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

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DEBTS
PUBLIC FINANCING
VENTURE CAPITAL:
 Formal Venture Capital
 Informal Venture Capital (business angels)

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

Financing needs
Grow th
High
Risk
GU
AR
AN
TI
ES
MARKET
GAP
Bu si ne
An ge ss ls ur
; ne
En tre pe m ily
Fa
Fri en
, ds
SEED
Se ed
Ca pi ta l
STAR T-UP PH ASE
MARKET
GAP
Ba nk
Lo an
Pu s bl ic
s ec
Fo rm al
Ve ntu re ca pi ta l to
E ARLY GROWTH r a id
Eq ui ty
I.P.
O
Low
Risk
EXP ANSION
Financing stage

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

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

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

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

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

Attitudes, behaviour and characteristics:
• male, rarely female
• successful experience as an entrepreneur or manager
• high net worth individual and / or sophisticated investor
• have a declared propensity to invest and to risk in a start-up firm
• invest their own money (around 50K – 250K euro) (part of their cash capital: 20 - 30 %)
• Seeking profit, but also fun (seeking minimum 20% return)
• are willing to share their managerial skills and their enterprise background
• often invest in their region of residence
• make one investment a year
• prefer high-technology and manufacturing
• take a minor participation – medium term investment
• are willing to wait for an exit for 3-5 years

Company name Angel Investor Business
Apple Computer (Name Witheld) Computer hardware
Investment
$91.000
Value at Exit
$154 million
Amazon.com
Blue Rhino
Lifeminders.com Frans Kok
Body Shop
Thomas Alberg Online bookshop
Andrew
Filipowski
Propane cylinder replacements
Ian McGlinn
$100.000 $26 million
$500.000 $24 million
Internet e-mail reminder service
$100.000 $3 million
Body care products
£4.000 £42 million
ML Laboratories Kevin Leech Kidney medical treatment
£50.000
Matcon Ivan Semenenko Bulk containers
£15.000
Source: partially adapted from unpublished data provided by Amis Ventures in 1999
£71 million
£2.5 million

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

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

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

FORMAL AND INFORMAL EQUITY PROVIDERS
Business Angels
Personnel Entrepreneurs
Firms funded Small, early stage
Due diligence Minimal
Investment's Of concern location
Contracts used
Active 'hands-on'
Simple
Exiting the firm
Rates of return
Of lesser concern
Of lesser concern
*
Source: van Osnabrugge, 1998, p.2
Formal venture capital
Investors
Large, mature
Extensive
Not important
Comprehensive
Strategic
Highly important
Highly important

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

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enterprise:
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“science based” acquisition of financing for development
► operative and financial consultancy
► growth in prestige and visibility at international level
► attraction of talents with stock options
► reinforcement of negotiating power with the credit system, clients and suppliers
► possibility for way out and positive reevaluation

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

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

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

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(+) the KNOWLEDGE WORKERS “attracted”, why?
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► opportunity to increase technical competences opportunity to enrich one’s CV to increase the visibility in one’s community access a global scientific network
► able management of eventual elitist attitude
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(-) the intrinsic mobility of KNOWLEDGE WORKERS
(generation of a risk of unstable knowledge and/or cessation of know how to third parties)

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

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

Venture Capital,
Business Angels and Banks
Network of
Intermediaries and
Universities
BAN
Universities, Professional
Thank you for listening!
and technology Business Support companies Organizations

Ing. Paolo ANSELMO
IBAN – Italian Business Angels Networks c/o Centro Sviluppo Spa
Via Lavoratori Vittime Col du Mont, 24
11100 Aosta – Italy
T: +39 0165 305511 – F: +39 0165 305540 e-mail: presidenza@iban.it
www.iban.it
www.eban.org