Since uploading this presentation on angel investments in South Africa in 2011, I became an advisor and Angel Investor at Startup-Incubator Springlab. Please pitch your startup to Springlab, if you're looking for hands on investors and support! http://springlab.co/ http://springlab.co/contact/ http://randolf.jorberg.com/2014/04/15/springlab-african-incubator/ Presentation by Craig Mullett from the Branison Group at the UCT Graduate School of Business in Cape Town. The seminar focused on the research topic of bridging the missing middle in entrepreneurial finance in South Africa through developing angel investor networks. It gave an overview of the research on how these groups work in the USA as well as research ideas on how this could be done in South Africa.

1. Angel Groups
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Innovative FinancingInnovative Financing
for Entrepreneursfor Entrepreneurs

2. Background to the Research
22
Missing Middle initiative : G20, World Economic Forum
Angel investment gap in Africa
Craig Mullett interest & fit with Research
South African background
Masters thesis on Private Equity in South Africa
Postgraduate in Commerce (Honors) from UCT
Angel investor background
Member of Angel investor Forum
Linkages
USA : Angel investment groups
USA : Research partners
South Africa : Research partners
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3. Entrepreneurial Equity Financing Gap
33
Friends & Family (“love money”)
Personal Savings
Business Angel Investors
Private Equity
Venture Capital
IPO
Business Type Funding Required
Seed
Early Stage
Later Stage
Growth
<R1m
R1m-R20m
R20m-R250m
>R250m
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4. Why this matters …
44
Rapid growth start-ups generate the most new jobs in an
economy and also require the highest amount of equity risk
capital.
A 2005 study of 37 countries found that of various sources of
funding (debt, private equity, venture capital, angel investor
capital), only angel investor capital significantly positively
influenced the propensity to be entrepreneurs.
Successful entrepreneurial hubs (Silicon Valley, Boston, New
York) all have developed angel investor networks
Incubated start-ups rely heavily on angel networks for
financing, contacts and strategy advice
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5. Business Angel Definition
55
High net worth individual
Net assets (excluding home)
In USA : $1m
In South Africa : estimate R5 million
Not family or close friends of founders
Invest personal funds
Spend some time evaluating the business
May spend additional time active in selected businesses
Invest in private business with capital at risk
Primarily invest for financial return
A 2007 study notes motivation by financial and
emotional/psychological factors
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6. Typical Business Angel Profile
66
‘Transitory state’ - changes based on personal lifecycles
Usually have an entrepreneurial background (>70%)
A 2009 review of global angel studies concludes they
typically are:
Male (95% or greater)
Aged 46-55 years (54%)
University graduates (74%)
Research study in 2010 found that angel investors had on
average 13% of their wealth invested in private angel
investments, with over 90% being in seed to early stage
ventures.
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7. Entrepreneur’s views on Angels
77
Research indicates that angels are perceived as fairer and
more trustworthy than venture capitalists, thus frequently
being preferred as funders by entrepreneurs.
Prior studies indicate that angels are a preferred funding
source and provide 61% of early-stage financing.
A 2010 survey indicates 58% of start-up entrepreneurs in the
USA plan to rely on business angel financing.
A 2009 survey of entrepreneurs that they view angels as :
Filling funding gaps
In USA, average investments by each angel group is
$241,000 and average per round is $372,000.
Leveraging other funding sources
Filling knowledge and experience gaps
Providing a wide range of business contacts
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8. Angels are organizing globally in groups
88
First group (“Band of Angels”) started in Silicon Valley in 1994
Groups started in Canada and Europe in 1990’s
Rapid growth in 2000’s lead to new groups in many countries
USA Australia/
NZ
Canada
300 30 350 20 20
Europe Asia Latin
America
10
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9. Why Angel Groups?
99
Provide economies of scale and other benefits to :
Angel investors
See more deal opportunities with less effort
More industry viewpoints to effectively screen deals
More resources for due diligence and deal negotiation
Post-investment support and monitoring enhances returns
Entrepreneurs
One application leveraged to multiple investors
Wider network of contacts can be provided by more
investors, as well as coaching and advisory support
Structured process that is quicker turn-around with more
follow-on funding potential
Ecosystem impact
Angel groups more effective in directing resources to start-
up businesses
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10. Angel Groups Investment Performance
1010
Data from the 2007 Angel Performance Improvement Project
reflecting 419 exited/closed investments in USA
Investment $169,089 $50,000
Cash out $490,022 $42,052
Years held 3.61 3
IRR 29.4% -1.8%
Mean Median
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11. Why not just electronic networks?
