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Understanding the Nature and Impact of the Business Angels in Funding Research and Innovation Final Report Understanding the Nature and Impact of the business angels in Funding Research and Innovation Final Report European Commission Directorate General for Communications Networks, Content & Technology Directorate F- Digital and single markets. Unit F. 3 - Start-ups and innovation Pierre Marro — [email protected] Luuk Borg — [email protected] Study performed as part of framework contract No 2010/S 172-262618 ‘Provision of services in the field of research evaluation and research policy analysis’, LOT 2. Specific contract number: 30-CE-0752283/00-08; SMART 2015/058 Legal notice This document has been prepared for the European Commission, however it only reflects the views of the authors, and the Commission cannot be held responsible for any use which might be made of the information contained therein. More information on the European Union is available on the internet (http://europa.eu). 2 Table of contents 1. Acknowledgements ...................................................................................................................... 5 2. Abbreviations ................................................................................................................................ 6 3. Executive Summary ...................................................................................................................... 7 4. Rationale for the study and applied methodology ................................................................ 12 5. Catalogue of best practices of support measures and innovative schemes for Business Angels’ investments. ........................................................................................................................... 16 Eleven start-up accelerator – Bulgaria ......................................................................................... 19 INVEST – Germany .......................................................................................................................... 22 Aqui-Invest – France ....................................................................................................................... 27 Angel source co-investment scheme ........................................................................................... 30 Ingenium Funds – Italy ................................................................................................................... 34 Enterprise Ireland –Ireland ............................................................................................................ 37 Mesinvest Lithuania- Versloangelufondas I ................................................................................ 42 TechnoPartner – The Netherlands ................................................................................................ 46 Compete IN2-BA – Portugal.......................................................................................................... 49 Scottish co-investment funds (SCF) – Scotland .......................................................................... 52 United Kingdom- Introduction to Angel Investing .................................................................... 56 Enterprise Investment Scheme (EIS) ............................................................................................. 59 Seed4Start – France, Belgium, Luxembourg, Germany.............................................................. 62 The European Angel Funds (EAF) ................................................................................................. 64 6. Policy Recommendations .......................................................................................................... 67 Regulation of business angel activity, recognition of their status and certification .............. 68 Promoting the use of common terminology .............................................................................. 69 .......................................................................................................................................................... 70 Monitoring business angel markets and the performance of business-angel backed companies ....................................................................................................................................... 70 Public incentives to foster angel investing .................................................................................. 72 Promoting new co-investment schemes in the EU with business angels and business angel syndicates to stimulate and leverage their investments ........................................................... 77 3 Requesting that a more significant share of cohesion funds be allotted to business angels for cross-border investments in cohesion countries ................................................................. 78 Creating a trustful environment for business angels ................................................................. 79 Monitoring mechanism of start-ups deal flow ........................................................................... 80 Professionalization of the business angel network .................................................................... 81 7. ANNEX I ....................................................................................................................................... 82 Comprehensive picture of the Business Angel’s market: characteristics and trends of the evolving role of business angels (BA) in funding innovative firms .......................................... 82 Characteristics of business angels ................................................................................................ 82 Business angels’ Investment behaviour ....................................................................................... 87 Business angels’ size of investment ......................................................................................... 97 Non-financial support activities and sustainability ................................................................ 98 Support schemes ...................................................................................................................... 105 Expected evolution of investment strategy ........................................................................... 106 Factors for starting an investment.......................................................................................... 108 Factors hindering an investment ............................................................................................ 112 Exit strategies and return on Investment .................................................................................. 113 Rate of Return ........................................................................................................................... 113 Exits ............................................................................................................................................. 114 8. Annex II ...................................................................................................................................... 116 Country Fiches ............................................................................................................................... 116 4 1. ACKNOWLEDGEMENTS INOVA+ would like to thank Business Angels Europe (BAE), the European Trade Association for Business Angels, Seed Funds and Early Stage Markets Players (EBAN), Tiago Botelho of the University of East Anglia (UEA) and the Zentrum für Europäische Wirtschaftsforschung (ZEW) for the research and support. We also would like to thank the 800+ business angels from across Europe who all generously gave some of their time to take part in the study activities which all proved crucial to the research. We would also like to thank members of the advisory Advisory Board board, all of whom provided important insights and direction for the research and the various stakeholders Anatolijs Prohorovs, RISEBA University of different countries who have shared their views by Candace Johnson, EBAN President Colin Manson, University of participating in interviews with the study team. These Glasgow include representatives of Business angels and venture Jean-Noel Duvy, EBAN Advisor Philippe Gluntz, BAE Vice-chair capital associations, policymakers and representatives Ute Gunther, BAND Co- President of the good practices explored in the study. Vincenzo Capizzi, Bocconi A big thank you to our colleagues who contributed to various tasks, especially the completion of country fiches and conducting interview: Sana Ali and Aurelie Delater (INOVA+). Finally, we would like to thank the European Commission team who followed the development of the study, providing guidance and sharing useful advices and experience. 5 2. ABBREVIATIONS EC European Commission EU European Union EBAN European Business Angels Network BAE Business Angels Europe VC Venture Capital EIS Enterprise Investment Scheme ICT Information and Communication Technologies MS Member States R&I Research and Innovation R&D Research and Development SME Small and medium size enterprise ERDF European Regional Development Fund EAFRD European Agricultural Fund for Rural Development ESF European Social funds BA Business Angels BAN Business Angels Network HNWIs High-net-worth individuals 6 3. EXECUTIVE SUMMARY The investment of business angels in Research and Innovation (R&I) is a crucial complement to supporting start-up companies through national incentives to invest. It represents the most significant
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