Angel funding in for a ‘golden time’

Angel funding in for a ‘golden time’ – tax incentives combining with a field left open by the banks withdrawal from lending. But expertise and expert support are as valuable to the investees as the funding.

At the recent UK Business Angels Investment Summit, held at the London Stock Exchange, Rohan Silva, senior policy adviser to the Prime Minister, suggested that the incentives of outstanding tax-breaks make this a ‘golden time’ for early stage investors. And presentations by other funders indicate that the withdrawal of the banks from this (and other fields) has left a yawning gap – that Angels can help to fill.

In making the opening presentation, Xavier Rolet, Chairman of the Stock Exchange, indicated the importance he attaches to Angel funding and the contribution of Angels to early-stage ventures and SMEs on the ‘escalator’ of growth – in the ever shortening life-cycle of businesses. And the appointment of Sir Nigel Rudd as the new Chairman of UKBAA under-lines its expanded scope, as it does its potential.

New funding institutions such as the Angel Co-Fund, the Business Growth Fund and the Seed Enterprise Investment Scheme are still themselves early-stage businesses, just beginning to fill the void left by the banks – their contributions as yet quite small but clearly rising fast in what must be a very thirsty market.

Angel funding in the UK has grown rapidly, but in comparison to the US it is still an infant industry as it attracts new Angels. Older hands and professionals have illustrated from time to time the importance of strategy and of liquidity (for follow-on funding). There must be no field in which conditions of uncertainly make it more important to back more horses (or else, as one guru once pointed out, become the book-maker!)

Doyenne of Angels, Sherry Coutu pointed to the importance of due diligence, of staying close to your expertise, of involvement on the Board, and of mentoring that comes with investing. Among the new funding institutions, the speaker from the Business Growth Fund underlined the importance to SMEs of board involvement, of access to [outside] talent, to relevant peer groups, and networks.

Lead Angels are evidently hugely valued and in short supply; and Angel groups will increasingly go beyond being proposal and investment processors and become nurseries for small companies – in providing support, help and expertise for growth and development; (the pool of lead angels, who have ‘done it before,’ is growing but is still small).

Two proponents of the ‘Accelerator’ presented their 13-week programmes of co-working and intensive support (feed-back, advice and contacts from myriads of mentors) for small teams seeking to develop new businesses, one in social enterprises, the other in IT. While a small number of Angels have invested in Accelerators and their progeny, for Angels in general there is as yet no way in: with a single exception, no Angel group, incubator or science park has yet been involved in or run an Accelerator.

Two final presentations underlined the urgent need for simple outcome data and the potential value of research in this field.                 (For more about UKBAA, see www.ukbusinessangelsassociation.org.uk)

 

 

 

 

Another big corporate Accelerator

IBM Ventures launches an Accelerator in Healthcare IT, also sponsored by other big corporates – not so much for the investment as for potential solutions and partnerships says IBM.

Nesta recently hosted the London launch of IBM’s latest Accelerator. HealthXL will start in Dublin in January and is seeking some eight to ten teams with ideas for new products/businesses in healthcare IT. The programme will include regular visits to London to meet mentors, and for Demo Day.

Sponsored by Nesta, Startupbootcamp and IBM, alongside GSK, Reckitt Benckiser and Silicon Valley Bank (among others), at the meeting several people with interests in healthcare and in venturing waxed lyrical about opportunities, about prospects in this sector, about potential investors and about the returns obtainable.

On offer is a 3-month intensive programme plus 3 months of follow-on, with accommodation and mentoring (IBM claim to have a bank of some 500 mentors, of whom very few are in IBM itself), a package worth €100k, with €15k cash provided – essentially to cover board and lodging over this period. All this in return for 8% of their equity, and no rights reserved for IBM over the products that may be developed – their interest, they say, is in potential solutions and partnerships.

The programme will again be run by StartupBootCamp, who have run some of the IBM Ventures Smartcamps (some 60 or so in 20 cities worldwide over the last three years), with which they have had ‘lots of successes’, three or four of them have ‘gone on to arise significant amounts of capital’, and IBM have people on their Boards.

 

 

Group of Angels funds Accelerator for SMEs in manufacturing

Aside

Accelerator not for startups, but for SMEs – SMEs with high potential and in manufacturing and engineering: a short and sharp bootcamp that helped the companies involved to re-examine their strategies for growth suggests that ‘Accelerators’ have widespread and as yet unexploited potential; and raises important questions.  Why was it not seed-funded by Nesta, the TSB or BIS?

A lot of interest has been aroused by the running of a 2-day bootcamp for hi-growth manufacturing companies by an angel group. Accelerators tend to be focused on IT-based ventures – where results can be achieved relatively quickly, while rather longer incubation periods seem essential in projects in healthcare, and (less surprisingly) in bioscience.

Qi3 Accelerator, a group of 18 angels specializing in manufacturing, which has evolved a process for supporting young businesses, has recently completed a 2-day intensive Bootcamp – a development programme for six High Value Manufacturing and Engineering companies across the UK. Unlike Accelerators in IT, they share fewer common aspects or issues that might enable them to learn from one another, but they all shared prospects and they all had a strategy.

