Unlocking Growth: The Role of Business Angels in Italian Enterprise Development

1. New Enterprises and the role of Informal Venture Capital The Italian Network November, 10 2010 MACC-BAM territorial workshop Milan • Paolo ANSELMO • President (IBAN) • Director (EBAN)

2. About Business Angels Business Angel: Private individual investing own wealth in early stage businesses PLUS own expertise and network of contacts • Investment 50.000 – 500.000 Euro • Equity investors • Willing to share managerial skills, specialist knowledge and networks • No sector preference • Often prefer to invest in their region of residence – local investors • Seeking profit, but also fun and adventure • Usually total investments below 25% of wealth • Can become involved in the business (“active Angel”) or not (“passive Angel”). >Success stories: Dell, Amazon.com, Macintosh, Body Shop, Yoox…. Mutui on line

3. MEGA-ANGEL Ripening process Portfolio Management 4/5 Investments ACADEMY BAN or BA ACADEMY First loss First Investment END of BA Reading articles VIRGIN Angel STARTING Angel LOSS-EXPERIENCED Angel NETWORKING Angel SYNDICATION Angel MILESTONES Business Angels life cycle Source: EBAN Winter University, 16/11/05 Rudy Aernoudt

4. Angels and Other Finance Sources Capital Needs IPO High Risk Low Risk Formal Venture Capital Business Angels • Angels help fill the ‘Equity Gap’ Friends, Family & Founders Time 0 Early Growth Sustained Growth Start-up Seed

5. Venture Capital versus Business Angels • 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

6. Early Stage InvestmentsIndustry had a strong growth in the last years Var ‘09/08 – 16% Var ‘09/08 +1.2 % 6 Sources: Istitutional (Aifi, Pwc); Informal (Iban)

7. Early Stage InvestmentsA strong growth in the last years Var ‘09/08 – 10% Var ’09/08 +49 % 7 Sources: Istitutional (Aifi – Pwc); Informal (Iban)

8. Italian BA Profile (1)2009, % Investments by sector 8 Source: Iban, Survey 2009

9. Italian BA Profile (2) • Man, 49 years old, top manager or entrepreneur, strong academic background (master’s degree, post-lauream) • Place of residence in the North of Italy (83%) • Range of 150-200 km to focus its investments to stress BA commitment with entrepreneur • Personal Assets available around 1.000.000 € and IBAN Member • He generally allocates nearly 10% of own assets for Angel Investing • Average Investment for deal is around 176.000 € • Interesting in High Tech sector 9 Source: Iban, Survey 2009

10. IBAN Network

11. BAN: Business Angels Network • It is difficult for new companies to raise funds because they do not have the necessary guarantees and track record • “lack of mechanisms to access to finance” • Business angels and venture capital organisations have difficulties in finding good business plans • “insufficient pool of available investors” • Due Diligent costs are increasingly expensive • “absence of support for entrepreneurs” • Need for Business Angel Networks

12. About BAN (1) • “Private or semi-public body whose aim is to match entrepreneurs looking for equity with Business Angels” • Membership: Business Angel investors • Fees: Annual membership fee and sometimes % success fee • Seeks & filters applications from entrepreneurs • Allows selected entrepreneurs to pitch to investors • May also: provide training (to entrepreneurs and Angels), opportunities to syndicate

13. About BAN (2) Entrepreneur Business Angel Contact of BAN Identification Business plan evaluation and validation Confronting offer and demand Training Identification of investment priorities Drafting of business plan summary Circulation of Business plan BA added to database Investment readiness programme MATCHING Participation in investment forum/club Preparation of a presentation Leverage funding, co-funding, bank loans

14. The continuity of the MED Business Angels Network can be undertaken favouring and financing four main actions: Investment Readiness programmes (entrepreneurs) Ready to Invest programmes (investors) Co-Investment Funds Fiscal Incentives Best practices to accelerate Angel Market in Med countries

15. An operational platform to facilitate the exchange of information and experiences that can target three main goals: Reinforcement of BA and Entrepreneurs’ “identity” within risk capital value chain by strengthening the existing Community with reference to best practices and code of conducts. Reinforcement of BA and Entrepreneurs’ know-how” , by Evaluating and promoting a toolkit for better readiness of potential businesses Capitalizing the spread experiences on the territory. Promotion of networking initiatives, by Encouraging syndication process among Business Angels Favouring investors matching with Entrepreneurs. Investment and Investor Readiness Programmes (I)

16. Seminars, Workshops and Learning Training Sessions for Business Angels and Entrepreneurs mainly focussed on: The role and the importance of Angel Investors for SMEs The deal structuring The Investment Process and the selection of business opportunities Companies presentation Legal and Fiscal organisation The intellectual property rights Exit Management Investment Forum Investment and Investor Readiness Programmes (II)

17. A “Side-car” fund that co-invests in business opportunities in which Business Angels and/or other Institutional Investors decide to invest Main Objectives: To increase the investments mainly in high-tech companies across all industrial sectors (i.e. matching innovation and creativity) To give full value to new entrepreneurial initiatives arising from Universities and Incubators (i.e. concerning the cleantech sector) To leverage the financial support to BA’s mentor capital investment, who usually invests less than 500K€ To favour syndicated deals between various investors categories (P.P.P.) To optimize ROI with reference to the early stage investment made by the Angel Investors To create added value to the local economy level by promoting venture capital investments Co-Investment Fund

18. Fiscal Incentives in Italy D.Lgs n. 112/2008 – art. 3; Circolare Agenzie delle Entrate n.15/E, 10/04/2009, “L'esenzione delle plusvalenze da start- up”. Starting from July 2008, Capital gains realised on both qualified and not qualified participations by private individual investors (i.e Business Angels), not in business capacity, are tax-exempt if: Participations have been owned at least for three years; Companies, that participations are referred, have been established no longer than seven years; Companies, that participations are referred, have to be realised “industrial/productive” investments; Capital gains must be reinvested into “start-up” companies within 2 years the gain accrued. The disposition is also extended to non-Italian private individuals investing in Italy with the same characteristics of the resident ones.