Now far from its origins as a side-line for rich single investors, angel investing is becoming a collaboration between different contributors and a major supporter of fast-growing young businesses
Since its re-launch last year, the UK Business Angels Association has increased its strength by opening its doors to related organisations working in its field, and has thus become more comprehensive and more influential.
Angel investing appears to be expanding – with more deals and more angels in the market – helping to fill the hole being left by the continuing decline in bank lending to SMEs, and as the economy begins to pick up. The arrival of a new breed of Super Angel combined with the continued rise of syndicates plus leverage from co-investing funds (at least one VC has a panel of co-investing angels) are ‘pushing Angels up the value spectrum’ (according to Deloitte’s recent report.)
The Association is attracting widespread support – for example now from most of the big five ‘accounting’ firms (and soon all?), and from funders big and small; and it is generating new initiatives.
By their involvement, and by virtue of their related experience, Angels are increasingly themselves generators of added value; and are becoming increasingly sophisticated investors in young businesses.
The Association has set up a “walled garden” website for its members in order to help in the completion of funding deals. It enables them to share information about part-funded deals – to help close those deals and reduce the number of deals that fail to complete.
The Association is forming The Business Angels Institute – an organisation designed to help people understand and learn about Angel investing – with several meetings already planned this month. It is working with PWC to support a programme of increasing access to identified Angel-backed businesses for corporates seeking acquisitions, and is running workshop on trade sales. And it is setting up local meetings for Angel investors to meet sources of deal-flow and key players such as the Angel Co-fund, the Business Growth Fund and HMRC.
A website is developing fast that can help the many thousands of people in the UK who want to start their own business. These aspiring entrepreneurs would benefit from the guidance that incubators and accelerators provide, but they do not have the means to get it. The website uses a collection of information to provide an assessment of the maturity of the enterprise – as a venture, and to help raise that profile. It will become increasingly widely useful.
You first have to register on Dreamstake (some 9,000 people have done so), and provide a substantial amount of information (some of which can be imported automatically from your entries on LinkedIn and TechCruch), and when you have provided the essentials, the site uses an algorythm which its founders have developed – based on the ‘Startup Genome’ (using such things as team composition, number of pivots, extent of funding to date etc) to provide you with a rating about your business’s maturity. And it helps you to determine what to do to enhance that rating.
The site also guides you to:
* seminars on specific topics – at Google Campus in London
* a skill search and swap function (just added) that circulates your
requirements for expert help on eg Facebook and Twitter
* certain sources of potential funding, such as Start-up loans
(16 achieved in the last three months).
* selected firms providing advice.
The site enables early-stage ventures (of which there are now some 400 on the site) to assess their progress and look for help and advice – all free of charge.
It does not as yet make any distinction between sectors, types of product/service, or degree of innovation; nor does it yet provide a route to appropriate mentors (eg a general adviser plus links to an ever-changing array of needs for specific help); nor to financing opportunities (eg that specialise in your sector, your type of product, your business’s maturity); but it is likely to do so as soon as its algorythms succeed in linking emerging needs (for example in product development eg seeking an expert in cardio-diagnostics) with management’s progress in tackling them (for example in marketing, such as actually obtaining a customer). While the network does collect much of this data already, it does not necessarily include it in the rating.
Already of use to universities (with their booming Entrepreneurship Clubs, to Incubators (as a source of self-help for incubatees), to the Department of Work and Pensions (to help with youth unemployment), and to schools (always weak on career advice), the site is likely soon to become valuable to Angel organisations and venture capital companies.
Accelerators attract quantities of applicants, a number of whom have ideas for new businesses that are very evidently non-starters, some even barmy; many have ideas of limited scope, some of whom present poorly. A few have an immediate appeal as really disruptive, or as having an innovative approach to a big issue, though not necessarily demonstrating outstanding entrepreneurial qualities. How are selection processes trying to deal with these issues?
Accelerator Academy originally opted for a computer-based test for applicants (about entrepreneurial potential) together with application form and interview; but it now relies more on having two of its staff hold Skype-based interviews with candidates that aim to explore how well the programme suits the candidate and vice versa.
Imperial Innovations’ student Accelerator has adopted a two-stage application process, the first of which is simply a single line pitch and 500 character description, designed to force applicants to think concisely about the problem being solved and who are the potential users. Workshops once or twice a week during the following two months on various topics including funding sources, legal, and perfecting the pitch, and next year also time to work on their products (technical or business aspect) help the students to focus on each area of their business (value, customer relationship, cost structure etc). And then students are invited to complete a more in depth application based around their learnings and using the business model canvas as a framework. Finally the top 20 are invited to semi-final pitches and 5 go through to pitch for funding and intensive mentorship.
Newcastle’s Science City incubator is currently planning to hold sessions at which experts in the field in question talk about topical problems that are ripe for solution – in an attempt to get candidates to tackle issues of significance.