They were selected by means of a competition – both for their potential as companies and for their potential to benefit from the process. The main objective was to help the teams become more attractive to investors by developing their strategies for growth.

Before they came together, each had to complete an analysis document – a rigorous investment-readiness assessment, whose aim was to pinpoint their issues in terms of where they were at that moment and what their aspirations were. On arrival each team had to pitch to the others, and then they had to do so again on the final day, thus high-lighting the progress they had made.

Each team was assigned a coach, one of whose roles was to identify those mentors who might be of greatest help, firstly in the view of the participant and secondly in view of those mentors who felt they had a particular contribution to make to that team.

The participants worked with mentors and coaches in a series of workshops, where professional guidance and hands-on experience was made available. “The breadth of expertise on offer was exemplified in the short, sharp mentor group sessions in which different strategy elements could [be pitched], to be tested and either discarded or refined into a more compelling whole.” And such topics as market research and business development also came under the spotlight.

At the end, Qi3 Accelerator made awards for the Best Performing  Company and the Most Improved Company. The substantial cost of this exercise, which involved nearly a hundred people, was underwritten by Qi3, with funding from IdeaSpace and commercial sponsors, and support  from Nesta and the Technology Strategy Board. As I write, Qi3 Accelerator has revealed that it will soon be able to announce an £800k deal for one of its incubatees.

The initiative has attracted interest from the Cabinet Office down; and Qi3 Accelerator recently won the UK Business Angels Early Stage Team of the Year, 2012 Award ‘in recognition of their novel business model, their staged evaluation process, the scale of the deals they have led, and the extent to which they support companies in which they invest’.

I know of no comparable support programme in the UK, but there is a significant networking programme for small business in Belgium (called Plato), set up 20 years ago, under which small groups of carefully matched SMEs meet regularly to learn from each other’s experiences. It was originally set up by the East Flanders Chamber of Commerce, and has always had consistent government funding; and it now functions not only all over Belgium but it has also been introduced into a number of other countries.

An exercise like this is a risk – for any VC funder, angel group or science park, yet this, the first of its kind appears to be successful – both in terms of what was then achieved, and hopefully in financial terms too. The risks are about whether an investor or a group of investors can assemble the expertise to run such support (most of those with experience of running happenings like these are already busy running Accelerators); and can justify doing so.

Perhaps a few more such successful experiments would get some early-adopters into play; and the TSB is keen to support clusters, like the opportunity Nottingham City Council seems to represent, and perhaps Newcastle’s Science City and the concentration of expertise that makes Bristol so vibrant, or Manchester, or Edinburgh.

MBO School

Aside

 

A programme for providing help and support to prospective Management Buy-outs, perhaps one of the best possible sources of economic growth; but one where there are not many people who have ‘done it before’ to help.

This one-day workshop is a series of sessions with people who know about this route, for people who are serious about this way forward. 

If politicians are looking for growth (particularly for the short-term), Management Buy Outs (MBOs) rather than start-ups could be the best way to achieve it as these are trading businesses that already have existing products and stable organisations.

The ‘magic’ of growth comes from incentivising the management team, possibly an injection of capital, and potentially by introducing new technology to allow growth or repositioning of the company or its services.           Recent data from the British Venture Capital Association show that MBOs produce the best returns for management teams and for their investors.  MBOs offer managers a way to fulfill their entrepreneurial desire while working in a business they truly understand, and the evidence shows that they and their investors are much more likely to make money.  This de-risking means that such deals are among the easiest to get away in the current difficult environment.

The problem is that generally, most managers only do one MBO – there are fewer serial MBOers than serial entrepreneurs – so the ‘know how’ to get these away successfully is thinly spread (this is probably a neglected area in terms of support networks, certainly relative to start-ups).  MBO School, is an event sponsored by Albion ventures, a London based manager of £230m of 3rd party funds from 7 VCTs which are each fully listed on the London Stock Exchange, Smith and Williamson, a leading professional and financial services group, and Bird & Bird an international law firm.

The day consists of a number of sessions in which Advisers talk about key aspects of MBOs; but they are advisers who have helped a number of MBOs to get there. Moreover it is about nuts and bolts: you are recommended to bring at least one other member of your team, and to bring – in draft – an Investor Pitch Deck, a Business Plan and a Due Diligence Check List.

An entrepreneur planning an MBO said of the November workshop “I found the event very insightful in terms of learning about the inner workings of an MBO. Not only did the speakers elaborate on legal, financial, political and cultural aspects but their one to one time also allowed us to get some tailored advice. I would recommend this to anyone seriously considering making a move.”

One MBO team member said of the event “Very, very valuable – highly experienced professionals and high calibre participants. If you’re serious, about your MBO plans, I’d encourage you to see if they pass this, the ultimate reality check“.

My readers can benefit from this reality check, including one-on-one time with experienced MBO practitioners and a potential funder, and also receive a discount of £150 per person when booking on 8 March 2013 or 24 May 2013 events.  Just use discount code “whatmore_a”