1111
A research study (2009) indicates that angels can provide
capital despite high investment uncertainty primarily due to the
geographic focus of their investments, which allows them to
gain additional monitoring and network relational influences.
This geographic focus is viewed as financially rational in
another study (2008), due to the relationship-driven screening
of entrepreneurs and monitoring through more active
participation in the venture.
The proximity concept is further explored (2008), noting that
the geographic proximity for angel investors is reduced by :
Social proximity (social relations between parties)
Cognitive proximity (shared knowledge and understandings)
Institutional proximity (common habits, routines, practices)
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12. Angel Group Ecosystem
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13. Angel Group Typology - Structure
1313
Profit orientation
Non-profit Incentivized For profit
Funding
Public Subsidized Private
Staffing
Deal commitment
Volunteer Part-time Full-time
Deal-by-deal Minimum/year Every deal
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14. Angel Group Typology - Focus
1414
Geography
City/State Region National
Sector
Specific Limited General
Stage
Support
Seed Early-stage Late-stage
Screening Coaching Board active
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15. Angel Group Profiles
1515
Group years of existence
Range : 0 – 20
Average : 4
Median : 3
Members
Range : 3 – 280
Average : 48
Median : 37
Staff
Range : 0 – 7
Average : 1
Median : 0.5
Above data from a 2007 Study of USA ACA Angel Groups (127 responses)
An extra year of
existence equates to
an extra 5 members
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16. Angel Group Investment Process
1616
Marketing/PR/Networking
Business Applications
Initial Deal Screening
Codified Business Plan
Deal Review at Meeting
Due Diligence
Terms Agreed
Closing
Support/Advisory/Monitoring
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17. Deal flow of Angel Groups : the ecosystem lifeblood
1717
29%
5%
31%
8%
18%
4%
5% Other
USA Data from Pepperdine Private Capital Markets Project 2010
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18. Angel Group Sidecar Investment Funds
1818
Committed capital
Captive VC-type fund
Private individuals “passive angels”
Family investment offices of ultra-wealthy
National seed/early stage funds
International early stage funds
Regional funds
Opt-in Capital
Higher investment fee per deal
Go/no-go per investment
Fees per investment/per annum for operating costs
Reward/incentive structure on exits to compensate angel
leadership
Share of carried profit over hurdle rate
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19. Angel Group Ecosystem applied in Cape Town
1919
X
X
X
X
X
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20. Public policies to encourage Angel Groups
2020
Ecosystem development
Incubators
Linkages
Angel Group support
Sponsorship
Meeting venues
Administrative costs
Tax incentives
Rebates on investment within thresholds
Targeted capital gains tax exemptions
Funding of new ventures
Sidecar funds
Low-cost debt
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21. Further research to be done in USA
2121
Which angel group structures are most common?
H : For-profit groups
Review of ACA current active group database
Which angel groups fail more often?
H : Non-structured voluntary groups
Review of ACA failed groups from historic database
How are sidecar funds most commonly structured?
H : Similar to mini-VC funds
Surveys of angel groups identified as having sidecar
funds
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22. Further research to be done in South Africa
2222
What components of the angel ecosystem are required for
an angel group to start in South Africa?
H : Most of components identified to date
Survey of angel investors in South Africa
Which angel group structure is the most likely to succeed in
South Africa?
H : For-profit involved angel group
Survey of angel investors in South Africa
Which sidecar fund structure is the most likely to succeed in
South Africa?
H : Hybrid fee based committed and opt-in fund
Survey of potential sidecar investors in South Africa
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23. Next steps
Gathering more information?
Expanding the ecosystem players?
A first group in Cape Town?
Your input …
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24. Contact information
Craig Mullett
Branison Group LLC
email : cmullett@branison.com
tel : +1 203 672 1312
fax : +1 203 567 8061
skype : craig.mullett
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