Bethnal Green Ventures has cast a wider net: regional meetings have been canvassed; and candidates are invited to meet and talk about themselves and their work. Some assessment can then be made of those who later make formal applications about their progress and their entrepreneurial capabilities as well of course as their project.
Biocity in Nottingham runs three-day Bootcamps for aspiring entrepreneurs to develop their ideas for new businesses – that might find a place in the Biocity Incubator, the Nottingham Cleantech Centre and Antenna – two other specialist incubators in Nottingham.
The Royal College of Art’s incubator consciously takes candidates who have identified issues that entail significant engineering or IT Development. Oxford’s Said Business School has provided an opportunity for people to identify commercialisable opportunities from among a portfolio of IP from the European Space Agency and from CERN, in the hope that some of those people will choose to work together, perhaps taking space in Harwell’s Science Park, to develop a business of the IP.
The latest Wayra Lab cohort of 16 were invited, along with as many other candidates, to Wayra Week, where they were helped to identify the special focus of their proposed business and to learn how best to pitch it; and where at the end of the week they made their submissions to the seven assessors.
The 16 who won places in the Accelerator started off with a week’s Bootcamp – of instruction in essential aspects of business, and surgeries with experts. The week included a pitching session with mentors, at which each new team hade 2 minutes to pitch to the hundred or so mentors present and each mentor had 45 seconds to pitch to the teams, after which they were left to make their own contacts. It is the quality of the contacts that seems to be the most valued aspects of Wayra Lab.
Like other Accelerators EntrepreneurFirst (which is sponsored by several leading corporates) whittles its c600 applicants down – to 35 – by a three-stage selection process. But EntrepreneurFirst has adopted a year-long programme of periodic development and support for its potential entrepreneurs prior to its 6-month progamme.
Over the course of the summer, they have participated in team building selection and development days, including a 2-day session in which three teams of 5 had to make a 3-minute film on a theme around the Year 2022, and then get as many people as possible to view it – all in two days. Two months later, when in early August their university exams were over, they had a fortnight’s residential bootcamp, where they received training and support from entrepreneur mentors on how to build a lean startup. This also required them to test their early startup ideas with customers – a task designed to help understand product communications and the difficulty of getting heard!
At the end of the programme that starts in September, while some teams will pitch to potential funders for ongoing support, others will be helped to find different roles in some of the more successful teams.
So who will fund an extended process of this kind? If the Knowledge Transfer Networks were to take up the challenge of encouraging Accelerators on behalf of their different sectors, they might find that the benefits were worth the cost of providing support of this kind. The TSB has already identified areas associated with social or economic need where emerging technologies are likely to be able to contribute; and has run competitions for significant grants. Perhaps in addition, it should fund Accelerators in each such area.
John Whatmore May 2013
The Centre for Leadership in Creativity
Three-day Bootcamps to kick off Accelerators – one in IT, another in Cleantech and the third in Life Sciences will aim to help participants to develop their ideas for a business into a fundable proposal that might enable them to take space in an Incubator for developing their business.
A natural sequence for a budding entrepreneur with the opportunity for a hi-growth new business might be to kick off in a 3-7 day Bootcamp, followed by participation in a 3-9 month Accelerator programme, leading on to a period in an Incubator – a pathway being explored in Nottingham.
The three different incubators in Nottingham plan each to run Bootcamps, starting this summer – with supporting funding for two years from Nottingham City Council.
Biocity, the city’s well-established incubator in Life Sciences and healthcare has run Bootcamps for entrepreneurs with new businesses for several years. The one-year-old CleanTech Centre incubator, which specialises in recycling and green technologies, is running its fourth in May. And Biocity, Cleantech and Antenna, Nottingham’s incubator for Digital and web-based businesses are aiming to come together to run an Accelerator Programme later in the year, with Bootcamps as a kick-off.
Each is likely to have a different emphasis from the others: while all will deal with finance, IP and marketing, each field operates under a different regulatory regime, with different technologies, different markets and different business models. While Accelerators have attracted IT startups because of their low start-up costs, easy proto-typing and testing on customers, startups in other fields, most notoriously in Life Sciences, have a much longer and more arduous life cycle.
These low-cost, three-day Bootcamps, also supported with finance by local services and by industry, and economically hosted in local incubators, are a crash course for people up to a year before or after they start new businesses. They aim to help to develop an idea into a full-blown and marketable business concept and one that might find an appropriate place in an incubator.
For up to fifteen people, they combine workshops, exercises, and interaction; starting with a pitch, they also culminate in a Dragon’s Den-type session. The participants meet mentors, advisers and experts who have ‘done it before’ or seen it before, and there is a lot of ‘pointing where to go for help’.
