie Business Angels bevordert inovatiekracht in Nederland”,
29 September, 2010.
References (Poland)
http://www.mg.gov.pl/files/upload/8669/Bariery_w_rozwoju_rynku_aniolow_biznesu_w_Polsce_WEB.
http://cdn.pi.gov.pl/PARP/HTTPFiles/media/_multimedia/656714E145EC457F89D99E61FB7449BE/2010
1214_115814%20business%20angels.pdf
http://www.gemconsortium.org/visualizations
http://polban.pl/inwestycje-private-equityventure-capital-polsce-2/
European Business Angels Network, “EBAN Tool Kit. Introduction to business angels and business angels
network activities in Europe”; Brussels 2009.
http://www.aban.org.pl/
Narodowego Planu Rozwoju 2007-2013
Kierunki zwi?kszania innowacyjno?ci gospodarki na lata 2007-2013
EBAN: Tax incentives available to private informal investors or business angels in europe; june 2006
P. Tamowicz, „Business angels. Pomocna d?oo kapita?u”, Polska Agencja Rozwoju Przedsi?biorczo?ci,
Gdansk, 2007
References (Spain)
-
-
-
-
Presentation of the study conducted by the Directorate-General of SME Policy: ‘Business Angels
in Spain, a new way of financing SMEs’, Mr. Albert Colomer, member of the Managing Board of
EBAN. (Presentación del estudio realizado por la DG de Política de la PYME: los “Business Angels
en España, una nueva vía de financiación para las PYME”, D. Albert Colomer, miembro de la
Junta Directiva de la EBAN).
Business Angels, innovation in business financing. (Los Business Angels, innovando en la cultura
de la financiación de las empresas).
An analysis of compared taxation in the case of Business Angels in Europe. (Análisis de
tributación comparada de la figura de los Business Angels en Europa).
Proposal for tax measures to promote the figure of Business Angels in Spain. (Propuesta de
medidas fiscales de fomento de la figura de los Business Angels en España).
Nature of business angels networks in Spain and main characteristics of market players.
(Naturaleza de las redes de Business Angels existentes en España y principales características de
los agentes del mercado).
Spanish Network of Business Angels: research procedures and market volume. (Redes españolas
de Business Angels: investigación de procedimientos y volumen de mercado).
GEM España 2010.
(http://www.gemconsortium.org/download/1323732833449/INFORME_GEM%20ESPANA%202
010.pdf).
Proposition of law to support entrepreneurs (Proposición de Ley de apoyo a los emprendedores).
Programme of Impulse to Business Angel Networks (Programa de impulso a las Redes Business
Angels).
149
Evaluation of EU Member State Business Angel Markets and Policies
Bibliography
-
-
-
Annex
11
Small Business Act Fact Sheet for Spain 2010-2011.
LIbro Blanco de la Iniciativa Emprendedora en España. White Paper on Entrepreneurship in
Spain, promoted by the Fundación Príncipe de Girona (FpdGi) and written by ESADE Business
School experts.
Cotec Report 2011.
Informe ICO-Camaras financiacion pymes (cuarto trimestre 2011).
La Financiación externa de empresas innovadoras en fases iniciales de desarrollo. Restricciones
financieras, fallos de mercado y papel de los inversores privados. IESE Business SchoolUniversidad de Navarra.
Termómetro de la inversion en Startups en España 2011.
La financiación externa de las empresas innovadoras en fases iniciales de desarrollo.
Informe Capital Riesgo & Private Equity en España
References (Sweden)
1. Silver, L., (2008), Utvärdering av Nuteks insatser och stöd för utveckling av regionala
affärsängelsnätverk samt nationell intresseorganisation för affärsänglar och affärsängelnätverk
[Evaluation of Nutek's efforts and support for development of regional business angel networks and
national
association
for
Business
Angels
network],
(in
Swedish),
http://www.tillvaxtverket.se/download/18.21099e4211fdba8c87b800030531/Utv+Affnglar+slutrapport+27+juni.pdf
2. GEM (2011), Entrepreneurship in Sweden, National Report 2011 (in Swedish)
3. Sofia Avdeitchikova (2009): False expectations: Reconsidering the role of informal venture capital in
closing the regional equity gap, Entrepreneurship & Regional Development: An International
Journal, 21:2, 99-130
4. Sofia Avdeitchikova (2008): On the structure of the informal venture capital market in Sweden:
developing investment roles, Venture Capital: An International Journal of Entrepreneurial Finance,
10:1, 55-85
5. Nils Månsson & Hans Landström (2006): Business angels in a changing economy: The case of
Sweden, Venture Capital: An International Journal of Entrepreneurial Finance, 8:4, 281-301
6. SVCA (n.d.), Presentation on Business Angels - Swedish Venture Capital Association, www.businessangels.de/DWD/_111327/upload/media_5609.ppt
7. Bjorn Berggren and Lars Silver (2010), Financing entrepreneurship in different regions - The failure
to decentralise financing to regional centres in Sweden, Journal of Small Business and Enterprise
Development Vol. 17 No. 2, pp. 230-246
8. Baygan, G. (2003), “Venture Capital Policies in Sweden”, OECD Science, Technology and Industry
Working Papers, 2003/11, OECD Publishing, http://dx.doi.org/10.1787/784213407652
Tllivaxverket (2011), Mid-term evaluation of regional venture capital funds implementation and lessons learnt,
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/evaluations/sweden/files/1111_swede
n_venture_eval_en.pdf
References (United Kingdom)
Evaluation of the Scottish Co-Investment Fund and ERDF funding by CSES, accessed at
http://www.scotland.gov.uk/Resource/Doc/209231/0055411.pdf
Department for Business Innovation and Skills (2009), The Provision of Growth Capital to UK Small and
Medium Sized Enterprises, www.bis.gov.uk/files/file53698.pdf
UK Business Angels Association Member Directory, http://www.bbaa.org.uk/member/directory?type=1
LINC Scotland, http://www.lincscot.co.uk/about-us
150
Evaluation of EU Member State Business Angel Markets and Policies
Bibliography
Annex
11
Archangels Angel Syndicate, http://www.archangelsonline.com/
Braveheart Investment Group, http://www.braveheart-ventures.co.uk/
HMRC guidance documents
- http://www.hmrc.gov.uk/manuals/vcmmanual/VCM60020.htm
- http://www.hmrc.gov.uk/seedeis/index.htm
- http://www.hmrc.gov.uk/research/report44.pdf
- http://www.hm-treasury.gov.uk/consult_tax_advantaged_venture_capital_schemes.htm
Mason, C. and Harisson,R., 2011, ANNUAL REPORT ON THE BUSINESS ANGEL MARKET IN THE UNITED
KINGDOM: 2009/10, http://www.bis.gov.uk/assets/biscore/enterprise/docs/a/11-p116-annual-reportbusiness-angel-market-uk-2009-
151
doc_250235197.pdf