Closing the Equity Gap: Europe's Business Angels and Early Stage Funds Join Forces
Venture capital in Europe has moved to the later stages of the financing chain, creating a gap for start-ups who need to raise between €500,000 and €3 million. The best way to solve the problem is for early stage financiers, including business angels and early stage seed venture capital funds, to team together under a single umbrella organization, says Brigitte Baumann, who is expected to take over as president of a regional group of early stage investors called EBAN in 2009.
EBAN, which originally stood for European Business Angels Network, was set up in 1999. Its members are groups of so-called business angels, private indivuals such as entrepreneurs, retirees or executives in transition, who are prepared to invest between 2% and 5% of their total wealth into start-up companies. Investments are typically anywhere from €200,000 to €1 million, in exchange for a 25% share in the company. Often business angels will take on the role of mentor, taking a hands-on approach to the management of young companies they invest in.
When EBAN was created there were only 50 business angel networks in Europe to support high-growth start-ups, with more than half operating out of Britain. The number of angel groups has since grown to around 300, spread throughout the EU. England, the most mature market, now has approximately 22 member networks which represent roughly 5,000 angels. EBAN has grown along with the market, expanding its membership from 15 to 90 groups, including members from close to 30 countries in Europe and beyond.
In December EBAN voted to expand its membership to include early stage venture capital firms and to change its name to mean European trade association for early stage investors."In these trying times it makes sense for Europe's business angels and early stage funds to join forces to bridge the equity gap, so we are inviting them to join us," says Baumann.
Meta Group, an Italy-based seed fund that is active in Spain and Eastern Europe and E-Synergy, a London-based firm which manages a number of early stage growth funds totaling about €100 million, were among the first to sign-up. Other early stage funds are invited to attend EBAN's nineth annual congress "Celebrating risk taking: the contribution of business angels and early stage investors" in Madrid on April 27 and 28.
Teaming up will help early stage financiers have more clout at the European level when it comes to policies on tax and other issues, says Luigi Amati, CEO of the Meta- Group. It will also bring real benefits to start-up companies, says Baumann. "Europe needs more than money, it needs real mentoring in sales and marketing," she says. "So many European companies fall on their face because they don't know how to sell, that is why the mentoring that comes from angel investing is critical."
EBAN is also looking to work more closely with big corporations interested in innovative start-ups identified by angels. The thinking is that angel networks will benefit from professionalism of large corporations and it may also increase deal flow and exit routes, Baumann said.
Despite the downturn business angels are still willing to invest in start-ups. "Many people who lost money felt so powerless because they didn't know where there money went," says Baumann. "People used to think of angel investing as being risky but now they are thinking maybe it is not so risky after all."