Once incubatees have a fundable proposition, at Biocity they can then pitch for a further period of structured support – on a one-to-one basis for a fixed period of 6-9 months (http://wp.me/p3beJt-i). Their mentor provides guidance and challenge, offering different perspectives, getting the participants to challenge the market, to look for revenue sources, to make a business plan, and to iterate that plan; teaching about investors and shareholdings, helping them to pull together a package for potential investors, and to handle possible due diligence; and then possibly taking a board seat.
Evaluating processes for developing young businesses is virtually impossible – because there are so many elements involved in success or failure; and because it cannot be done until several years later. So signs and signals from experiments like these are the stuff of evolution – to be watched with great interest.
* How do you structure funding for projects with very uncertain prospects?
* Early-stage investors not taking a long enough perspective?
* How do you manage the processes of funding more effectively?
* Grants as an alternative; but they have their strings.
* Footnote: What is the logic of some recent very fancy prices for IT start-ups (Instagram, Summly)
Some of those who run Accelerators have turned to the ‘convertible note – structured as a loan’ – in addition to a slug of equity (5-15%), as the best way of maintaining their interest in long odds bets; but this is leaving less room for new investors. A number of recent ‘graduates’ from Accelerators have been appearing at Angels’ Investor Days looking for follow-on funding. Some have brought with them surprisingly high outside equity investments (up to 15%) and other commitments to third parties. The value of a business will inevitably be affected by its balance sheet; but aspiring entrepreneurs also need to be able to see their early financial commitments in terms of longer-term funding needs.
A number of Accelerator managers are concerned about helping the participants in their programmes to find follow-on funding without any interruption in their progress. The concerns here are two-fold: how do you enable Angels to have access to likely investees early enough in the development process to enable them to make a thorough evaluation of the project and the entrepreneurs; and how do you enable this process and the processes of investment (due diligence etc) to be done and dusted (ideally) by the culmination of a specific programme (eg an Accelerator)?
Angels have also expressed concern at over-valuations. At the final of recent New Business competition at Oxford’s Said Business School, I watched Philip Green, one of the judges, offer the winner £250k for a 50% stake in his business. The latter responded by saying that for that sum he might be willing to sell 2 – 3% – a gap in understanding that might have been filled if the background and the context had been better understood – by both parties. (See also Footnote below.)
Others have looked to grants (eg from the Technology Strategy Board) for early-stage funding, but sometimes find the processes of application, the conditions and the constraints such that they do not have the freedom to get on with the job or to go wherever the project dictates.
A recent article in the Herald Tribune (9.4.13) wrote of five ways of valuing a start-up. If it is pre-revenue [and in IT], then how many eyeballs has it attracted; or what is the price or value of its developers [and they are in short supply here as they are in Silicon valley]. If it is up and running, suggests a Professor at Harvard Business School, how much time and effort would it take to build the product from scratch and attract those new users; or what is the potential cash flow. And fifthly, ‘what number do we need to put on the table to convince the management and investors to part with their dream?’ The writer adds that all these calculations fall apart when a start-up receives an exorbitant amount of media coverage and exposure on social networks; and suitors can become irrational – producing prices that might just have come out of a hat!
Business Learning in Accelerators and their ilk will become increasingly personalised
Business learning provisions are increasingly migrating to online, and for very good reasons; so business learning and business development programmes will need to include learning coaches/mentors.
With the rise of the net, learning is being transformed: the President of MIT said when he spoke recently at Davos that his institution had started putting courses online a decade ago, and that MIT open coursework has accumulated 100 million individual learners, and this is increasing by one million a month. Stanford has been following suit.
A number of Accelerators give over a regular fixed time to learning – about business, usually consisting of lectures, presentations and discussions with experts, and about key topics such as IP, marketing and finance (among them Bethnal Green Ventures, Accelerator Academy, Entrepreneurfirst and the Young Foundation). Accelerator programmes, as short periods of intensive development for up to a dozen small groups of people who have ideas for innovations (commercial, technical or social), have such an intensity that the participants focus strongly on the present needs of their developing venture. A standard syllabus (delivered in sessions of this kind) is increasingly seen as wasteful of valuable time – by those who already know or can do what they need to, and by those for whom it is not immediately relevant.
Learning from each other is another characteristic feature of co-working environments like Accelerators; and learning from each other’s learning experiences is part of that, and at least as important a source of learning as any other in this field. Every Friday, Watershed, Bristol invites its participants to meet and talk about their recent learnings; and an edited version is then put up on the intranet (http://wp.me/p3bejt-3Y).
We can expect general business learning sessions to be replaced by the Learning Coach/Mentor ( – among other specialist mentors,) who will keep in close contact with the evolving learning needs of programme participants, and perhaps on hand by Skype, helping individuals to make effective use of material that is readily available on the internet and relevant to their issues of the moment; and helping them to learn from each other’s learning. The special value of such a person is that in an Accelerator, the help that participants need is in meeting their immediate learning needs – as those change from day to day.