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Mr. Paolo Anselmo President of the Italian Network of Business Angels (IBAN)

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

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Mr. Paolo Anselmo President of the Italian Network of Business Angels (IBAN)

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  1. WIPO-INSME INTERNATIONAL TRAINING PROGRAMON THE ROLE OF INTELLECTUAL PROPERTY IN RAISING FINANCE BY SMALL AND MEDIUM-SIZED ENTERPRISESjointly organized byWIPO and INSMETheme 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

  2. FINANCING OF THE PROJECT • DEBTS • PUBLIC FINANCING • VENTURE CAPITAL: • Formal Venture Capital • Informal Venture Capital (business angels)

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

  4. THE ENTERPRISE FINANCING PROCESS

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

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

  7. IS A COMPANY READY? • 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?

  8. VENTURE CAPITAL (formal & informal) • Institutional operators (formal venture capital) • Private subjects • Banks • Insurance • Corporate venture capital • Non-institutional operators (informal venture capital) • Business Angels

  9. BUSINESS ANGEL (BA) - definition “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)

  10. BUSINESS ANGEL (BA) 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

  11. ANGEL’S – success stories

  12. ANGEL STRATEGY 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

  13. ANGEL DUE DILIGENCE PROCESS

  14. PRIORITIES FOR EQUITY PROVIDERS

  15. FORMAL AND INFORMAL EQUITY PROVIDERS * Source: van Osnabrugge, 1998, p.2

  16. 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

  17. OBTAINING RISK CAPITAL • Advantages for the “science based” enterprise: • 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 re-evaluation

  18. THE IRREGULATITY OF THE INFOMRATION AVAILABLE • 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 • “WHAT” AND “HOW” TO EVALUATE • Economic and financial information (quantitative/consumptive) • Business plan (quantitative/prognostic) • Qualitative judgment of the confidence of the project

  19. THE FIRM-ORIENTED APPROACHES • 1st Criteria: approaches based on costs (historic and/or substitutions) • 2nd Criteria: approaches based on value • ??.., 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)

  20. THE INDIVIDUAL-ORIENTED APPROACHES • Approaches based on qualitative variables (subjectiveness of the proposers): • Demographic variables of the entrepreneur • Social variables such as political editorials • 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).

  21. ROLE OF THE SCIENTIFIC COMMUNITY • (+) the KNOWLEDGE WORKERS “attracted”, why? • 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 • (-) the intrinsic mobility of KNOWLEDGE WORKERS (generation of a risk of unstable knowledge and/or cessation of know how to third parties)

  22. THE REPUTATION OF THE ENTERPRISE • An extremely important resource in phase of start up in order to limit the environmental pressures and to attract the necessary resources • How it is constructed: • Collaborated vertical agreements (University, enterprises) • 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.

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

  24. BAN – THE NETWORK Venture Capital, Business Angels and Banks Network of Intermediaries and Universities BAN Universities, Research Centers and technology companies Professional Services and Business Support Organizations Thank you for listening!

  25. Thanks for your attention 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

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